The Incredible Shrinking Economy: Revisions to GDP Since 2007 Reveal Bleak News
Today, the Bureau of Economic Analysis released revised figures for the Gross Domestic Product going all the way back to 2007, and they aren’t pretty. The recovery is a failure; the economy is lousy; and the official discourse is in deep, deep denial.
First, the numbers. The last year of growth before the financial panic and subsequent economic collapse was 2007. Since then, the economy has actually shrunk. That’s right, real GDP was less at the end of last year than it was at its peak in 2007. We’re still digging out of the hole that Goldman Sachs and friends put us in.
Previous estimates were for a small level of annual increase (0.1%), but the revisions put the average yearly change between 2007 and 2010 at -0.3%. GDP fell in 2008 by 0.3%. It also fell in 2009, by a much larger 3.5%. And it has risen only 3.0% in 2010. In the first quarter of 2011, the original estimate of 1.9% has since been downward revised to 0.4%, and I don’t think I’m going out on a limb to suggest that the preliminary figure for the second quarter of 2011 of 1.3% will also get knocked down when its time comes.
These downward revisions parallel similar moves at the Bureau of Labor Statistics, which is now in a repeated pattern of announcing big job growth numbers in the spring, only to shrink them months later. And today’s GDP report also helps to explain why the unemployment rate, after falling earlier in the year, jumped up again in June, to 9.2%. If the economy continues to perform as badly for the second half of 2011 as it has in the first, the measured unemployment rate will rise by a whole percentage point.
A key factor in the ongoing weakness of the economy is that the government is spending less. In 5 of the last 7 quarters, trends in government purchasing have pushed down GDP, contributing to job loss, reduced consumption, and economic uncertainty. The farce currently being enacted in Washington will further depress activity: austerity measures reduce employment and incomes. The brouhaha isn’t really about the deficit or future economic growth, the stated rationales. Elites (of both parties) have decided to go after the middle class and the poor, cutting retirement, disability and medical programs, in order to funnel more to the wealthy. (Welcome to life in the corporate republic of Kochistan.)
Today’s news can hardly be a surprise to the millions of Americans who are experiencing the reality behind the revised numbers, having lost jobs, income and livelihood. And it accords with the predictions of we “pessimists,” who, when the collapse began, predicted that true economic recovery would be elusive. As I argued in Plenitude, what lies ahead or the average American is that he or she will have a harder time securing a stable job, earning a good income, or prospering in conventional economic terms. That prediction continues to be borne out, and will be for some time to come, as long as business-as-usual predominates. Things will get much worse as austerity economics, or to use Naomi Klein’s term, shock doctrine, takes hold.
So why is the official conversation about the economy so distorted, and so tilted against the average person? Clearly the power of elites to frame both what gets talked about and how is by far the most important factor. But there’s another dimension to what’s happening today that’s worth recognizing. Progressives, whose brief is to advocate for the interests of working people, are stuck with a macro-economics of indiscriminacy. The standard tack is to argue for government spending in the abstract. Increase aggregate demand and the jobs will follow. As we can see, this argument is losing, rather than gaining traction. That’s not because it’s wrong per se: Keynesian pump priming does work, although less well in a global economy than in a national one.
But spending for spending’s sake can’t be the right approach in a country with urgent needs. Far better to advocate for investments that we desperately require, such as getting the country off fossil fuels, funding education and research, repairing crumbling urban infrastructures, and restoring degraded ecosystems. Calls for spending without attention to vital needs ring hollow, as well they should. Indiscriminate growth, while it may yield some jobs in the short run, exacerbates the climate crisis, puts us in hock to the Chinese and the guys at Goldman Sachs, and squanders precious human resources.
In previous posts, I’ve paid a lot of attention to an alternate approach: reducing working hours to bring down unemployment, give people a break, and reduce carbon emissions. That’s the direction we need to go. But in addition, it’s time to revisit the question of how priorities for spending are set, who makes investment decisions and what the vital interests of the country really are.
So back to those dismal GDP numbers. Do they even matter? The chorus of voices calling for a de-throning of GDP is getting louder, in North America and Europe.
There are two main arguments against GDP. The first is that it measures the wrong things and fails to differentiate between goods and bads. Growth of “bads,” like oil spills and poor health, may show up as increases in the GDP, and even create income and jobs, but the country could also be getting “worse off” at the same time. This important point is finally getting some official attention, at least in Europe where a number of governments are studying alternatives to it. The second argument is that rising GDP doesn’t yield much happiness or well-being, once people are out of poverty. That’s probably true too.
But while the case against GDP is a good one, it’s also true that when GDP falls, it’s usually an indicator of true pain. And in the U.S. today, that’s certainly the case. Poverty and food insecurity are rising; widespread unemployment is endemic; foreclosures, evictions and housing instability continue. The downward revisions of the GDP are evidence of an economy, and a nation, in distress. Let’s hope the release of today’s numbers will help turn the economic conversation to our true problems and some innovative, life-affirming, fair solutions for them.
Juliet Schor is Professor of Sociology at Boston College and author of the recent book Plenitude: The New Economics of True Wealth (2010). She is also author of the national best-seller, The Overworked American: The Unexpected Decline of Leisure (1992) and The Overspent American: Why We Want What We Don’t Need (1998). She is a board member at the Center for a New American Dream.