This is what a recession looks like
For seven years, analysts have stated that the economy is in a sluggish recovery. Indeed, economic growth has not topped an annual 3 percent mark since 2005. And job creation has been anemic.
Nor is the recent news good. According to the Commerce Department, the economy expanded by only 1.1 percent this past spring. Though the analysts predict better results for the rest of the year, optimistic projections have often been wrong throughout the sluggish recovery.
Perhaps the time has come to stop calling the sluggish recovery a sluggish recovery. What we are more likely in is a recession. And the elements of recession are there. Nobel laureate Paul Krugman has defined recession as the condition in which corporate and consumer spending cease. And that is exactly what was happening earlier this year that prompted a sluggish economy.
Of course, a healthy economy demands adequate savings. But stimulation requires consumer and corporate spending too. And lack of spending due to low consumer confidence results in recession. Lack of spending based on low consumer confidence is often called the paradox of thrift.
The irony to the paradox of thrift is that demand suffers, thereby slowing economic activity to where total savings actually decreases. And the economy is left in an even worse condition than before the savings craze began.
This is what prompted the economy to move at a snail’s pace this year and it establishes the elements of recession. Still, economists cite the boost in spending from April to June as evidence that the economy will pick up. One Federal Reserve estimate forecasts the economic growth rate for July to September to climb to a 3.4 percent annual pace.
But as already stated, throughout this so-called sluggish recovery optimistic forecasts have often been wrong. And whereas the paradox of thrift has been at work, so too has the paradox of Barack Obama. Economists and pundits are reluctant to call the recession what it is because it is President Obama’s recession. And his cult-like popularity among the intellectual elite shield him from criticism.
Lest one doubt that this is Obama’s recession, consider the president’s own words. He proclaimed in 2010 that the fiscal stimulus packages passed the previous year would create 3 million jobs by the end of his first term. In this instance, the president betrayed a strain of economic illiteracy, as three million jobs in one presidential term is weak growth. Consider the first term of former President Bill Clinton when 15 million jobs were created.
Perhaps this time the optimistic forecasts will be realized. But should the sluggish 1 to 2 percent growth rate persist, the time will have come to change the terms of discussion from sluggish recovery to recession. And in considering whose recession it is, we cannot use George W. Bush as the perpetual straw man.
John O’Neill is a writer based in Allen Park.