From 1953 through 2007, there were only 10 quarters (out of 220) where per capita GDP was less than it had been three years earlier — clustered in the late 1950s and 1980s. And when GDP fell beneath the overall trend line, there was usually a spurt in growth that brought us back to the trend line.
This near-constant growth has given a regular boost to the pie Congress divvies up. This is why every presidential candidate of both parties over the past 20 years, including Barack Obama, was able to promise some combination of tax cuts, spending increases, and deficit reduction.
This enabled “grand bargains” on deficit reduction in the past. Take the famous balanced budget agreement of 1997. That consisted of a combination of spending cuts, but also spending increases (SCHIP began then, for example). It also contained major tax cuts. Yet because the pie was growing so rapidly, we still had enough left over for substantial deficit reduction.
But those days are over, at least in the short-to-medium term. We’ve now had 11 straight quarters where per capita GDP has been lower than it was not just three, not just four, but five years earlier. Third-quarter per capita GDP in 2011 was lower than every pre-recession quarter since early 2005. At it’s current trend, per capita GDP will not reach its pre-recession peak until 2014.
To channel Groucho Marx, with recoveries like this, who needs recessions?
Filed under: Economics |