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| Are We There Yet? | July 30, 2010
 | | Are We There Yet? | | Driving with No Spare | | A Muddle Through Economy | | Absent a Policy Mistake | | Maine and Turks, Etc. |
"... [this economic
condition] has been brought about by policies which the majority of economists
recommended and even urged governments to pursue. We have indeed at the moment
little cause for pride: as a profession we have made a mess of things." - Friedrich
August von Hayek, Nobel Speech 1974 Those of us who have taken young children on
long road trips to somewhere they wanted to go are familiar with the plaintive
question "Are We There Yet?" As a nation and indeed the developed world, it is
not unreasonable to be asking "Are We There Yet?" about the road to recovery.
The NBER, those self-appointed economists who are the official keepers of the
score sheet of recessions and recoveries, have yet to tell us we are out of
recession. Yet the economy is growing. Kind of. Today we look at the most
recent data on second-quarter US GDP (which came out this morning), and even
though it is backward-looking data, we'll see what we can discern that might
help us chart the direction of the future. And then, if there is time, I'll
highlight what is a very serious and growing problem for our state and local
governments. There is a lot to cover and so, with no "but firsts," let's dive
in. The economy of the US grew at a weaker than
expected 2.4% in the second quarter, but the first quarter was revised back up
to 3.7% on the strength of stronger-than-projected inventory rebuilding. But
the recession years were revised downward rather significantly for this late in
the cycle. We find now that the recession was worse than we thought, taking the
economy down a total of 4.1% during the recession. As of today, we are not
quite back to where we started, still down 1%. That means it is quite possible
that we could finish the year and still not be "there yet." (To see a 1% rise
in GDP we would need to see a 2% annualized rise for the rest of the year. We'll
look at that possibility in a few paragraphs.)
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