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Obama’s growth recession continues

Written By | Sep 20, 2014

WASHINGTON, September 20, 2014 — While the Great Recession technically ended in mid-2009, surveys indicate that most Americans still feel its impact and believe we remain in recession. They believe this even though the economy has grown modestly over the last five years.

The real problem: We are currently in a growth recession.

A recession means that the economy is producing less than it did in the prior time period so that real gross domestic product (GDP, or output) is actually getting smaller. Since the economy has been growing, however, how can we still use the term recession?

Economists reason that if the population grows at a 2 percent annual rate, then GDP will have to grow at least 2 percent in order to provide enough additional goods and services for the new population. If we assume that the labor force participation rate (the percent of adults working or seeking jobs) stays constant, then a 2 percent growth in GDP should provide roughly 2 percent more jobs, enabling new labor force entrants to become employed.

At growth rates below 2 percent, the economy is growing, but not fast enough to absorb the new entrants into the labor market. Under these circumstances, unemployment could increase. Hence the term “growth recession,” in which the economy grows, yet unemployment increases.

But, we are informed, the unemployment rate has fallen substantially from about 9 percent in 2009 to just above 6 percent today. Isn’t that a sign of recovery, and not a growth recession?

No, it isn’t. The reason is that the labor force participation rate has not stayed constant, but rather has fallen dramatically. Indeed, about 5 million previously employed people have dropped out of the labor force in recent years. That, coupled with a smaller rate of increase in the population due to the prolonged economic slump, has been the real reason for the drop in unemployment.

Even during the past six months, when a healthy economy at this stage of the recovery should have been producing more than 300,000 jobs per month, we have managed to produce slightly more than 200,000. While this figure is trumpeted as success by the administration, it is really a sign of a continuing weak economy.

Since the official end of the recession, U.S. growth has averaged about 2 percent. We were more optimistic about the future when we learned that the economy grew at a 4 percent rate in the second quarter of this year. However, that optimism quickly fades when we realize that the negative growth of more than 2 percent in the first quarter simply meant that many purchases were postponed to the second quarter. If we take the two quarters together, GDP growth has been about 1 percent so far in 2014. Isn’t this a growth recession?

The economic policies of the current administration continue to keep the U.S. economy in this growth recession. Most forecasters believe the economy will slow down from its second quarter pace, so that growth for the year will likely be about 2 percent. Last year’s growth was slightly less than that.

None of this should really be surprising. Although he claim the contrary, all President Obama’s economic policies have been geared to benefit the bottom 15 percent of income earners, while at the same time producing poor conditions for the other 85 percent of us.

Take Obamacare for instance. There are close to 8 million Americans (an estimated 7.3 million) who were previously uninsured but who now have medical insurance. They receive a government subsidy to pay for it. The administration touts this as a success.

The reality is that the subsidies given to these people by the government ultimately come from taxpayers. So while a few million needy Americans are helped, hundreds of millions of hard working Americans actually pay for it. In addition, monthly premiums and deductibles have increased substantially for the vast majority of insured Americans. One can only conclude that Obama has helped those at the bottom, but has hurt the majority.

The president wants to raise the minimum wage and has already done so for federal workers. He says he wants to help the middle class. But the middle class does not work at minimum wage, or they wouldn’t be in the middle class.

Raising the minimum wage will help some low income workers. Instead, it will raise prices and increase unemployment, which will primarily hit low-skilled, low-income workers. It will act like a hidden tax, forcing the vast majority of consumers and taxpayers to pay more for less.

Given all of the foreign policy problems the U.S. faces today, the current political focus has moved away from the economy. However, this stealthy, persistent growth recession will continue as long as the administration insists on putting programs in place that (sometimes) benefit the bottom 15 percent of the income earners while the majority of the population, including almost the entire middle class, suffers.

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.