America's Private-Sector Recovery Has Been Awesome! (*Awesome Is a Relative Term)

By Matthew O'Brien
Companies and households aren't "doing fine" for a recovery, but they're doing better than normal.

ObamaDoingFine.jpg
(Reuters)

Gaffes come in two varieties. There's the inconvenient truth and the less convenient untruth. Both are damaging, as far as these things go, but President Obama's statement rather remarkably combined the two -- call it Schrödinger's gaffe -- when he commented that the private sector is "doing fine".


Remember the private sector? People buying things, selling things, and investing in things? So, that's the engine of our unbelievable American system. Unfortunately, it's not doing too well -- unless you compare it to the public sector. That's doing even worse. State and local cuts have led to the biggest decrease in overall government spending since the 1950s. And now the federal government is getting in on the austerity act too. With the stimulus fading out, it currently employs fewer people than it did back when the recovery began. 

How's that for socialism?

This undercover austerity is what precipitated President Obama's much-hyped gaffe that the private sector is "doing fine." The gist was that the private sector isn't doing that badly, and that the big problem is the government hurting rather than helping the recovery. And that's true! Or, at least true-ish. As Mark Perry of the American Enterprise Institute points out, private sector real GDP growth since the end of the Great Recession has been better than average.

That's right. The private sector is growing faster than it normally does.

But that's a low bar we're stepping over. As Josh Barro notes, we expect the economy to grow faster after a recession -- particularly a deep recession. If it didn't, we'd never recover. What we really want to know is how this recovery compares to other recoveries. The answer: Not well.

Take a look at the depressing picture. The chart below compare average real private GDP growth during the first eight quarters of each recovery since 1950. The only recovery worse than our current one was the previous one.

It's been a long time since we've had a recovery worthy of the name. 

RealPrivateNew.png

Something has happened the past 20 years. We've gone back to the future. Back before the Federal Reserve existed, recessions came when bubbles burst. Recoveries were long, slow affairs. Then the Fed came along. In the postwar period, recessions came when the Fed raised rates to cool an overheating economy. Recovery came -- and came fast -- when the Fed lowered rates. Until 1991.

Now burst bubbles are back with a vengeance. So are jobless recoveries. Actually, we might call them GDP-less recoveries too. You don't need to resort to hand-waving about regulatory uncertainty or the fiscal cliff to explain our tepid growth. It's the new normal. Consider the chart below, which takes our first chart and adjusts for population. 

The post-2009 private sector recovery matches the post-1991 private sector recovery. And both outclass the really anemic post-2001 private sector recovery.

RealPrivatePerCapita.png

Lehman Brothers didn't break the private sector. It's been broken for a long time -- at least when it comes to recoveries.

This article available online at:

http://www.theatlantic.com/business/archive/2012/07/americas-private-sector-recovery-has-been-awesome-awesome-is-a-relative-term/260510/