Today, the Commerce Department revised the second quarter economic growth number downward to an anemic 1.6%. We may not be heading into a second recession but the economy clearly isn't growing enough to make a dent in the high unemployment rate. The traditional prescriptions, as reflected in the various stimulus bills, don't seem to be working. It appears that the President and his advisors don't have any answers other than urging patience and telling us that this is just a speed bump in the road to economic recovery. They may be right but I doubt the voters will be so understanding come November.
The Commerce Department explained that the slide in economic growth during the second quarter was the result "a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending." The fact that much of the less-than-stellar growth we experienced was the result of government spending is a negative sign for future quarters since this spending represents the tail end of last year's stimulus package.
By next year, the economy will be pretty much operating without the assistance of this government support. Then what? The current consensus is that third quarter growth will be about 1.7%. And economists are not optimistic looking beyond that:
"The economy is going to limp along for the next few months," said Gus Faucher, an economist at Moody's Analytics. There's even a one in three chance it could slip back into recession, he said. . . .
"What we're seeing is that the hand-off to the private sector is not looking as robust as we had previously hoped," said Ben Herzon, an economist at Macroeconomic Advisors.
By any measure of past economic recoveries, this recovery is one of the weakest. Historically, deep and severe recessions are followed by robust recoveries - the so-called "V-shaped" recovery. This time, we barely have a "U-shaped" recovery. It more accurately can be called a flatline recovery. This is a disaster for the country, particularly the tens of millions who are unemployed and underemployed. The plain fact is that we need sustained growth of at least twice the current rate to begin turning the employment picture around. It is true that the unemployment rate has dropped some from its high point several months back but this isn't because of job growth; rather it's because millions have given up altogether and are no longer even looking for a job.
Do President Obama and his advisors have any answers on how to deal with the economic crisis? Some of his advisors are urging another stimulus package, this time better directed to the immediate creation of jobs. Others are calling for the President to address the deficit situation by, for example, letting the Bush tax cuts expire. Others prefer simply to blame Bush, obstructionist Republicans, the media or the "professional left." And others, such as Congressman Tom Perriello (D-VA), are calling for firing some of the President's key advisors. But are any of these real answers to this crisis?
So what is the answer? I would have thought that the stimulus packages would have had a far bigger impact on the economy than has been the case. Perhaps a better constructed stimulus program could achieve more favorable results than the earlier programs, but it's hard not to have serious doubts given the history of the earlier ones. While ending the Bush tax cuts can be justified on tax fairness grounds (a not unimportant consideration), I'm skeptical that it'll do much for economic growth, although I recognize that many here strongly disagree with my skepticism. Blaming Bush, etc. may be satisfying and even factually accurate but it's not going to do anything for the unemployed or right the economy. And firing advisors won't do anything if the policies remain the same.
I wish I could believe the administration and its optimistic forecasters. I also would love to believe that Paul Krugman and others urging a new larger stimulus had the answer. But the past two years have shaken my confidence that any of the supposed experts have the answer. I suspect we're in for a long and bumpy road of downsized hopes and shrinking possibilities.