I’m not a very exciting guy. It’s Saturday afternoon and I’m perusing the Budget and Economic Outlook from the Congressional Budget Office.
But sometimes it pays to be a nerd because I just found an interesting tidbit of information. Here’s what CBO says about the anemic economic output we’re experiencing compared to the growth we should be enjoying.
…output is likely to remain below its potential (or maximum sustainable) level until 2017—almost a decade after the recession started in December 2007. CBO estimates that real GDP in the fourth quarter of 2012 was below its potential level by about 5½ percent; that gap is only modestly smaller than the gap (of about 7½ percent) that existed at the end of the recession in mid-2009 because growth in output since then has been only slightly faster, on average, than growth in potential output.
Let’s translate this bit of jargon into English.
What CBO actually is saying is that the economy hasn’t enjoyed the bounce of above-average growth that normally follows a recession (and we have more than 130 years of data showing this is the normal pattern). As a result, instead of recovering all the lost output associated with the downturn, we’re still suffering from sub-par levels of output.
CBO specifically says that we were “about 5½ percent” below potential at the end of last year. That’s about $880 billion of lost output. Not exactly a ringing endorsement of Obamanomics.
But that’s just part of the story. CBO also looks at the cumulative output gap.
With such a large gap between actual and potential output persisting for so long, the cumulative loss of output relative to the economy’s potential between 2007 and 2017 will be equivalent to nearly half of the output produced last year.
Since output last year was $16 trillion, the cumulative output gap is $8 trillion. That’s a ton of money, even by Washington standards.
Here’s a chart from CBO showing this output gap.
By the way, I’m not sure I believe CBO’s estimate that we’ll get back to the trend line by 2017. Why expect good things when the economy is saddled by excessive taxation, wasteful spending, and burdensome regulation?
All that we know for sure is that the economy has been lagging, which is starkly evident if we simply look at actual data.
By the way, if you think I’m cherry picking numbers to make Obama look bad, my first reaction is to laugh since CBO leans way to the left and has zero reason to make Obama look bad. Remember, these are the clowns that tried to justify Obama’s Keynesian stimulus scheme.
But if you don’t want to believe the CBO data for inexplicable reasons, how about the Washington Post, which certainly is on the left side of the political spectrum? Surely they’re not part of the vast right-wing conspiracy, right?
Check out this chart they posted comparing the current recovery to a normal recovery, though you won’t be surprised to learn that they conveniently waited until after the election before sharing this vital bit of information.
Or what about the Minneapolis Federal Reserve, which has an interactive website enabling a reader to compare all the business cycles since the end of World War II.
These charts show both employment and output for every one of those business cycles. You can click to see larger versions, but all you need to know is that the current business cycle is the red line – and it happens to show that Obamanomics has generated the worst results whether we’re looking at jobs of GDP.
None of this is to suggest, by the way, that Obama’s policies caused the recession. That happened on Bush’s watch.
But I am stating that Obama’s big-government policies have played a role in keeping the economy from enjoying a strong recovery. That’s been no post-recession bounce.
Ronald Reagan also inherited a dismal economy. He had to deal with high interest rates and inflation rather than a banking crisis, so I don’t know which President was dealt a worse hand of cards. But I know that Reagan’s policies of free markets and smaller government helped trigger an economic boom.
Obama, by contrast, basically has continued Bush’s policies of intervention and bigger government. No wonder we’re suffering a multi-trillion dollar output gap.
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I actually have a running tabulation of US Lost Output based on this methodology, we’re nearly at $5 trillion right now: http://www.lostoutputclock.com
Very related to this topic. The difference between this situation Obama is in and Reagan’s, was that Reagan had to deal with what was fundamentally a supply-side problem (causing inflation pressures, like in the energy industry for example). But this time, we have a clear DEMAND problem, which means either tax cuts or higher government spending. Unfortunately, Obama has been raising taxes (payroll increase especially has hurt consumers) and cutting spending, so it has certainly not helped the recovery.
[…] We have more and more evidence with each passing day that Keynesian economics doesn’t work. President Bush imposed a so-called stimulus plan in 2008 and President Obama imposed an even bigger “stimulus” in 2009. Based upon the economy’s performance over the past five-plus years, those plans didn’t work. […]
[…] We have more and more evidence with each passing day that Keynesian economics doesn’t work. President Bush imposed a so-called stimulus plan in 2008 and President Obama imposed an even bigger “stimulus” in 2009. Based upon the economy’s performance over the past five-plus years, those plans didn’t work. […]
[…] President Bush imposed a so-called stimulus plan in 2008 and President Obama imposed an even bigger “stimulus” in 2009. Based upon the economy’s performance over the past five-plus years, those plans didn’t work. […]
[…] President Bush imposed a so-called stimulus plan in 2008 and President Obama imposed an even bigger “stimulus” in 2009. Based upon the economy’s performance over the past five-plus years, those plans didn’t work. […]
[…] President Bush imposed a so-called stimulus plan in 2008 and President Obama imposed an even bigger “stimulus” in 2009. Based upon the economy’s performance over the past five-plus years, those plans didn’t work. […]
[…] President Bush imposed a so-called stimulus plan in 2008 and President Obama imposed an even bigger “stimulus” in 2009. Based upon the economy’s performance over the past five-plus years, those plans didn’t work. […]
re: “I’m not sure I believe CBO’s estimate ”
The Federal Reserve has a study that looked at the accuracy of the last few decades of CBO’s deficit forecasts which showed their 5 year ahead forecasts were worse than a “random walk” (RW):
Click to access 21-40Kliesen.pdf
“”the CBO’s cumulative 5-year projections are considerably worse than projections from the RW model; […]the deficit projections beyond a year were unreliable. Importantly, we found that the projections were biased in the direction of underprojecting the size of the deficit or overprojecting the size of the surplus.””
Businesses often do alternative scenarios for the future to examine the expected case, but also the worst and best cases. The Social Security administration at least pretends to do that for its forecasts, yet goverment-wide forecasts don’t tend to do that. The SSA at least provides a more conservative GDP growth forecast, which this page plugs into a GAO long term debt forecast here as part of considering more conservative numbers:
http://www.politicsdebunked.com/article-list/budget-lottery
which also provides an interactive graph where you can vary other options like interest rate scenarios to see the results. Towards the end it links to other pages on that site indicating that the SSA may be overoptimistic in its Social Security and Medicare costs estimates, and that even its GDP forecast may not be conservative enough.
Converge this Economic forescast with the current politics in the middle east and the years beyond 2020 are going to be fun like hell
Obama is a worst President of the history of US
…”effort-reward” curve…
Potential? It is the potential itself that is vanishing.
You don’t increase potential by flattening the effort-rearward curve (take from exceptional ism to make mediocrity a little more comfortable) and then…
…try to make up for the shortfall by subjecting a larger and larger proportion of the economy to collective management (regulation and intervention).
That potential is gone.
CBO seems to subscribe to that generalized American illusion that American superior prosperity is preordained by divine and other, perhaps serendipitous, forces. That it is a windfall that can be used to implement a welfare state. If i had to pick one thing, I’d say that is the most pivotal and widespread American delusion. It is the delusion axiom that makes liberals cry “such a wealthy country can sure afford a welfare state”.
Such a wealthy country will stop being exceptional on the world stage if it implements a welfare state with a large percentage of its economy under centralized collective management. On a historical timescale the fall will be precipitous. But even on a human lifetime scale the fall will still be precipitous. If you think it is your children’s problem, think again. This is the early 21st century and things are moving faster than they have ever before in human existence… And accelerating. Looking into the future, the pace of change (no, not that change) will be ever faster. Those nations who veer off in the HopNChange direction will be in the ditch in no time. You will see things change at speeds you have never seen before.
When I look at the job data from the Fed, the recovery slope looks too small. The chart from the Department of Labor at the end of http://www.forbes.com/sites/warrenmeyer/2013/04/17/the-end-of-full-time-work-in-the-american-retail-service-sector/ gives a potential explanation for the sudden change of slope. I’d be interested in your comments.