It's a bit scary what passes for good news in the economy today. Steve Rattner had a NYT blogpost this morning that began by telling readers:
"On its face, Friday’s announcement that the nation’s gross domestic product expanded at a 2.5 percent annual rate in the first quarter was good news, following as it did an only marginally positive result for the previous three-month period."
Well, positive growth is better than recession, but we have to remember that we are operating at a level of output that is 6 percentage points below potential, according to the Congressional Budget Office. The potential growth rate is in the range of 2.2-2.4 percent. Even if we take the bottom end of that range, a 2.5 percent growth rate would still only close this gap at a rate of 0.3 percentage points a year. [Added note: potential GDP growth refers to the rate that the economy could grow if it were fully employed as a result of the growth of the labor force and increases in productivity. The economy has to grow faster than potential in order to make up the sort of gap in output it is now seeing.]
That means that with a 2.5 percent growth rate it would take us twenty years to get back to potential GDP. We can mark 2033 on our calendar for the celebration, just after the end of Chelsea Clinton's second term.
Apart from the new low for good news Rattner is also annoying for his persistent ability to highlight Social Security and Medicare as problems in determined defiance of the data. Social Security's costs are projected to rise by roughly 1.0 percentage point of GDP over the next 15 years as the baby boomers retire. That's roughly the same increase in costs that we saw over the last 15 years. It is a bit more than half of the size of the increase in military spending associated with the wars in Iraq and Afghanistan. What's the big deal?
Medicare costs may rise more rapidly, but if so that would be due to our broken health care system not problems with Medicare. Remarkably, we continue to get data indicating that health care costs are coming under control. The first quarter GDP numbers continue this recent trend with overall health care spending rising at just a 4.2 percent annual rate. The year over year nominal increase of 3.4 percent was less than GDP growth over the period.
In other words, while the Steve Rattners of the world continually whine over our long-term deficit problems, and in many cases are prepared to hold near-term recovery measures hostage to advance their agenda in this area, the data are showing that this long-term problem is disappearing. Furthermore, even insofar as the problem does exist it is a problem of the U.S. health care system, not Medicare and other public sector health care problems.
So Rattner gives us a view of short-term progress that gets us to full-employment in twenty years and a long-term picture that ignores current data and focuses on the wrong source of the problem. Such is the state of economic debates in America.