The US economy is creating new wealth and growing employment, albeit at a slow pace. But uncertainty is the key word that describes the economic situation at mid-2013. There are major unknowns with respect to Fed policy, taxing and spending, the effects of Obamacare on employment, the implementation of Dodd-Frank financial reform, regulatory policy affecting the production of electricity, and the prospects for Europe’s recovery from an extended recession. Add to this pallid picture reductions in growth in China, India, and the developing world taking some of the edge off the global boom, which, in spite of that growth haircut, is still tugging away on America’s export growth.
There was only one lane open as I made my trip to Atlanta; the other three were blocked with those unhappy yellow and black make-believe barrels used by the highway folks. Traffic flow was constrained by efforts to repair potholes and broken pavement. We in the slow lane had little choice in the matter. Instead of 70, we were slowed to 20 miles per hour. We had to accept our fate, or find another route at the next exit.
This special Mercatus Center edition of my Economic Situation report focuses on what I call the stumbling U.S. economy. In the report, I seek to explain how and why the economy is performing so poorly. I do this by assessing some of the economy’s major features. The first assessment involves an examination of the economy’s uneven pulse beat, best seen in GDP growth data. I then turn to state unemployment and state GDP growth data and present another picture of uneven growth. After discussing federal budgets and deficits, I turn to labor markets and then to an assessment of the Federal Reserve Board’s efforts to stimulate the economy using quantitative easing. I conclude this special report with a brief review of what has happened to income distribution and a short summary of what I expect we will see across the rest of 2012 and in 2013.
The U.S. economy has not been healthy since 2001 when 9/11 pushed the country into a recession. As the accompanying data tell us, real GDP growth has risen to meet the long-term average of 3.11 percent just once since 2001, and that was in 2004. The combination of wars, financial collapse, natural disasters, and political games has taken a heavy toll on economic growth. No one is talking about 3 percent or better growth anytime in the foreseeable future. But it’s not just about Democrats and Republicans. It’s about something deep in the economy.