Pethokoukis, Economics, U.S. Economy

Weak GDP report shows no end in sight for the Long Recession

102612outputgap

The third-quarter GDP report was a nasty October surprise for a nation desperately in need of more jobs and higher take-home pay. The U.S. economy grew just 2.0% from July through September. At the current pace, the economy will grow just 1.8% this year, the same miserable pace as last year. “The economic recovery continues but at a very sluggish pace,” said economists John Ryding and Conrad DeQuadros of RDQ Economics in a research note  “Over the first 13 quarters of the recovery, real GDP growth has averaged only 2.2%. And at 2.3%, the pace of growth over the last year has shown no signs of picking up.”

– The anemic growth rate means the current recovery remains extraordinarily fragile.  Research from the Fed which finds that since 1947 when two-quarter annualized real GDP growth falls below 2%, recession follows within a year 48% of the time. Right now we are at 1.65%, putting the economy firmly within the recession red zone.

– And when year-over-year real GDP growth falls below 2%, the Fed found, recession follows within a year 70% of the time. At 2.3%, we are dangerously close to stall speed.

– A Citigroup analysis is slightly more encouraging, but not much. Its analysis has found that when U.S. growth falls below 1½% on a rolling four-quarter basis, it has tended to fall by nearly 3 percentage points over the following four quarters.

How does a slow-growth economy slip into recession? Citigroup suggests three reasons:

1) Consumers recognize only gradually that the economy has shifted into the adverse state and, as a result, spending and hiring decision adjust sluggishly over time;

2) At low growth rates, the economy may be more sensitive to shocks;

3) As the economy slows beyond some threshold growth rate, the decline in growth—in and of itself—undercuts confidence and stokes fears that growth may continue to fall. In response, households and firms tend to cut their expenditures and begin to hunker down. Such dynamics could easily become self-reinforcing and drag growth down further.

Obviously, a recession now, after a recovery marked by falling incomes and high unemployment, would be a disaster. As it is, the weak recovery has put the U.S. into a deep, deep hole:

– The weak report leaves the economy on a growth path far below its potential. This is the “output gap.” (As seen in the above chart.) If the recovery had been stronger, putting growth back on its traditional pace, cumulative GDP over the past five years would have been roughly $10.3 trillion higher.

– Or what if the Obama recovery had been as strong as the Reagan recovery? GDP this year would be $1.5 trillion higher than it is currently.

– Let’s say from here on out, the economy growth at trend, say 3% of so. Because we never had those powerful “catch up” years of above average growth — say, 4% to 7% as in the Reagan recovery — GDP levels will be lower in the future than they would be otherwise. GDP in 2037 will be some $5 trillion lower. And cumulative GDP losses over those years will be close to $100 trillion.

Today’s GDP report also reinforces just how badly the Obama White House overestimated the impact of its economic stimulus:

– In August of 2009, the White House—after having a half year to view the economy and its $800 billion stimulus response—predicted that GDP would rise 4.3% in 2011, followed by 4.3% growth in 2012 and 2013, too. And 2014? Another year of 4.0% growth.

– In its 2010 forecast, the White House said it was looking for 3.5% GDP growth in 2012, followed by 4.4% in 2013, 4.3% in 2014.

– In its 2011 forecast, the White House predicted 3.1% growth in 2011, 4.0% in 2012 and 4.5% in 2013, 4.2% in 2014.

– In its most recent forecast, the White House predicted 3.0% growth this year and next, and then back to 4.0% after that. The current consensus is for 2013 growth to be a lot like 2012 growth.

And as for next quarter and next year? Putting the fiscal cliff aside, analysis are looking for more of the same. Growth around 2%. Citigroup: “New caution in business investment is evident and will drag on growth in 4Q. … Total business fixed investment (no inventories) fell 1.3%, the first decline since 1Q 2011. The weak ending point for investment and production in 3Q still suggests a drag on growth in 4Q and a weaker GDP gain, closer to 1%.”

The Great Recession never really ended. It just morphed into the Long Recession. And the Long Recession continues.

29 thoughts on “Weak GDP report shows no end in sight for the Long Recession

  1. No third financial bubble no strong recovery growth. Well, let me take that back, US Bond Market is the third bubble and that can’t even give us the juice we need. What happens when you get no income growth and don’t have asset inflated prices to bail you out

    • Are you happy with this? Seriously. You are happy with this economy? 2.0% growth and $16T in debt and the fed with the pumps on full bore. Seriously, are you just fine with this?

      Millions of people not working. Millions and millions more on food stamps and SSI disability. Millions of people getting out of college and not finding jobs. People in jobs not being able to move up the ladder. Crime rampant in the cities. Corruption everywhere.

      Are you really fine with this?

      • It’s not a matter of being fine with anything. When any of those factors accelerate in an unregulated and uncoordinated manner, the result is more wild and erratic behavior in all the economic indicators, not less.

        The key to a sustainable long-term recovery is being on a steady and consistent and slow path up. Rapid changes in any of the key areas will have an adverse affect on the economy, but ultimately there must be more coordination between all the states on earth so that those fluctuations are ‘smoothed out’ over time.

        All the efforts by the Obama Administration to steadily keep the economy moving upward will create a sustainable recovery over time. To do otherwise is to invite more wild swings in the economy. Steady as she goes….

        • What unadulterated trash! The Obama and the Democrat obsession with spreading the wealth around is the prime reason we’re in this mess. The philosophy of redistribution, no matter how eloquently coached is just sophistry. The problems facing the economy are over regulation, a confiscatory tax rate and profligate spending for the purposes of rewarding union allies. That and forcing the banking sector to become an instrument of social policy, i.e. with sub-prime mortgages to spur home ownership, and you have a recipe for decline. No amount of wordsmithing on your part can disguise the fact that Obama’s policies are directly to blame.

          • Rather than repeating rhetoric why not do a little study in economic history.

            To view the potential for economic success or failure over a narrow time frame, often through the filter of a myopic and insular worldview, and then to restrict any analysis to a particular partisan philosophy will only re-enforce and amplify errors in the outcome. A more correst analysis must be long-term historically if we are serious about encouraging long-term economic sustainability into the future.

            When such an analysis is done, recognizing that economies change and combine over time and become co-dependent and intertwined, then it becomes more obvious that Obama’s economic and fiscal strategy is more likely to succeed, whereas Romney will need to try to enact policies that can only be described as draconian and emblematic of those of Jackson.

            Jackson’s idealogically based policies lead directly to one of the worst economic failures in our history. He made dramatic and sweeping structural changes to banking, finance, coinage, money, creating the specie act by executive order and moved federal money from the national bank to the state banks also by executive order, and most significantly, failed to understand the inextricable intertwined and co-dependent nature of each state economy with that of the other states (which is exactly like the situation we have today in our relationship with the other nations of the world). For Romney to achieve his ‘goals’ will require, no, demand, a Jacksonian approach. It will fail.

            The steady and methodical course set by Pres. Obama gives us the best chance for long-term economic sustainability. It’s not rash and dramatic. Romney’s goals on the otherhand, which are disguised as a plan, will not lead to the required long-term economic sustainablity, but instead will give us more wild and eratic swings in the all the economies worldwide.

        • Zillow’s 2Q report says 31 percent of homeowners with mortgages have negative equity in their homes. For those under age 40, the rate jumps to 48 percent, and those are the consumers in their peak spending and borrowing years. So let’s say that 40 percent of the consumer economy, representing 28 percent of GDP, is on indefinite hold. Please explain how Romney can fix this situation quickly.

          • Todd, the point is that Romney can not quickly restore value in the GDP without jeopardizing any chance of a real long-term sustainable recovery.

            Romney is trying to persuade Americans that he can restore the value in GDP to its potential. But to do it would require both massive spending above and beyond that even proposed by Obama on infrastructure, and by huge and unsustainable cuts in taxes and fees across the board while simultaneously raising all deductions for individuals, corporations and businesses. Only then would you see real GDP elevated to it potential. But, as history shows us, real GDP would spike upward quickly, then the long downturn would begin and it would take years more to recover.

            Honestly, there is no realistic prescription that Romney can do, other than continue on the path Obama has already set, that will restore value lost in 2007/2008. Any such attempt would be disasterous.

  2. Obviously, the economy is slowly improving as your chart shows. Yes! GDP is below its potential. Housing prices are also below potential, but when a bubble collapses one can not expect to return to those pre-collapse prices within a few short years. Would we even want the prices to return to those levels in a short period of time?

    What would happen to the economy if prices, or the GDP, were to return to it’s potential in a short time frame? The economy would rapidly fail again and again. The solution is a steady and seemingly slow climb back up to the real potential of the economy over time so that chaos and cyclic fluctuations are weakened. We do not need nor should we want a rapid recovery. The wild swings in the data from businesses, the government and the private sector would never stablize. Economic history validates this claim, but the analysis must go further back than 1947.

    It would seem however that since the discussion is about recessions, then using 1947 as the beginning date to start the analysis is not valid.
    Real data collection on the economy began in the ’20′s, but there are methods that would translate data from the 1790′s onward into useful information from which valid trend analysis can be made.
    At the very least, prior to this current recession (or double dip recession), the worse down turn in our national economy occurred in the 1830′s through much of the 1840′s.
    This recession, I call it the Jackson Recession, was caused by several concurrent events – 1) real estate bubble (like today)
    2) lack of sufficient regulatory oversight of Wall Street and banks (again like today)
    3) a run from currencies to specie (ie gold and silver)
    4) and most significantly, Jackson’s defunding of the nationally chartered bank by moving federal monies from the national bank to the various state banks, and the ensuing chaos that caused in financing and the stratification of banking, money and economies between the states. This singular action by Jackson was the force that pushed the economy into real peril, thus ensuring a long down turn and preventing a sustainable recovery.
    Durning the Jackson era and for nearly ten years afterward, attempts by congress and by the states were disjointed, chaotic, and uncoordinated. The result was that the entire country suffered because of an ideologue (Jackson).
    What lesson can we learn from the Jackson Recession? 1) national banking and a federal reserve system is the best way to provide a smoothing out of the wild and chaotic fluctuations ever present in unregulated and uncoordinated but inextricably interconnected economies. Sound familiar? When economies are so closely intertwined, as in our world of today, then the best way to ‘smooth out’ erratic and chaotic cycles is to work more closely together, not act as if our single economy is all that matters.
    2) a sustainable recovery is only possible through increased coordination between governments,
    3) Jackson’s ideological prescription was a failure, and policies by government(s) that make dramatic cuts in any area of the government work only to lengthen the down turn.
    Finally, if an analysis is to be valid in its trend studies, then it should include the Jackson Recession. And, we should work to not repeat the mistakes of the Jackson era.
    Romney’s team of economic advisors have neglected the lessons from Jackson, and seem intent on putting policies in place that will effectively repeat Jackson’s mistakes.

    • “a sustainable recovery is only possible through increased coordination between governments,”

      Your kidding right? Like the coordination between Germany and the Greeks? Greece to Germany, “we have a failed government centric economy. give us more money.”

      • Europe is beginning to see that the solution they need can only be found in more coordination and regulation for the entire region as a whole so that no one state shares the responsiblity alone. The recent efforts in the EU to strengthen the authority of the central planning agencies will begin to show positive results within six to twelve months. This is a situation where less is bad – our own history proves it.

  3. @ Tim Williamson – After 4 years of Obama’s so called brilliant economic stewardship, we are left at the edge of a fiscal cliff. What you call partisan rhetoric is the foundation stone of Obama’s ideology. Simple words such as “spread the wealth” have a profoundly negative impact when those words form the basis for an entire economic policy. Likewise in your lengthy defense of Obama’s policies you fail to make any reference at all to his failed stimulus policies, nor to the fact that such massive debt simply cannot be repaid. In the past politicians have reduced such debts by allowing for a controlled growth in the rate of inflation. While such methods may actually get the debt under control at some future point in time, the insidious effect on the poor, the very people Obama says he is trying to help, is profoundly negative. Suffice to say that the use of inflation as a monetary tool by this president and or future Democratic leaders would be to impoverish those at the very margins of our society. The net effect would be to further deepen the divisions of our society and result in the creation of a permanent underclass. Perhaps that is the ultimate aim of the Democrats, in that by ensuring that large segments of society are permanently poor, they will retain their strangle hold on power.

  4. Well if you were a European, you’d be on your knees for ~2% growth. Is the rest of the world doing better or worse( than US)? Everything is relative, no?

  5. Tim Williamson says: “The steady and methodical course set by Pres. Obama gives us the best chance for long-term economic sustainability.”

    Producing below capacity, with massive unemployment and underemployment, along with other massive idle resources, is completely unnecessary.

    And note, the U.S. economy has been underproducing by a large margin even with the destruction of potential output over the past few years, which is likely almost all cyclical rather than structural, e.g. the deep and long depression forced many Americans into retirement.

    Using a steady long-term potential output trendline shows the output gap is even worse:

    http://scottgrannis.blogspot.com/2012/10/quick-thoughts-on-gdp-more-stagflation.html

    • Rather than repeating rhetoric why not do a little study in economic history.

      To view the potential for economic success or failure over a narrow time frame, often through the filter of a myopic and insular worldview, and then to restrict any analysis to a particular partisan philosophy will only re-enforce and amplify errors in the outcome. A more correct analysis must be long-term historically
      if we are serious about encouraging long-term economic sustainability into the future.

      When such an analysis is done, recognizing that economies change and combine over time and become co-dependent and intertwined, then it becomes more obvious that Obama’s economic and fiscal strategy is more likely to succeed, whereas Romney will need to try to enact policies that can only be described as draconian and emblematic of those of Jackson.

      Jackson’s idealogically based policies lead directly to one of the worst economic failures in our history. He made dramatic and sweeping structural changes to banking, finance, coinage, money, creating the specie act by executive order and moved federal money from the national bank to the state banks also by executive order, and most significantly, failed to understand the inextricable intertwined and co-dependent nature of each state economy with that of the other states (which is exactly like the situation we have today in our relationship with the other nations of the world). For Romney to achieve his ‘goals’ will require, no, demand, a Jacksonian approach. It will fail.

      The steady and methodical course set by Pres. Obama gives us the best chance for long-term economic sustainability. It’s not rash and dramatic. Romney’s goals on the otherhand, which are disguised as a plan, will not lead to the required long-term economic sustainablity, but instead will give us more wild and eratic swings in the all the economies worldwide.

    • Romney’s Jacksonian Blunder…

      Posted earlier on American Enterprise Institute, and on The Economist sites.
      Tim Williamson, 26 oct 2012

      “The fracturing and stratification of the US economy during the Jacksonian Recession was a reflection of the inability of the various states to realize that a sustainable recovery required their mutual cooperation. Instead, each took an independent path the result of which was one of the worst
      economic failures in American history. The various states did not understand just how much they needed eachother for there to be success.

      This is an analogue of the global economy today – we want to act independently, but haven’t come to fully realize that we need eachother to succeed over the long term.

      You are also correct about Romney’s plan…he only has a set of very general goals containing no specifics. So if one uses just his goals, then the only way for him to achieve those goals is through the imposition of Jacksonian policies in one form or another.

      Here’s my original post on another of Pethokoukis’ articles.

      “Obviously, the economy is slowly improving as your chart shows. Yes! GDP is below its potential. Housing prices are also below potential, but when a bubble collapses one can not expect to return to those pre-collapse prices within a few short years. Would we even want the prices to return to those levels in a short period of time?

      What would happen to the economy if prices, or the GDP, were to return to it’s potential in a short time frame? The economy would rapidly fail again and again. The solution is a steady and seemingly slow climb back up to the real potential of the economy over time so that chaos and cyclic fluctuations are weakened. We do not need nor should we want a rapid recovery. The wild swings in the data from businesses, the government and the private sector would never stablize. Economic history validates this claim.

      Real data collection on the economy began in the ’20′s, but there are methods that would translate data from the 1790′s onward into useful information from which valid trend analysis can be made.

      At the very least, prior to this current recession (or double dip recession), the worse down turn in our national economy occurred in the 1830′s through much of the 1840′s.

      This recession, I call it the Jacksonian Recession, was caused by several concurrent events:

      1) real estate bubble (like today)
      2) lack of sufficient regulatory oversight of Wall Street and banks (again like today)
      3) a run from currencies to specie (ie gold and silver)
      4) and most significantly, Jackson’s defunding of the nationally chartered bank by moving federal monies from the national bank to the various state banks, and the ensuing chaos that caused in financing and the stratification of banking, money and economies between the states. This singular action by Jackson was the force that pushed the economy into real peril, thus ensuring a long down turn and preventing a sustainable recovery.

      Durning the Jackson era and for nearly ten years afterward, attempts by congress and by the states were disjointed, chaotic, and uncoordinated. The result was that the entire country suffered because of an ideologue (Jackson).

      What lesson can we learn from the Jackson Recession?

      1) national banking and a federal reserve system is the best way to provide a smoothing out of the wild and chaotic fluctuations ever present in unregulated and uncoordinated but inextricably interconnected economies. Sound familiar? When economies are so closely intertwined, as in our world of today, then the best way to ‘smooth out’ erratic and chaotic cycles is to work more closely together, not act as if our single economy is all that matters.
      2) a sustainable recovery is only possible through increased coordination between governments, and today this is evermore important in an inextricably intertwined global economy,
      3) Jackson’s ideological prescription was a failure, and policies by government(s) that make dramatic cuts in any area of the government work only to lengthen the down turn.

      Finally, if an analysis is to be valid in its trend studies, then it should include the Jackson Recession. And, we should work to not repeat the mistakes of the Jackson era.
      Romney’s team of economic advisors have neglected the lessons from Jackson, and seem intent on putting policies in place that will effectively repeat Jackson’s mistakes.”

  6. The GDP gap will NEVER get closed with more 2% growth–NEVER. And it it will NEVER get closed even with 3% GDP growth–NEVER.

    That means that jobs, incomes, spending, wealth, prosperity and our standard of living would be doomed to be ETERNALLY subpar under Obama.

    ETERNALLY is FOREVER–that’s a long time.

    Capiche?

    • Mac, I’m reposting my original comments here:

      Romney’s Jacksonian Blunder…

      Posted earlier on American Enterprise Institute, and on The Economist sites.
      Tim Williamson, 26 oct 2012

      “The fracturing and stratification of the US economy during the Jacksonian Recession was a reflection of the inability of the various states to realize that a sustainable recovery required their mutual cooperation. Instead, each took an independent path the result of which was one of the worst
      economic failures in American history. The various states did not understand just how much they needed eachother for there to be success.

      This is an analogue of the global economy today – we want to act independently, but haven’t come to fully realize that we need eachother to succeed over the long term.

      You are also correct about Romney’s plan…he only has a set of very general goals containing no specifics. So if one uses just his goals, then the only way for him to achieve those goals is through the imposition of Jacksonian policies in one form or another.

      Here’s my original post on another of Pethokoukis’ articles.

      “Obviously, the economy is slowly improving as your chart shows. Yes! GDP is below its potential. Housing prices are also below potential, but when a bubble collapses one can not expect to return to those pre-collapse prices within a few short years. Would we even want the prices to return to those levels in a short period of time?

      What would happen to the economy if prices, or the GDP, were to return to it’s potential in a short time frame? The economy would rapidly fail again and again. The solution is a steady and seemingly slow climb back up to the real potential of the economy over time so that chaos and cyclic fluctuations are weakened. We do not need nor should we want a rapid recovery. The wild swings in the data from businesses, the government and the private sector would never stablize. Economic history validates this claim.

      Real data collection on the economy began in the ’20′s, but there are methods that would translate data from the 1790′s onward into useful information from which valid trend analysis can be made.

      At the very least, prior to this current recession (or double dip recession), the worse down turn in our national economy occurred in the 1830′s through much of the 1840′s.

      This recession, I call it the Jacksonian Recession, was caused by several concurrent events:

      1) real estate bubble (like today)
      2) lack of sufficient regulatory oversight of Wall Street and banks (again like today)
      3) a run from currencies to specie (ie gold and silver)
      4) and most significantly, Jackson’s defunding of the nationally chartered bank by moving federal monies from the national bank to the various state banks, and the ensuing chaos that caused in financing and the stratification of banking, money and economies between the states. This singular action by Jackson was the force that pushed the economy into real peril, thus ensuring a long down turn and preventing a sustainable recovery.

      Durning the Jackson era and for nearly ten years afterward, attempts by congress and by the states were disjointed, chaotic, and uncoordinated. The result was that the entire country suffered because of an ideologue (Jackson).

      What lesson can we learn from the Jackson Recession?

      1) national banking and a federal reserve system is the best way to provide a smoothing out of the wild and chaotic fluctuations ever present in unregulated and uncoordinated but inextricably interconnected economies. Sound familiar? When economies are so closely intertwined, as in our world of today, then the best way to ‘smooth out’ erratic and chaotic cycles is to work more closely together, not act as if our single economy is all that matters.
      2) a sustainable recovery is only possible through increased coordination between governments, and today this is evermore important in an inextricably intertwined global economy,
      3) Jackson’s ideological prescription was a failure, and policies by government(s) that make dramatic cuts in any area of the government work only to lengthen the down turn.

      Finally, if an analysis is to be valid in its trend studies, then it should include the Jackson Recession. And, we should work to not repeat the mistakes of the Jackson era.
      Romney’s team of economic advisors have neglected the lessons from Jackson, and seem intent on putting policies in place that will effectively repeat Jackson’s mistakes.”

      Rather than repeating rhetoric why not do a little study in economic history.

      To view the potential for economic success or failure over a narrow time frame, often through the filter of a myopic and insular worldview, and then to restrict any analysis to a particular partisan philosophy will only re-enforce and amplify errors in the outcome. A more correct analysis must be long-term historically
      if we are serious about encouraging long-term economic sustainability into the future.

      When such an analysis is done, recognizing that economies change and combine over time and become co-dependent and intertwined, then it becomes more obvious that Obama’s economic and fiscal strategy is more likely to succeed, whereas Romney will need to try to enact policies that can only be described as draconian and emblematic of those of Jackson.

      Jackson’s idealogically based policies lead directly to one of the worst economic failures in our history. He made dramatic and sweeping structural changes to banking, finance, coinage, money, creating the specie act by executive order and moved federal money from the national bank to the state banks also by executive order, and most significantly, failed to understand the inextricable intertwined and co-dependent nature of each state economy with that of the other states (which is exactly like the situation we have today in our relationship with the other nations of the world). For Romney to achieve his ‘goals’ will require, no, demand, a Jacksonian approach. It will fail.

      The steady and methodical course set by Pres. Obama gives us the best chance for long-term economic sustainability. It’s not rash and dramatic. Romney’s goals on the otherhand, which are disguised as a plan, will not lead to the required long-term economic sustainablity, but instead will give us more wild and eratic swings in the all the economies worldwide.

  7. Tim Williamson says: “Rather than repeating rhetoric why not do a little study in economic history.”

    Why don’t you take that advice, except study a lot more economic history, which is a lot easier than the economics itself.

    You’ll discover a significant tax cut, e.g. under Kennedy in ’61, Reagan in ’81, and Bush in ’01, will jolt the economy into a virtuous cycle of consumption-employment (where consumption generates employment and employment generates consumption, etc.).

    The Obama tax cut that began in 2009 averaged less than $15 a week, while regulation and federal spending increased by $1.5 trillion a year.

    Obama still has one foot on the accelerator and the other foot on the brake. We’re just about out of gas, and in a much weaker position.

    I stated in Feb ’09 (although, the tax cut should’ve been $5,000 per worker for the 150 million workers at the time or $750 billion):

    1. Obama should change his stimulus plan to a $2,000 tax cut per worker, along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets, i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.

    2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.

    3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

    • This economy is floating on $1 trillion a year federal budget deficits and endless quantitative easings, along with huge trade deficits.

      We’re spending $1 million for each new net job.

      Yet, the economy is on the verge of receding, facing the “fiscal cliff,” in this deep depression. It’s an ongoing train wreck, also bringing down state budgets and foreign economies.

    • You missed my entire point…any attempt to inject rapid acceleration into the economy will lead to a longer period of decline without a balanced approach to the process.

      That was the lesson from the Jacksonian Recession. He made rapid and dramatic changes to the entire fiscal and financial system of the country while there was a housing bubble, an unregulated Wall Street system, and while major shifts in maufacturing were going on too. His actions were the force that caused the nation to experience nearly ten years of what I have called the Jacksonian Recession.

      To put the recession of 2007/2008 into perspective requires that any analysis looking for similarities and solutions must include in that analysis a similar situation. The only real justifiable comparison is that of the Jacksonian Recession for the reasons listed previously. To not include the 1830′s/1840′s in US economic history in that analysis is to invite errors into your solution matrix. In other words, it is not realistic, nor is it a reliable methodology, to use only data from the 1900′s, the 2000′s or even post 1850. Your data set will not have sufficient validity, thus your answers will be skewed toward an ideological answer rather than a real economic answer.

      The lesson learned from the Jacksonian Recession is that that way out of a sever and deep economic downturn is to apply just enough acceleration while not letting the speed get out of hand. Using your analogy, we must ‘give it gas while keeping our foot on the brake’ so that we do not repeat Jackson’s mistake and so that we do have sustainable, steady, and consistent long-term growth – Anything more or less will lead to many more years of decline.

      • Tim Williamson says “…any attempt to inject rapid acceleration into the economy will lead to a longer period of decline without a balanced approach to the process.”

        A long period of massive idle resources is unnecessary. Once the economy is at full employment, it can expand, or living standards can rise, at a slower rate than the 1982-07 economic boom. However, we’re not there yet.

        • When the output gap closes, there will be a tightening cycle, of the money supply, to slow growth, government revenues will rise, and government spending will slow or fall.

        • That’s true in a limited extent. Reaching GDP potential is the goal, but it too was a bubble of sorts. It will take many years of steady and gradual improvement to return to those levels. Dramatic attempts to ‘put the economy in high gear’, in any effort to appease the public or to fulfill campaign promises, will derail us from the path.

  8. The author doesn’t seem to know what a recession is as US GDP has been growing since 2009. A period of economic growth, even if slow and from a lower base than prior to a recession, is not a recession. So why would the AEI put out an article saying the US is in recession when they know full well it isn’t? Could it be that there’s an election on and they’d prefer the President doesn’t win?

  9. While the headline of the piece is “Weak GDP report shows no end in sight for the Long Recession”, the author carefully cites sources which say that historically, slow growth quarter-over-quarter, year-over-year, and rolling-4-quarter-average all correlate to a 50% or more risk of there being a recession within the next calendar year. There’s no reason I know of to call this a recession, but look around. 2 months from now we have a “fiscal cliff” which no-one believes will happen and no-one in office knows how to avoid. Around the same time, we have another debt limit increase to fight over. Each of you, but not me, thinks that avoiding the fiscal cliff by some agreeable means and increasing the debt limit by some agreeable means sets the next Congress and President off on an harmonious cruise in what Dallas Fed President Richard Fischer calls uncharted waters. What I believe is that our ‘house’ is built on the sands of debt and the fall of it will be great. Remember, the revolutionaries of 1917 Russia simply repudiated all Tsarist debt. Nothing will restrain the revolutionaries of Americas near future from doing the same thing.

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