Economic “Recovery” and the Elephant in the Room  

by
February 24, 2012

The past few weeks, the mainstream media have been touting some
economic indicators, such as the unemployment rate and GDP growth,
which show that our economy is slowly recovering from the Great
Recession.

I’m not even going to discuss the questionable methodology used by
the Labor Department, such as not including as unemployed those
discouraged workers, who are no longer looking for work.  And the GDP
numbers may also be misleading us, because of the methodology used by
the Commerce Department.  (We will discuss methodologies used at a
later date.)

Let us assume that the numbers are accurate.

Our official unemployment rate dropped from 8.5 percent in
December of 2011 to 8.3 percent in January of 2012, according to the
US Labor Department’s Bureau of Labor Statistics.

Also, recently, the US Department of Commerce released their
“advance estimate” of annual GDP growth rate of 2.8 percent for
the fourth quarter of 2011.  This was an increase from the GDP growth
rate of 1.8 percent for the third quarter of 2011.

But, even assuming that the numbers do show a tiny increase in the
positive indicators for our economy, does this mean our economic
policies have been successful?  Sadly, no.

There is an elephant in the room, that the mainstream media
ignores when talking about our economic “recovery.” The elephant
is the trillion dollar annual deficits that we have been running
since the Great Recession.

In the past three years (2009, 2010, and 2011), the US government
has pumped four trillion dollars of deficit spending into our
economy, averaging $1.3 trillion per year.  This is a massive amount
of stimulus spending.

A trillion dollars is a lot of money.  There are many ways that it
can be used to boost an economy.  For example, suppose the federal
government started hiring new workers, and paid them $40,000 per year
($30,000 + $10,000 benefits).  They could hire 25 million new workers
for a trillion dollars.

Of course, another trillion dollars would have to be spent the
following year, if the government wanted to keep paying the new
workers that were hired.  But, the unemployment rate would drop to
virtually 0.0 percent, since we do not presently have 25 million
unemployed workers.

Sure, the federal government did not directly hire 25 million new
workers.  But still, pumping $1.3 trillion into the economy should
have given us the equivalent benefits of hiring at least half that
number of workers.  Instead, our economy only added 1.7 million new
workers during the entire year of 2011.

So, when the government spends more than a trillion dollars per
year in deficit spending, and only gets a decrease of about one
percent in the unemployment rate, our economy is much weaker than the
mainstream media leads us to believe.

The trillion dollars of deficit spending is being used to keep our
unemployment rate from being much worst than the present 8.3 percent.

Likewise, the $1.3 trillion of deficit spending last year should have boosted our GDP much more than the anemic 1.7 percent real rate of growth that we had for the entire year of 2011. Our GDP is $15 trillion per year. The $1.3 trillion of deficit spending in 2011 was about 8 percent of the total GDP. But, our economy only grew by 1.7 percent.

This means that without the massive deficit spending, which is a
form of stimulus spending, our economy could have shrunk by 5-6
percent.  And this is not even allowing for the possible reverse
“multiplier effect,” which could have made things even worst, if
the $1.3 trillion had been removed from our economy last year.

Our economy is being propped up by this massive deficit spending.
And without it, we would most likely be thrown into a full-blown
depression.

We are spending a lot of borrowed money for our so-called economic
“recovery.”  This is the elephant in the room that the mainstream
media and politicians are ignoring, when they speak of our economic
“recovery.”

And a trillion dollars per year in deficit spending is a very big elephant.

 

 

2 Responses to Economic “Recovery” and the Elephant in the Room

  1. Christian Nelson on March 15, 2012 at 10:07 am

    I could not agree more. I don’t understand why this is not being discussed. Everyone is cheering 13,000 for the Dow, 8.3% unemployment and 2.8% GDP growth, but at what cost to our future. Just wait until there is a loss of confidence in the Fed and the US and our US government’s borrowing costs increase from 2% on the 10 year to 6% (still relatively low by historical standards). Over time, we will see the cost of interest on our debt triple. (I sure hope the US rolls its short-term debt into 30 bonds at relatively low rates now before they sky rocket). THIS IS CRAZINESS!!!

  2. TaxiDriver on March 17, 2012 at 8:39 pm

    Unemployment is NOT an economic indicator! At best, it’s an economic idiot light – it “warns” you of catastrophic failure AFTER it’s already happened. If every worker in the country took a 50 percent pay cut, obviously that would devastate the economy, but what would be the change in the unemployment numbers? ZERO! Conversely, if U3 were 15 percent, but MEDIAN wage (mean is a useless figure) were up 30 percent, then the economy would be booming, yet the higher unemployment would indicate a that the economy were doing poorly.

    It could just be that the 99 weekers have exhausted their benefits, and are now having to take ANY job, even if its min-wage, when previously, they were holding out for a REAL job as long as their benefits lasted.

    And to anyone who thinks that I’m just doing the right-wing recovery denial thing, I blogged about unemployment being an economic idiot light in 2010, when the unemployment numbers were still on the way up, and there was no “recovery” to be in denial about.

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