The Post Uses the Double Dip Story to Diminish Expectations

October 27, 2011

The headline of a Washington Post article used the term “optimism” in reference to a prediction of 2.5 percent growth for the third quarter. It is very difficult to view 2.5 percent growth as much less than disastrous. At this rate the economy is growing just fast enough to keep pace with the growth of labor force.

That means we are making zero progress in reducing the unemployment rate. If the economy continues to grow at a 2.5 percent pace, the unemployment rate will remain around 9 percent indefinitely with tens of millions of people unemployed, underemployed or out of the labor force altogether. These people are seeing their lives needlessly ruined because the well-paid people who manage the economy are not competent at their jobs.

The only context in which this growth can be seen as positive is compared with the alternative of a double-dip recession. The Post and other media outlets unfortunately helped promote the view that the economy was at a serious risk of a double dip based on the misreading of a limited number of economic reports over the summer.

While a collapse of the euro or some other crisis could certainly throw the economy into a second recession, it is not a plausible scenario on the economy’s current path. Recessions require a major sector of the economy to actually shrink. In the past, this has always been the housing and car sectors. Since both are already very depressed, it is implausible that they could turn sharply negative. While the government sector is shrinking, its rate of decline is in the neighborhood of 1 percent annually. This is a drag on growth, but nearly enough to push the economy into a recession.

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