It’s Beginning to Smell Like the 1970s
March 1, 2014 - 10:45 am
Russia rolling into other countries with impunity. A declining standard of living. Stagnant economic growth. And a weakling in the White House who seems paralyzed to do anything about it at all.
The second decade of the 21st century? Or the late 1970s?
The Carter-Obama comparison isn’t new. But if history does, in fact, have a nasty habit of repeating itself, the last few years have begun to look an awful lot like the Carter era.
Consider: As has too often happened in recent quarters, the rate of growth has been revised downward as more information has been digested. GDP grew at an annualized rate of 2.4% in the fourth quarter of 2013 following an initial estimate of 3.2%. That is not an insignificant fall-off and coupled with the weather-blamed slow growth in the first quarter of this year, the continued paltry job growth, wage stagnation, and a softening housing market, there is a growing belief that this is the new normal and we better get used to it.
The Congressional Budget Office is through waiting for a decent recovery and is now basing its economic projections on the basis that what we’re experiencing in the economy is how it’s going to be for the foreseeable future.
The part of the past that you deem most relevant can be critical in determining your outlook for the future. And nowhere is that clearer than in the changing economic forecasts that come out of the Congressional Budget Office.
This year’s short-term and long-term economic forecasts are substantially worse than last year’s, even though the economy performed better than expected in 2013. What changed was that the C.B.O. economists essentially decided that they would no longer treat the recent years of poor economic performance as a sort of outlier. They have seen enough of a slow economy to begin to think that we should get used to sluggishness.
They think that Americans will earn less than they previously expected, that fewer of them will want jobs and that fewer will get them. They think companies will invest less and earn less. The economy, as measured by growth in real gross domestic product, will settle into a prolonged period in which it grows at an average rate of just 2.1 percent. From 2019 through 2024, job growth will average less than 70,000 a month.
Not only do they forecast an economy with less growth than in any comparable period since the Great Depression, they think interest rates will rise substantially, to the great discomfort of the federal government, which will have to pay ever-rising amounts of interest to service the rising national debt.
Some economists think that the CBO is wrong, that you can’t have slow growth and high interest rates. That may be so. But other economists are forecasting similar doom and gloom.
In “Is U.S. Economic Growth Over?,” a 2012 working paper for the National Bureau of Economic Research, the Northwestern University economist Robert Gordon argued that the country was in for 25 to 40 years of very slow growth. In particular, Americans in the bottom 99 percent of the U.S. income distribution could expect only 0.2 percent annual increases in their real per capita disposable incomes. This is dramatically lower than the 2 percent annual increase in incomes that occurred in the century before 2007. Gordon attributed this fall-off in growth to six “headwinds” and the slowing pace of technological innovation.
Gordon extends his analysis in a new study, “The Demise of U.S. Economic Growth: Restatment, Rebuttal, and Reflections.” In this paper, also published by the National Bureau of Economic Research, Gordon revisits four of his six growth-slowing headwinds: demography, education, inequality, and government debt. (The other two are globalization and energy and environmental concerns.) He also attempts to bolster his argument that technological progress is stagnating.
The 1980 presidential race featured then-Governor Jerry Brown going on national television and telling Americans that the good times were over and we would have to learn to live in an “age of limits.” This was following Jimmy Carter chiding the American people for having lost faith in government, and the future, because of high inflation, high interest rates, and high unemployment.
The resulting recovery of American economic growth and optimism seems like destiny in hindsight. But Ronald Reagan couldn’t have done it without a resilient citizenry who believed in themselves and a brighter future.