September 11, 2003

Forecasts of U.S. Growth

Martin Baily of the Institute for International Economics cannot believe that the U.S. economy's real GDP can grow at a rate of 4% per year without generating lots of jobs:

News Release: Economic Recovery To Be Strong And Globalized: ...projecting US growth at better than 4 percent through at least mid-2004 with a strong possibility of considerably better results for a quarter or two, and Baily expects the rapid growth to start creating substantial numbers of new US jobs in the fourth quarter of this year...

I agree with him: I can't believe it either. I can't believe that the U.S. economy is averaging 4 percent growth this spring and summer--which it is--with rapidly-falling employment numbers.

It's definitely something new and strange...

Posted by DeLong at September 11, 2003 07:43 PM | TrackBack

Comments

Unfortunately, it's an objective fact not subject to belief. Question: What's that do to the rest of his assertions? Are they believable?

Posted by: Chuck Nolan on September 12, 2003 05:04 AM

I guess it would be something new and strange..but in my mind not at all unexpected, and to be honest it's something that is going to need to be worked with.

Demand for domestic labour frankly will never recover. That is going to lower wages, hurting the service industry, creating more demand for labour...rinse and repeat.

How can the US deal with 10%+ unemployment on a regular basis? How can any economy deal with that?

It'll take some real leadership..that's for sure.

Posted by: Karmakin on September 12, 2003 05:26 AM

Actually, not an "objective fact" exactly, but the result of two efforts at measuring things going on the economy - changes in employment and in output. If, for instance, the employment survey is missing growth in small and medium size firms (that would be consistent with the growth in employment reported by households) then the most often quoted employment series, the establishment survey's jobs tally, would simply be wrong by a bunch.

On anther subject, job growth is seen as a lagging indicator. Lagging by how much? If the onset of above trend growth is what will prompt job growth, then we would need to be patient for the normal period of lag while waiting to see if Baily is (and DeLong is) right. Lag length, anyone?

Posted by: K Harris on September 12, 2003 06:05 AM

"I can't believe that the U.S. economy is averaging 4 percent growth this spring and summer--which it is--with rapidly-falling employment numbers.

It's definitely something new and strange... "

I may be wrong, but, in that case, can we lighten up on the criticism of the Administration's employment forecasts?

The jobless recovery is not so much a vindication for one party's economists over the other's, but a puzzle for all of us to try to analyze and understand.

Posted by: Arnold Kling on September 12, 2003 06:22 AM

From what I've read, the explanation is fairly simple: the rebound in this economy is a result of productivity increases, not absolute growth... with the consequence that companies are doing more with fewer people. It's the conservative's wet dream: wealthy industrialists make more money without having to share it with more workers, right?

Posted by: Norm Bernstein on September 12, 2003 07:16 AM

If the economy is expanding, then that means there should be more money available to build, maintain and repair our infrastructure. The additional money is not being collected as revenue and investment in infrastructure is decreasing, not increasing due to the financial crises in the states. The lack of coherent fiscal policy exacerbates the unemployment situation. Workers that could be productively employed for infrastructure needs and paying taxes are instead collecting unemployment benefits and sitting on their hands. The unemployment also has a multiplier effect on the service sector that provides lunches, equipment, etc.

The Bush adiminsitration is to blame for not helping the states and for dumping additional unfunded mandates on the states. However, their ideology has no place for fiscal policy as a means to address economic problems other than tax cuts.

Posted by: bakho on September 12, 2003 07:47 AM

My models are those of a very well-paid and well-respected profession. Reality does not conform to my models. Ergo, there must be something wrong with reality.

Economists are funny creatures. I think that we should strip them of tenure and pay them minimum wage. Then export their jobs to Asia and tell them that it's for the greater good of humanity/good in the long term/inevitable.

Then we would see some amazing productivity gains!

Posted by: Jean on September 12, 2003 08:48 AM


For your consideration:

Could the massive stimulus that has been injected into the economy, in combination with a mix of one- time events, be masking a deteriorating economy ?

For a medical analogy; Sometimes suppressing symptoms is beneficial (like a fever that's dangerously high), but if those symptoms are the means by which the body is fighting the infection (to wit, like a fever), then fighting the symptoms might compromise the effectiveness of the body's defenses, and thereby might prolong the time the infection stays in the body.

Another danger, at least in yesteryear, is that your supposed healer might be a quack who advocates bloodletting, poisonous medicine (e.g. mercury-based pills) or heroic-surgery as the cure for whatever ails you.

Bringing this analogy back to economics, well, draw your own conclusions.

Posted by: Patrick (G) on September 12, 2003 09:55 AM

"The jobless recovery is not so much a vindication for one party's economists over the other's, but a puzzle for all of us to try to analyze and understand."

Please. The jobless recovery is jobless because of the absurd fiscal policy of this Administration. Slice taxes of the righest to ribbons with very little growth impact and ignore employment opportunites. We have the worst possible fiscal policy from the worst possible economic policy makers in the White House. The worst White House economic policy gives us a jobless jobloss recovery!

Posted by: anne on September 12, 2003 10:01 AM

Amazing productivity growth is a GOOD thing. It's like we've just upgraded our economy from a Toyota to a Ferrari. Unfortunately, the driver doesn't know how to work a stick shift and it's stalling.

Posted by: joe on September 12, 2003 10:04 AM

Anne Anne

Tax cuts are what we need. More tax cuts. More. Why should I be paying any dividend or capital gains taxes? Cut cut cut. I'll be buying buying buying, businesses will be selling, there will be jobs for all and more.

What difference does a 500 billion dollar deficit make, especially a 500 billion dollar deficit that still leaves us losing jobs? We can always end Social Security and Medicare and Medicaid.

Massive debt and no jobs. What a policy. More tac cuts. More.

Posted by: lise on September 12, 2003 10:21 AM
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