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Grim growth forecasts

I think that what a lot of people are looking for in the monthly economic numbers is a return to normalcy. Decent GDP growth, decent job creation, that sort of thing. But as the latest forecast out of UCLA's Anderson School says, that's not good enough. To climb out of the hole we're in, we need to grow much faster than would be normal:

Significant reductions in the unemployment rate require real gross domestic product (GDP) growth in the 5.0 percent to 6.0 percent range. Normal GDP growth is 3.0 percent, enough to sustain unemployment levels, but not strong enough to put Americans back to work. As a consequence, consumers concerned about their employment status are reluctant to spend, and businesses concerned about growth are reluctant to hire. The forecast for GDP growth this year is 3.4 percent, followed by 2.4 percent in 2011 and 2.8 percent in 2012, well below the 5.0 percent growth of previous recoveries and even a bit below the 3.0 percent long-term normal growth. With this weak economic growth comes a weak labor market, and unemployment slowly declines to 8.6 percent by 2012.

Luckily, there's a way to speed that growth: Deficit spending by the government. It will have to be offset by deficit reductions once our economy is back to normal. But in the short term, it's crucial for getting us back to that normal. Unfortunately, the United States Senate is already pulling back on jobs bills, because though we've still got 9.7 percent unemployment and anemic growth forecasts, they're tired of having to explain to people why deficits increase during a recession.

By Ezra Klein  |  June 17, 2010; 11:22 AM ET
Categories:  Budget , Economic Policy  
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Comments

Is that the bottom line? Congress will happily leave the country in jeopardy just to preserve their own careers?
And where in the Constitution does it say that all elected are entitled to careers?

Posted by: ostrogoth | June 17, 2010 11:43 AM | Report abuse

Ask the Intern:

How many jobs does a federal gov dollar buy? Provide optimistic (most efficient -- extending unemployment? building a smart power grid?), median and pessimistic (tax cuts for wealthy?).

The point of the question is to find out how much (deficit) spending would decrease unemployment by, say, 1%.

Or, from the perspective of a citizen, how much debt are you willing to take on to give you or your neighbor a better chance at finding a job?

Posted by: BHeffernan1 | June 17, 2010 11:48 AM | Report abuse

BHeffernan1,

Please place your suggested research questions for Dylan in the comment thread under the daily "Research Desk" posting, where they belong.

And please also remember the rules about the nature of the questions.

Posted by: Patrick_M | June 17, 2010 11:52 AM | Report abuse

Its not a lack of understanding that keeps republicans from supporting more federal spending for job creation. It is their stated desire to see this president fail.

Obama also partly brought this on himself by offering a compromise, too small, too many tax cuts, (why fix the AMT with "stimulus" money), and then allow it to be watered down more. He makes it harder on himself by saying that the stimulus would do more than it can given its small (about 50% too small) size...

Posted by: srw3 | June 17, 2010 12:37 PM | Report abuse

"they're tired of having to explain to people why deficits increase during a recession"

It's more that they're tired of having to explain why deficits have increased so much during the recession without having any of the promised effect. The failure of one stimulus makes it difficult to argue for another.

Posted by: tomtildrum | June 17, 2010 12:39 PM | Report abuse

May CPI falls, second month that CPI is down. 9.7% official employment rate, nearly 20% real unemployment/underemployment. Increasing reluctance on the part of the Congress and administration to stimulate the economy (extenders that maintain the status quo don't count).

High unemployment + deflationary pressures + reluctance to increase public spending = ???

[Off-topic - if a company official has to testify before Congress and has to base his or her testimony on evasive answers, weasel words, feigned ignorance and the like, does it hurt or help to have an English accent?]

Posted by: tuber | June 17, 2010 12:42 PM | Report abuse

@tomtildrum: Saying the stimulus failed is like saying an air pump failed because a person stopped pumping and only inflated a tire half way. More pumping (money) will make the tire (economy) grow. Its not like the stimulus made the economy worse (find a reputable economist who makes that argument). It stopped the slide into a depression, kept unemployment from getting 2-3% worse (even conservative economists agree here), and allowed state and local governments to keep from cutting or eliminating important social services that they provide.

Posted by: srw3 | June 17, 2010 1:16 PM | Report abuse

--"And please also remember the rules about the nature of the questions."--

Or what, Patrick? You throw a tantrum?

BHeffernan1 has a good question. How far in debt do you put yourself so you can watch your neighbor fill potholes?

Posted by: msoja | June 17, 2010 1:53 PM | Report abuse

--"[Deficit spending] will have to be offset by deficit reductions once our economy is back to normal."--

LOL. That's funny, Klein, as in hilarious.

Deficits are exploding on several fronts. The governments, state and federal, are in big, big trouble, and there will be no soft landing.

Posted by: msoja | June 17, 2010 1:59 PM | Report abuse

"Luckily, there's a way to speed that growth: Deficit spending by the government."

Your faith in deficit spending creating private sector growth and jobs is matched only by the faith of the Republicans in "tax cuts paying for themselves".

Posted by: jnc4p | June 17, 2010 2:49 PM | Report abuse

Growth is, by definition, unsustainable. All things are ultimately limited by the resources available, and I do not share the capitalist faith that all resources can be increased or used more efficiently, continuously, forever, to an infinite degree.

Population can't grow forever. Oil can't be replenished forever. So many limits.

Why do we continue to cheer on neverending growth as without wondering where it's coming from?

Why can we not ponder whether there might be kinder, more humane and sustainable ways of managing living in a world with boundaries and limits, while not seeing that as giving up on improvements and frontiers?

Time to accept that sometimes growth just can't happen and doesn't make sense. Sometimes, things shrink and contract, or what growth is possible happens elsewhere. To put our head in the sand on this leaves us tilting at windmills...

Posted by: Damek | June 17, 2010 3:43 PM | Report abuse

"Or what, Patrick? You throw a tantrum?"

No ... any "tantrum" taking place here would be your own.

Per my suggestion, the commenter then placed the question in the correct thread, and Dylan Matthews posted a reply to the question.

Posted by: Patrick_M | June 17, 2010 5:20 PM | Report abuse

--"No ... any 'tantrum' taking place here would be your own."--

What about elsewhere, Patrick? You wouldn't have anything to do with that troll at Yglesias's, would you?

Posted by: msoja | June 17, 2010 9:36 PM | Report abuse

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