A lot of people know the old quote which says “predicting is hard, especially about the future.” Granted, everybody gets it wrong sometimes, but this time our economists were really wrong. We were told the economy grew slightly in the first quarter of this year. Now, two revisions later, the latest gross domestic product estimate concluded that the economy actually shrank.
A crisis of confidence is in order.
This was the worst quarter for the GDP since the peak of the Great Recession five years ago. At this point American people might be forgiven for doubting the experts and leaders who should be counted on to make responsible decisions.
And by that, we don’t mean Republicans. Nowadays the GOP’s approach to economic policy amounts to little more than a reckless determination to repeat the errors which created the crisis in the first place. But the rest of our economic leadership should be questioning its assumptions today, too.
Here’s where we are now: Unless the economy grows at a relatively dazzling 4 percent for the remaining three quarters of the year, 2014 won’t even keep pace with the tepid average growth rate of 2.4 percent we’ve experienced since 2009.
Everybody knows that “SNAFU” is an old military term that means “situation normal, all ‘effed’ up.” That’s been the state of play in economic policy for some time now. When indicators are good, they’re not good enough to help the dying middle class. When they’re bad, we get more spinning than action. And nothing ever seems to produce a sense of urgency to match the crisis that millions of people are experiencing every day.
Let’s face it: On the economy, it’s just been one snafu after another.
SNAFU: They got the numbers wrong.
The Bureau of Economic Analysis’ initial GDP forecast produced a palpable sense of relaxation in some quarters. Predictions were made for solid economic progress throughout the year, and there were suggestions that a crisis point had finally passed. But the figures were wrong. Instead of growing at an annualized rate of 0.1 percent, the BEA now says that the economy shrank by 2.9 percent.
That’s a huge swing. How did it happen?
We were told that the most significant shift in the numbers came from the health care portion of the economy. Its growth was estimated at an annualized 9.9 percent, which was a stunningly large figure. It also happened to be wrong. We are now told that health spending actually shrank by 1.4 percent in the first quarter.
One wonders why a startling number like that wasn’t questioned more thoroughly.
SNAFU: Policymakers don’t understand health care spending.
The BEA’s original numbers were greeted with a raft of headlines telling us that “Obamacare saved the economy.” (The Huffington Post’s Mark Gongloff was a good sport about his own.) The assumption was that millions of people had receive coverage for the first time, and promptly received all sorts of needed services.
There were problems with that from the start. First, the ACA’s open enrollment period lasted through March 31, so enrollment wasn’t complete for most of the quarter. There’s also some lag between enrollment and treatment. If Obamacare had caused expenditures to grow by nearly 10 percent before people were even done signing up, the headlines should have read “Health spending expected to explode in second quarter.”
What’s more, a great many ACA enrollees have signed up for “high deductible” plans, which have the most affordable premiums but require a great deal of out-of-pocket spending. While there is likely to be pent-up demand for medical services, many uninsured Americans will still lack the ready cash needed to obtain them.
Some people attributed the chimerical spending “spike” to new Medicaid enrollees, but that didn’t make sense either. We don’t have the infrastructure or the provider base to deliver such a dramatic increase in services to Medicaid enrollees.
Some people used the illusory spending surge as an opportunity to praise Obamacare for boosting the economy. Now that we’ve learned health care spending actually went down, some of the same people are praising the ACA for controlling costs. That’s spin, too. Could it be that sometimes even the best-trained eyes see what they want to see?
The cost drop may have just been the smoothing of numbers between two quarters. Or perhaps people got less medical care because the winter weather kept them indoors. And maybe the ACA did help. The fact is, we don’t know yet why spending went down. Here’s an idea: when we don’t know something, why not say “we don’t know”?
SNAFU: Consumer spending is down.
The initial estimate for this quarter called for a 2.4 percent increase in personal spending. Instead, spending on personal consumption nosedived, from 3.1 percent to just 1.0 percent. (Durable goods orders were down, too.) What happened to the consumer recovery we heard so much about?
It seems that the fundamentals still apply: You can pump up the economy through banking institutions and the stock market, but you still can’t have a robust and stable recovery without people buying things. For that, consumers need money to spend – and the confidence to spend it.
SNAFU: A worse-than-expected trade deficit.
Exports of American-made goods fell by 8.6 percent, which is worse than the 6 percent decrease which was originally predicted. Imports rose by 1.8 percent, instead of 0.7 percent. That hurts the GDP figures. It also means fewer jobs in the United States.
The way current trade deals are structured, many of the overseas jobs that produced these goods lack basic worker protections. Good jobs are lost here, in return for dangerous and underpaid jobs overseas, and our economy takes a hit, too.
Remind me again: Why is our government negotiating even more “free trade” deals?
SNAFU: How about that weather?
And about that weather: We’re being told not to worry about the first-quarter results, because it was due to winter conditions. That doesn’t account for all of it, although weather undoubtedly was a factor.
But then, why isn’t somebody explaining to the American people that climate change is an economic issue, and a serious one at that? Last year was one of the warmest winters on record in this country, according to reports, and this year was one of the coldest (and longest) we’ve had a long time. If we’re really concerned about what the weather is doing to our economy, why aren’t we doing more to address climate change?
Oh, yeah. Republicans.
SNAFU: We’re measuring wrong.
The GDP has never been the best measurement of an economy’s overall effectiveness. If the minimum wage were still keeping pace with productivity, as it did for in the decades leading up to 1968, perhaps it would make more sense as a measurement. (The minimum wage would also be above $20 an hour if it had kept pace with productivity.) But in an increasingly unequal society, the GDP tells us very little about how the economy is working for everyone.
What’s more, the GDP fails to measure all the other factors that influence the quality of human life. That’s why some alternate measures have been proposed, including the Genuine Progress Index (GPI). As Sean McElwee and Lew Daly noted recently in The Washington Post, “What was once a highly technical debate about the failures of conventional economic metrics is fast becoming a world movement to unseat GDP and replace it with something better.”
(We spoke with McElwee about it on a recent broadcast of The Zero Hour.)
SNAFU: Our leaders have been spinning us ever since “Recovery Summer.”
This month marked the four-year anniversary of “Recovery Summer,” the Obama Administration’s ill-conceived attempt to persuade the American people that the government had done enough to revive the economy and things were already getting better.
They could have done things differently. They could have explained to the American people that the government must do more to create jobs, stimulate wage growth, and reduce inequality. They could have given voters a clear choice between the austerity economics of the Republicans and the recession-busting techniques that have worked so well in the past.
They chose not to do that. Instead the White House presented the American people with its own form of “Austerity Lite” – either because they believe in that approach, or because they didn’t think they could get anything else through Congress and didn’t want to fight it out. They’ve been living with the consequences ever since.
And through it all, there’s been spinning – especially about private-sector job growth. Two hundred thousand new jobs a month sounds like a great accomplishment. But 400,000 jobs are needed to accommodate a growing workforce. We’ll need government action to reach that goal, including direct job creation in infrastructure and other critical areas. But instead of being told what’s really needed, we seem to get one “recovery summer” after another.
And you know what they say about recovery: The first step is admitting there’s a problem.
SNAFU: Still no jobs, wages are still stagnant, inequality keeps growing.
Some experts keep insisting all will be well … soon. There’s a “spring rebound predicted,” we’re told. Will that “spring rebound” create 400,000 jobs a month? Because if it doesn’t – and it almost certainly won’t – we’ll still need aggressive action from our government to get us out of this crisis. The best we can hope for is a slim chance that this year might, just might, wind up reaching the mediocre average growth rate of the last four years.
There’s no way around it: Even if this quarter’s report was just a fluke, things are still lousy out there for a lot of people. And nobody’s doing much about it.
We recently saw thoughtful comments from economists Jared Bernstein and Paul Krugman about the role of “insular wonks” in policymaking, especially when it comes to proposing ideas that are outside the realm of current “political realities.” But political realities don’t change until somebody explains what’s going on, accurately and without spin.
The bottom line is this: A “good” economic report is bad. A bad report is tragic. And this is a very bad report indeed.