OPINION
October 31, 2012, 7:19 p.m. ET
A Slow but Steady Climb to Prosperity
The U.S. economy is improving. After the worst recession since the 1930s, healing takes a long time.
By ALAN S. BLINDER
.
Corbis
'Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." When John Adams penned those words in 1770, he probably didn't anticipate modern presidential campaigns, where wishes, inclinations and passions—even outright denials—often run roughshod over facts.
Two indisputable economic facts are highly relevant to the current campaign. First, more than four years after the frightening financial panic and deep recession triggered by the collapse of Lehman Brothers in September 2008, the U.S. economy is still not healthy. Second, however, the economy is improving. Notice that the second fact doesn't contradict the first. When you suffer through the worst recession since the 1930s, healing takes a long time.
The first fact (the economy is weak) is damaging President Obama's prospects for re-election while the second (it's getting better) is boosting them. So it is natural, I suppose, that some supporters of Mitt Romney, and even Mr. Romney himself, sometimes dispute the second fact.
.
Indeed, some fanatics on Mr. Romney's side—but not the candidate himself—went so far as to suggest that the U.S. Bureau of Labor Statistics cooked the books when it said the unemployment rate fell to 7.8% in September. That reckless charge isn't just baseless; it would have been virtually impossible to pull off, even had the White House tried. You may be interested to know, by the way, that while the government's two independent employment surveys—one of households, the other of payrolls—fluctuate from month to month and were miles apart in September, they show quite similar total job increases over the past 24 months. Yes, facts are stubborn things.
The late Sen. Daniel Patrick Moynihan used to say that everyone is entitled to his own opinions, but not to his own facts. What are the facts here?
Mr. Romney repeatedly says the economy is growing more slowly this year than last year, and grew more slowly last year than the year before. If he's referring to real GDP, as I suppose he is, he's right. GDP growth averaged 2.4% over the four quarters of 2010, 2% over the four quarters of 2011, and only 1.7% so far this year. That's not good.
But most people care much more about jobs than GDP. According to both the household survey and the payroll survey, more jobs were created in 2011 than in 2010. So far, the household survey finds much faster job creation in 2012 than in 2011, but the payroll survey doesn't. In each case, however, three monthly measurements for 2012 are yet to come—the next on Friday.
On the unemployment front, progress since 2010 has been slow but palpable. The national unemployment rate peaked at 10% in October 2009, dropped to 9.4% at the end of 2010, fell to 8.5% by the end of 2011, and to 7.8% in September 2012. No one knows what Friday's report on October will bring, but we have finally struggled back to the unemployment rate of January 2009.
What of the future? Forecasts aren't facts—and the more so when a dangerous "fiscal cliff" (tax increases and spending cuts amounting to 3.5%-4% of GDP) looms ahead. But there are definitely positive signs. The stock market is near a five-year high. Recent data on consumer spending and confidence show improvement, though we need more data before declaring victory. At long last, the housing market is growing rapidly, albeit from a very low base.
Meanwhile, government purchases of goods and services declined for eight consecutive quarters before a surprising uptick in federal spending (largely for defense) in the third quarter of this year. Falling government demand is the opposite of what we need in a weak economy.
On balance, the U.S. economy is healing its wounds—that's another fact. But none of this puts us on the verge of an exuberant boom. Still, if the fiscal cliff is avoided and the European debt crisis doesn't explode in our face, both GDP growth and job growth should be higher in 2013 than in 2012—even under current policies. But that's a forecast, not a fact.
To grow even faster, we'll need either good luck or more help from policy. It would be nice to get both. For its part, the Federal Reserve is doing whatever it can. It isn't that much any longer, but the Fed keeps trying. The central bank's latest round of quantitative easing, QE3, was announced last month, and it has the Fed purchasing $40 billion of mortgage-backed securities each month until the labor market improves. The Fed hasn't ruled out a QE4 or QE5 if necessary.
But lawmakers can and should be doing more. As I've said on this page before, fiscal policy should be giving us a combination of sizable stimulus right now and thoroughgoing deficit reduction starting in a year or two. (That's an opinion.) Instead, it's doing neither. (That's a fact.)
For stimulus, we could do a lot worse than to enact President Obama's American Jobs Act, which he proposed about a year ago. It consisted of about $250 billion in tax cuts and about $200 billion in spending, most of it well targeted on creating jobs. But Republicans rejected the act outright.
For deficit reduction, I believe the nation eventually will come around to something resembling the Simpson-Bowles plan, which was rejected by both parties (with Rep. Paul Ryan voting against it) when Alan Simpson and Erskine Bowles proposed it in 2010. Although President Obama didn't embrace Simpson-Bowles in 2010, his current 10-year deficit-reduction plan is a first cousin. Any such plan would "pay for" the American Jobs Act many times over.
For his part, Mitt Romney rejects any short-term fiscal stimulus, attacks the Fed for trying to speed up the recovery, and proposes large, new, permanent tax-rate reductions—beyond even the Bush tax cuts—which would almost certainly bust the budget again. He claims the rate cuts can be paid for by closing loopholes. But several neutral third parties have demonstrated that his numbers don't add up.
So the Romney plan would provide neither the short-run stimulus nor the long-run deficit reduction we need, while the Obama plan would provide both. Which plan is better? I guess the answer to that is an opinion, not a fact.
Mr. Blinder, a professor of economics and public affairs at Princeton University, is a former vice chairman of the Federal Reserve.
'Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence." When John Adams penned those words in 1770, he probably didn't anticipate modern presidential campaigns, where wishes, inclinations and passions—even outright denials—often run roughshod over facts.
Two indisputable economic facts are highly relevant to the current campaign. First, more than four years after the frightening financial panic and deep recession triggered by the collapse of Lehman Brothers in September 2008, the U.S. economy is still not healthy. Second, however, the economy is improving. Notice that the second fact doesn't contradict the first. When you suffer through the worst recession since the 1930s, healing takes a long time.
The first fact (the economy is weak) is damaging President Obama's prospects for re-election while the second (it's getting better) is boosting them. So it is natural, I suppose, that some supporters of Mitt Romney, and even Mr. Romney himself, sometimes dispute the second fact.
.
Indeed, some fanatics on Mr. Romney's side—but not the candidate himself—went so far as to suggest that the U.S. Bureau of Labor Statistics cooked the books when it said the unemployment rate fell to 7.8% in September. That reckless charge isn't just baseless; it would have been virtually impossible to pull off, even had the White House tried. You may be interested to know, by the way, that while the government's two independent employment surveys—one of households, the other of payrolls—fluctuate from month to month and were miles apart in September, they show quite similar total job increases over the past 24 months. Yes, facts are stubborn things.
The late Sen. Daniel Patrick Moynihan used to say that everyone is entitled to his own opinions, but not to his own facts. What are the facts here?
Mr. Romney repeatedly says the economy is growing more slowly this year than last year, and grew more slowly last year than the year before. If he's referring to real GDP, as I suppose he is, he's right. GDP growth averaged 2.4% over the four quarters of 2010, 2% over the four quarters of 2011, and only 1.7% so far this year. That's not good.
But most people care much more about jobs than GDP. According to both the household survey and the payroll survey, more jobs were created in 2011 than in 2010. So far, the household survey finds much faster job creation in 2012 than in 2011, but the payroll survey doesn't. In each case, however, three monthly measurements for 2012 are yet to come—the next on Friday.
On the unemployment front, progress since 2010 has been slow but palpable. The national unemployment rate peaked at 10% in October 2009, dropped to 9.4% at the end of 2010, fell to 8.5% by the end of 2011, and to 7.8% in September 2012. No one knows what Friday's report on October will bring, but we have finally struggled back to the unemployment rate of January 2009.
What of the future? Forecasts aren't facts—and the more so when a dangerous "fiscal cliff" (tax increases and spending cuts amounting to 3.5%-4% of GDP) looms ahead. But there are definitely positive signs. The stock market is near a five-year high. Recent data on consumer spending and confidence show improvement, though we need more data before declaring victory. At long last, the housing market is growing rapidly, albeit from a very low base.
Meanwhile, government purchases of goods and services declined for eight consecutive quarters before a surprising uptick in federal spending (largely for defense) in the third quarter of this year. Falling government demand is the opposite of what we need in a weak economy.
On balance, the U.S. economy is healing its wounds—that's another fact. But none of this puts us on the verge of an exuberant boom. Still, if the fiscal cliff is avoided and the European debt crisis doesn't explode in our face, both GDP growth and job growth should be higher in 2013 than in 2012—even under current policies. But that's a forecast, not a fact.
To grow even faster, we'll need either good luck or more help from policy. It would be nice to get both. For its part, the Federal Reserve is doing whatever it can. It isn't that much any longer, but the Fed keeps trying. The central bank's latest round of quantitative easing, QE3, was announced last month, and it has the Fed purchasing $40 billion of mortgage-backed securities each month until the labor market improves. The Fed hasn't ruled out a QE4 or QE5 if necessary.
But lawmakers can and should be doing more. As I've said on this page before, fiscal policy should be giving us a combination of sizable stimulus right now and thoroughgoing deficit reduction starting in a year or two. (That's an opinion.) Instead, it's doing neither. (That's a fact.)
For stimulus, we could do a lot worse than to enact President Obama's American Jobs Act, which he proposed about a year ago. It consisted of about $250 billion in tax cuts and about $200 billion in spending, most of it well targeted on creating jobs. But Republicans rejected the act outright.
For deficit reduction, I believe the nation eventually will come around to something resembling the Simpson-Bowles plan, which was rejected by both parties (with Rep. Paul Ryan voting against it) when Alan Simpson and Erskine Bowles proposed it in 2010. Although President Obama didn't embrace Simpson-Bowles in 2010, his current 10-year deficit-reduction plan is a first cousin. Any such plan would "pay for" the American Jobs Act many times over.
For his part, Mitt Romney rejects any short-term fiscal stimulus, attacks the Fed for trying to speed up the recovery, and proposes large, new, permanent tax-rate reductions—beyond even the Bush tax cuts—which would almost certainly bust the budget again. He claims the rate cuts can be paid for by closing loopholes. But several neutral third parties have demonstrated that his numbers don't add up.
So the Romney plan would provide neither the short-run stimulus nor the long-run deficit reduction we need, while the Obama plan would provide both. Which plan is better? I guess the answer to that is an opinion, not a fact.
Mr. Blinder, a professor of economics and public affairs at Princeton University, is a former vice chairman of the Federal Reserve.
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