As widely expected, the Powers That Be have declared the recession over, while cautioning that the economy still has a long way to go. And, of course, the Obama administration is crediting its stimulus packages for the good news.
It might not feel like it to most voters, but the U.S. economy is growing again after a more than a year of contraction. The nation’s gross domestic product grew at a seasonally adjusted rate of 3.5 percent for July through September — the first growth since the spring of 2008, the Commerce Department said Thursday. That marks a sort of unofficial end to the recession that has bedeviled President Barack Obama since he took office. Economists credited the growth to consumer spending — up 3.4 percent — fueled in part by government stimulus, such as the popular Cash-for-Clunkers car-buying program.
But Obama economic adviser Christina Romer stopped well short of declaring victory. “The U.S. economy is moving in the right direction. However, this welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered,” Romer said in a statement.
That’s because more than 15 million Americans remain out of work, and a jobs report is due next week that’s likely to show the nation’s unemployment rate continues to creep upward toward 10 percent. That means the White House and politicians on the Hill will be very careful about declaring the recession over, even if the economy has finally started growing again.
The Obama administration said its analysis found that the $787 billion stimulus program contributed between 3 and 4 percent points to the GDP growth — meaning the nation’s output would have risen little, if at all, in the past quarter without it.
Now, taking credit for good things that happened on their watch is simply what presidents do. Bush took credit for his recovery, Clinton for his, and Reagan for his. Naturally, few presidents take the blame for bad times, which they attribute variously to the business cycle, their predecessors, the Congress, or a national malaise.
But it’s rather clear that neither the $787 billion stimulus nor the Cash for Clunkers programs had much to do with the recovery, such as it is. Aside from the disputed AP report claiming that the administration’s report used some fuzzy math and bizarre calculations, the fact of the matter is that the recession was global and so, too, is the recovery. Things happening all over the world, generally, are not explainable by small gestures made in a single country — even a hyperpower.
Cash for Clunkers, most agree, simply moved up sales that would have happened later in the year. That’s not such a bad thing so far as it goes, except that many dealers are still waiting to get paid. It’s hard, then, to credit money that hasn’t been distributed for stimulating the economy. But, yes, condensing several months’ sales into a single month does boost the books for that quarter.
Ditto the “stimulus” package, almost all of which has all along been targeted for out years. Again, very little of that money has been spent and therefore it’s impossible for it to have done much stimulating, aside from whatever psychological impact the government’s “doing something” may have had. Most of the “stimulus” will presumably be spent well into the recovery, making it more akin to ordinary “pork.”
Again, this isn’t a partisan attack on Obama. He inherited an economic crisis and is doing what politicians do under the circumstances. And, yes, I similarly rejected George W. Bush’s claims that his modest tax rebate ended the recession he inherited from Bill Clinton. For that matter, I didn’t blame Bill Clinton for said recession nor overly credit him for the economic boom that took place over much of his tenure. He had the good fortune of being in office during the Internet boom and post-Cold War booms and the good sense not to screw it up. Presidents have some impact on the economy but not nearly as much as we attribute to them.
As to the recovery itself, the administration is right to downplay expectations. NPR’s Kevin Whitelaw:
“We’re no longer simply on the roller coaster to hell,” says Donald Luskin, the chief investment officer for Trend Macrolytics LLC, an economics consulting firm. “But the idea of returning back to normal growth levels? That will be well into next year.”
[…]
“In a normal recession, the leaves fall off the trees because it’s autumn,” Luskin says. “In this recession, the leaves fell off the trees because there was an enormous forest fire. It’s a little bit of uncharted territory to know how long it will take to come out of that.”
This time, the damage was so severe that companies and consumers alike appear more reticent to return to their old habits. With Americans still adjusting to the tough new economic realities, consumer spending might not recover for quite some time.
“We have seen a permanent change in consumer behavior after seeing their retirement savings and home values go down,” says Gus Faucher, the director of macroeconomics at Moody’s Economy.com. “People are going to be more cautious coming out of this recession than they have in previous recessions because of the depth of the downturn.”
“Permanent” is the wrong word here. Consumer confidence always rebounds. We’ve had numerous booms and busts since the Great Depression, after all. But not only was this recession deeper than any in quite some time it was this first major economic crisis in today’s 24/7/365 media climate and therefore the most hyped in history. It’ll naturally take longer to recover.
And some significant percentage of the 10 percent unemployed — a figure that’s all the more staggering after decades of record employment — will never get their old jobs back. Most will eventually land somewhere but this is a serious shakeup of the composition of our jobs base, not the standard business cycle.
Photo credit: For Granted
