By Matthew O'Brien
Jul 31 2012, 11:47 AM ET
Companies and households aren't "doing fine" for a recovery, but they're doing better than normal.
Gaffes come in two varieties. There's the inconvenient truth and the
less convenient untruth. Both are damaging, as far as these things go,
but President Obama's statement rather remarkably combined the two --
call it Schrödinger's gaffe -- when he commented that the private sector
is "doing fine
the private sector? People buying things, selling things, and investing
in things? So, that's the engine of our unbelievable American system.
Unfortunately, it's not doing too well -- unless you compare it to the
public sector. That's doing even worse. State and local cuts have led to
the biggest decrease
in overall government spending since the 1950s. And now the federal
government is getting in on the austerity act too. With the stimulus
fading out, it currently employs fewer people
than it did back when the recovery began.
How's that for socialism?
This undercover austerity
is what precipitated President Obama's much-hyped gaffe that the
private sector is "doing fine." The gist was that the private sector
isn't doing that
badly, and that the big problem is the
government hurting rather than helping the recovery. And that's true!
Or, at least true-ish. As Mark Perry
the American Enterprise Institute points out, private sector real GDP
growth since the end of the Great Recession has been better than
That's right. The private sector is growing faster than it normally does.
But that's a low bar we're stepping over. As Josh Barro
notes, we expect the economy to grow faster after a recession --
particularly a deep recession. If it didn't, we'd never recover. What we
really want to know is how this recovery compares to other recoveries.
The answer: Not well.
Take a look at the
depressing picture. The chart below compare average real private GDP
growth during the first eight quarters of each recovery since 1950. The
only recovery worse than our current one was the previous one.
It's been a long time since we've had a recovery worthy of the name.
Something has happened the past 20 years. We've gone back to the future
Back before the Federal Reserve existed, recessions came when bubbles
burst. Recoveries were long, slow affairs. Then the Fed came along. In
the postwar period, recessions came when the Fed raised rates to cool an
overheating economy. Recovery came -- and came fast -- when the Fed
lowered rates. Until 1991.
Now burst bubbles
are back with a vengeance. So are jobless recoveries. Actually, we might
call them GDP-less recoveries too. You don't need to resort to
hand-waving about regulatory uncertainty or the fiscal cliff to explain
our tepid growth. It's the new normal. Consider the chart below, which
takes our first chart and adjusts for population.
The post-2009 private sector recovery matches the post-1991 private sector recovery. And both outclass the really anemic post-2001 private sector recovery.
Lehman Brothers didn't break the private sector. It's been broken for a long time -- at least when it comes to recoveries.
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