Econo-Misery and Three Econo-Myths
"It’s one thing to fall into a ditch. Quite another to paint and decorate the ditch and call it home."
-- Rich Karlgaard at Forbes.com, November 2
Private and government forecasters are conceding that the economy is in a funk and won't improve much next year. The Federal Reserve's most recent predictions are that economic growth in 2012 will be 2.5% - 2.9%, and that unemployment will still be above 8.5% at year's end.
I would add: "If we're lucky."
Two observations put all of this into perspective:
- We are still in the midst of the worst post-World War II "recovery" -- and you can barely call it that -- on record. As Investor's Business Daily pointed out in August, in every post-war downturn until the most recent recession, the economy's output got back to where it was before the downturn began in three or fewer quarters. This time, we didn't get over that hump for nine quarters. That's three times longer than any other recovery since the Great Depression. Oh, and I almost forgot: The private sector is still smaller than it was at the end of 2007.
- Until Team Obama occupied the White House, the longest string of months during which the seasonally adjusted unemployment rate was greater than 8.5% was 22, from January 1982 until October 1983. We're now at 32 months and counting. If the Fed's prediction above is correct, the streak will be at 44 on Election Day next year, doubling the previous record. Primarily because of misguided Keynesianism on steroids, millions of the long-term unemployed, in many instances despite their best efforts, are seeing their skills diminish. Because the pace of technological change is so much faster now than it was during the 1930s Depression Era, we are arguably witnessing the greatest destruction of human capital in U.S. history.
Welcome to Rich Karlgaard's ditch -- except that it's not your normal two-sided affair. While we could with luck eventually climb out on the right side, to the left there is only a steep cliff. Additionally, any number of possible earthquakes from, say, Europe, bankrupt U.S. cities, or elsewhere could bring the whole thing crashing down at any time.
Sadly, none of this matters to President Obama, his apparatchiks, or his establishment press propagandists nearly as much as their virtually all-consuming goal of achieving his reelection. That is why you can expect any number of expectations-diminishing characterizations of the economy -- de facto ditch painting and ditch decorating -- to emanate from the White House and to be dutifully repeated in the media between now and November 6, 2012. What follows are just three of them.
1. It's unrealistic to expect economic growth of 4% or more.
Gosh, the last time I heard this one was during the late 1970s, when -- imagine that -- a failing first-term Democrat was in the White House. "Somehow," after emerging from the ugly recession brought on by Jimmy Carter's high-inflation, high-interest rate disaster, economic growth under Ronald Reagan averaged 4.4% per year from 1983 to 1988. In the first six quarters after the Carter-driven recession officially ended, annualized growth averaged over 6-1/2%.
Given the amount of underutilized though increasingly skills-deficient labor and the abundant fossil-fuel resources available if only the governmental willpower existed to allow us to go get them, growth of greater than 4% is not out of the question; in fact, it's inexcusable that we're not achieving it right now.