Tabulae

Archive for February 2016

Proof that we never came out of the recession

leave a comment »

With today’s economy, you can argue both sides of a lot of issues. For example:

employment:

  • Democrats “Unemployment rate is down below 6%”
  • Republicans “Worker participation rate is at 30 year lows”

GDP:

  • Democrats “GDP growth has been positive every year of Obama’s Presidency”
  • Republicans “GDP growth following the GWB recession is the worst since the              Great Depression”

However, there is one statistic that is not up for interpretation, and it proves that the Obama economy has been a disaster.

First, a little history. Humans have always had a boom and bust economic cycle. This is nowadays mostly referred to as the business cycle. Then along came the Keynesian’s, who argued that the volatility caused human misery. Their solution was to use various economic levers controlled by government to encourage economic activity during downturns (“prime the pump”), while lessening it during booms (keep the economy from getting “red hot”).

The basic idea is that you borrow growth from the booms and move it to the busts.

The primary method used today in the US is the interest rate the Fed charges banks. When the economy slows down, interest rates are lowered to encourage economic activity. When it comes back out of recession, they are raised again. There are multiple reasons for the increase, but one of the most important is this then gives the government back their strongest tool to combat a future recession – if the rate is already low, there is nowhere to lower it to.

During the 2007-8 recession, this rate was reduced from 5.25% to .15%. It stayed at this level until just a couple of months ago, and is now still only at .34%.

The Fed rate has never been raised back up, proof that we have never emerged from the recession.

Even the poor “growth” we have seen under the Obama economy is, to a large extent, simply a function of the Fed interest rates. Take that artificial boost away, and GDP levels for the last 7 years would have been basically flat, give or take a few percentage points.

Advertisements

Written by Jim T

February 3, 2016 at 12:48 am

Posted in Uncategorized