The federal Commerce Department announced recently that growth of the U.S. economy was “near zero,” as reported by some media outlets. Growth was estimated at 0.1 percent, a pitiful rate that comes after several years of sluggish economic recovery from the most recent recession.
As reported, the reasons given for the stagnant economy include “an unusually cold and disruptive winter, coupled with tumbling exports.” Yet some economists remain optimistic that this year “will be the year the recovery from the Great Recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment.”
In this context, scholarly economist John H. Makin at the American Enterprise Institute published an article titled “The limp recovery, five years on” that seeks to explain the current “feeble expansion” and project its prospects for growth in the next year. His prognostications are decidedly less optimistic than those reported in various news outlets.
Makin (see his bio and impressive credentials here) reports that the current recovery “has been considerably below average when compared to post-World War II recoveries.” Only in two quarters has growth been above average since June 2009. He gives several reasons for this.
One is weak growth in business investment due to investor uncertainty, driven by the financial crisis and massing changes in federal regulation from the Obama administration, weak growth in consumer demand, and slowing levels of inflation. A second reason is the slow growth of household spending, which is attributed in part to the fact that “it has required seven full years for households to regain levels of net worth last seen in 2007,” leaving households cautious about spending money.
Subsequently, according to Makin, “the recent expansion has been characterized by especially weak growth of employment and persistence of high unemployment, notwithstanding some progress over the past year.” This problem has been compounded by the fact that “labor-saving technologies [have reduced] the need for labor in the production process,” such as “the ability to use smartphones and tablets to manage communication and scheduling without a human assistant.” Interestingly, Mr. Makin ties this to income inequality: “[T]he result has been a shift in income distribution away from labor and toward capital during much of this expansion.”
Makin predicts a gloomy outlook for the economy over the next year, but concludes with a prescription. “Something additional is needed to sustain a stronger recovery in the United States – leadership.” That leadership includes pushing to reform federal welfare, taxes and regulations (such as those created under the auspices of Obamacare) to make work more financially rewarding for employees and creating new jobs less costly for employers. It also includes reforming things like the education system in ways that make it more possible, and I might add more affordable, for individuals to climb the economic ladder.
Makin’s article is a good one for anyone interested in the economy and where it is likely headed in the near future. For my part, I wonder whether the Obama administration has the maturity and statesmanship to support reforms that amount to a tacit admission that its policies have been economically harmful to individuals, families, and businesses. But there’s always hope.