US Economic Growth -- Consensus and Limits

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Chart1.  World and US GDP growth rate from US Dept of Agriculture Economic Research Service Source: "World Bank World Development Indicators, International Financial Statistics of the IMF, Global Insight, and Oxford Economic Forecasting, as well as estimated and projected values, developed by the Economic Research Service all converted to a 2005 base year" Data published November 2009.

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At the end of 2009 various international agencies and private groups were forecasting world and US GDP growth rates shown in Chart 1 -- somewhere in the region of 3.5% slowly increasing towards 4% for the world, and just under 3% and slowly increasing towards 3% for the US. 

US GDP is in the region of 25% of world GDP so clearly if US GDP is significantly different than forecast, future world GDP will differ from that projected in Chart 1.  Chart 1 tells me that the US and world agencies involved in forecasting US GDP growth do not see, or are not brave enough to publicly forecast, any significant change in BAU.  

I think they are wrong.

The US FY 2011 (Obama) Budget published in early 2010 (Chart 2) shows a sharp rebound to nearly 4% growth in 2011 and more than 4% growth in 2012, 2013 and 2014.  

I think Chart 2 is wrong.  I think the Obama team misjudged the depth of the economic hole that had been dug for them.   America will not grow at the rate forecast.

 
Chart 2. FY 2011 Budget Data and History

I have emphasized in several earlier posts that without on going and massive US federal government and central bank (the Fed) fiscal and monetary injections, this kind of growth, on a continuous basis, is not possible.

The US federal government and the Fed have already injected extraordinary amounts of money and liquidity into the general economy and into US banks.  The combination has rescued the world financial system from imploding.

The Fed will probably continue to aid of Wall Street, and thus continue to transfer yet more risk from the wealthy to the US tax payer.  Political gridlock will almost certainly preclude the federal government from providing more stimulus money to Main Street.  US Government debt guarantees are already greater than $23 trillion-- nearly two times US GDP.  Direct infusions of easily measured aid to banks (which is most of it) and the general economy have already reached in excess of $4 trillion.  These are all transfers of risk and loss from private individuals to the US public.

And still there are about 30 million unemployed and underemployed Americans -- that is nearly one in five American workers.

I maintain that the major items which will prevent the US returning to BAU (which is about 3% or so average long term growth) are:

1. US Private Debt -- the federal government is now guaranteeing a large portion of this
   
2. US Unemployment -- the broke consumer
3. US Income Inequality -- the vanishing middle class
4. World commodity prices -- depleting fossil fuels in particular
5. US Political Paralysis

In the long run (beyond about 2030) global warming will begin to present a major hazard.

Solutions, to or living with consequences of, the first four items are available and well known.

Implementing the appropriate policies to alleviate any of the first four items attacks the interests of Wall Street, corporations, the military and wealthy Americans.  The coalition of these lobbies, amplifying their message through a compliant press, leads to item 5, for which I see no viable short term solution.

My solutions in brutal shorthand are for the federal government to Borrow, Tax and Spend -- on the right investments.

1. Debt -- Forgive most of it and write it off  (debt jubilee concept)-- much of it is fraudulent anyway .  Much of it cannot be paid off in any reasonable time frame.  Reorganize banks and make them into credit utilities. Prosecute white collar crime aggressively.
2. Unemployment -- Set initial goal of about max 5% unemployment. Make it a national priority.  Remove subsidies from agriculture, fossil fuel and most other traditional industries.  Rethink US role in world.  Eliminate attacking or destabilizing or occupying other countries.  Drastically reduce military spending.  Heavily tax fossil fuel usage, very high incomes, intergenerational wealth transfers, and consumption (VAT).... Begin investing about $1-1.5 trillion/year in new energy technologies and appropriate infrastructure eg mass transit, education etc by combination of government and private incentives.  Retrain unemployed to build new infrastructure projects.  Reducing unemployment must be the highest priority:  Focus, focus, focus.
3. Income Inequality -- Set "Ginni coefficient", HDI and social health targets by year.  Invest in public education, public health, pre-school child care.  Provide strong social safety nets.  Reducing unemployment and increasing investments in national priorities projects will help.
4. Commodity prices --  Set national targets for energy conservation, renewable energy projects -- see unemployment solutions above.  Set aside some of the annual $1-2trillion above for new energy technologies
5. Political Paralysis -- only one long term solution: Citizen Involvement.  Get involved, get outraged, throw the bums out, pay attention, elect honest, intelligent politicians and judges. 

Part of my contribution to the involvement will be this blog and other writings which generally will focus on the five items above.

And here to start us off on the right note, from the Washington Post, is some self evident "chart porn" on US gdp, unemployment and household net worth.  .