Pethokoukis

Is this the ‘built to last’ economy Obama promised?

President Obama, back in 2009:

Even as we clear away the wreckage of this recession, I have also said that we cannot go back to an economy that is built on a pile of sand — on inflated home prices and maxed-out credit cards, on overleveraged banks and outdated regulations that allowed the recklessness of a few to threaten the prosperity of us all. We must lay a New Foundation for growth — a foundation that will strengthen our economy and help us compete in the 21st century.

OK, putting aside for a moment the president’s poor grasp of what caused the Great Recession, has the Obama economic recovery been built on a “New Foundation?” Well, let’s look at the third-quarter GDP report that came out today:

1. Government spending — meaning borrowed money — played a big role. IHS Global Insight: “GDP growth improved to 2.0% in the third quarter from 1.3% in the second – so is growth accelerating? We don’t think so. Bear in mind that the entire improvement came from government spending (mainly defense), which added 0.7 percentage point to growth after cutting 0.1 percentage point from the second quarter. That bounce will not be repeated.” Action Economics called the report “goosed” by government spending.

2. So did consumers — by spending down savings. Personal consumption expenditures account for 1.4 percentage point of the 2 percentage points of GDP growth. But the personal saving rate — personal saving as a percentage of disposable personal income — fell to 3.7% vs. 4.0% in the second quarter.

3. But where is the investment? Business fixed investment fell for the first time since first quarter 2011. And equipment and software spending, according to JPMorgan, “had its worse quarter of the expansion, and forward-looking indicators aren’t promising for 4Q.”

This doesn’t seem to be a recovery, to use another presidential catchphrase, that’s “built to last.”

4 thoughts on “Is this the ‘built to last’ economy Obama promised?

  1. This economy is not built to last at all. It is built to die.

    There are things to celebrate in this economy, but let’s take a 30,000 view.

    We do have a major problem of debt. It is unsustainable, and this is a global problem, too.

    The bond market is in a massive bubble. Yields are not this low for economic reasons and will not remain this low for ever. Basically, we’ve created the third bubble in 10 years (the last two being the Internet Bubble and the Housing Bubble). When this bubble bursts, and it will, the consequences will be quite dire.

    I am going to be a bit depressing right now, but then I will give reasons to be optimistic.

    The current slow-growth economy will not last. Even after the mild recession we have coming late next year, the problems will not disappear. I do not anticipate the government taking the necessary steps to reduce the debt in the next decade, and the debt problems will come to a head just as the bonds bubble is starting to burst. Massive government cuts, as well as sharp declines in the wealth of individuals will propel us into a second Great Depression, starting around 2025. Make no mistake, this will be long, protracted, and bad.

    But now for the good news: the Depression will be a good thing. Much like a computer has a reset button, consider this depression an economic reset button. The size of the government will be greatly reduced and, since debt problems will not allow, it will not be able to mess up the subsequent recovery. Real economic growth will emerge, and bring with it a wealth of technological and medical advances.

    I am an optimist because I believe in the divinity of God and the ingenuity of Man. Every day, in uncountable ways, people are developing new ideas from seemingly unconnected things: telephone + computer = Internet; telephone + Internet = smartphone; water + rocks = super-fracking. Food + science = GM superfoods. Human history is marked by nothing but achievement, and I see no reason now to suspect otherwise.

    Yes, we do have bumps and one big dip in the road ahead. Yes, it will be painful. But our future still looks bright.

  2. Perhaps what you meant to write, Jim, was “putting aside the FACTS” of how the economy crashed. Zillow’s 2Q report says that 31 percent of homeowners with mortgages owed the bank more than their houses were worth — by more than $1 trillion no less. These people, no dummies, are counting their pennies. Savings being the opposite of demand, businesses (also no dummies) are setting their hands as well. If government continues its hand-sitting hat trick, we have a waiting game no matter who is president. Then again, Romney (no dummy) just might do the necessary pump priming on the double dip if he wins.

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