quinta-feira, julho 14, 2011
The Disappearing Recovery
By DANIEL HENNINGER, WSJ
Barack Obama, John Boehner and Mitch McConnell have been performing an intricate scorpion dance over spending, taxes and the debt ceiling, premised on the belief that this is the deal that would ignite the recovery.
But what if it's too late? What if that first-quarter growth rate of 1.8% is a portent of the U.S.'s long-term future? What if below-normal U.S. GDP is, as the Obama folks like to say, the new normal?
Robert Lucas, the 1995 Nobel laureate in economics, has spent his career thinking about why economies grow, and in particular about the effect of policy making on growth. From his office at the University of Chicago, Prof. Lucas has been wondering, like the rest of us, why, if the recession officially ended in the first half of 2009, there hasn't been more growth in the U.S. economy. He's also been wondering why this delayed recovery resembles the long non-recovery years of the 1930s. And he has been thinking about the U.S. and Europe.
In May, Bob Lucas pulled his thoughts together and delivered them as the Milliman Lecture at the University of Washington, an exercise he described to me this week as "intelligent speculation."
Here is the lecture's provocative final thought: "Is it possible that by imitating European policies on labor markets, welfare and taxes, the U.S. has chosen a new, lower GDP trend? If so, it may be that the weak recovery we have had so far is all the recovery we will get."
The Obama-will-turn-us-into-Europe argument is a staple of the administration's critics. Prof. Lucas's intelligent speculation, however, carries the case beyond dinner-party carping.
The baseline reality for any discussion of where we're headed is that from 1870 to 2008, the U.S. economy has had average GDP productivity growth of about 3% and about 2% on a per-person basis. Despite displacements—wars, depressions—we've always returned to this solid upward trend. From 1870 till recently, real income per person has increased by a factor of 12—"an ongoing miracle," Prof. Lucas notes, "mainly due to free-market capitalism."
The Obama economists like to argue that this recession was the greatest meltdown since the Depression. Prof. Lucas agrees. Most recessions, he says, are not very important events. This one, though, has taken U.S. GDP almost 10% off its long-term growth trend. The only downturn comparable to this in the past century is the more than 30% decline during the Depression.
What discomfits him is the similarities in the policy choices that accompanied both delayed recoveries. By 1934, the Depression's banking crisis had been resolved, "yet full recovery was still seven years away," he said in the Milliman lecture. GDP stayed more than 10% below trend. "Why?" The answer, he says, was growth-suppressing policies, such as the Smoot-Hawley tariff, cartelization, unionization and, "most important but hardest to measure, FDR's demonization of business."
By the end of 2008, he notes, the primary storm of the financial panic was essentially over. We did get spending declines in GDP in that year's last quarter and in the first quarter of 2009. "But there is a world of difference," he says, "between two quarters of production declines and four years!" The persistence of growth 10 percentage points below its long-term trend line is troubling.
He credits the current Federal Reserve with avoiding the mistakes of the Depression, properly acting this time as the lender of last resort. With the financial side essentially in order and the recovery stalled, Prof. Lucas sees public-policy analogies to the 1930s: "The likelihood of much higher taxes, focused on 'the rich'; medical legislation that promises a large increase in the role of government; financial legislation that assigns vast, poorly defined responsibilities to the Fed and others."
The consensus assumption, however, is that the U.S. economy will return to its century-long growth trend. Prof. Lucas asks: "Is this really the case?"
Forgotten in most discussions of the U.S.-Europe comparison is that for the first 70 years of the 20th century, continental Europe's growth rose alongside that of the world-leading U.S. and U.K., especially after World War II. Through the 1960s, he says, there was every reason to expect a common, high living standard for all of us. Then, "in the 1970s, their catch-up stalled."
A 20% to 40% gap in income levels emerged between the U.S. and Europe, reflecting a lowered European work effort. In Prof. Lucas's view, that gap represents the cost (largely taxes) of financing a larger welfare state from 1970 onward. Other economists, he says, have cited a 30% loss in GDP per person in Western Europe since the 1970s.
The U.S.'s projected long-term welfare costs, including the new health-care law, are the justification the Obama economists give for pushing spending to 25% or more of GDP. The tax increase the president is fairly shrieking for this week isn't for the August debt limit. It's for the next 25 years.
"If we're going to move to a European welfare state," says Prof. Lucas, "we're going to have to pay a European price." And that price could be a permanently lower level of GDP per person. The U.S.'s amazing 100-year ride would slow.
Among the many things any such drop in GDP will siphon away is America's relentless productive vitality. "So much new happens in the United States," Prof. Lucas says. But will it still?