Abacus: Redefining the Meaning of Economic Growth
Stop right there. I am offering you, quite possibly, the chance of a lifetime. How would you feel if you had the opportunity to travel back in time? Well, no, we aren’t actually going back in time, but let’s at least imagine what it was like. After all, they say the mind is powerful so why not use it for what it is worth?
We are going back into the not so distant past, a time when the economy was in shambles and the job market was in a complete state of disarray. Does this ring any bells for you? No, I am not talking about the Great Depression, instead, I am talking about the collapse of the stock market in the year of 2008. Even as a young adult in my early 20s I remember this time period very well, often hearing about how difficult it was to sell homes and how tedious it was searching for jobs.
Even in the year 2016 many of the aftereffects from the recession and collapse of the housing market have molded the current economic climate that we live under today. Interests rates have remained extremely low, wages have continued on a path of stagnation, and overall yearly economic growth has been paltry at best. Not to mention, the overall financial situation for the average American family has actually become worse that it was prior to 2008.
But, maybe I am being a tad bit too harsh. After all, just look at this chart from Factcheck.org. The numbers don’t tell quite the whole story, but it is hard to argue that we are worse off than we were at the beginning of Obama’s presidency. If you’re wondering, yes, people still think the economy is performing at a lower level than it was prior to the inception of Obama’s first term.
Having said that, the economy still has a variety of ‘performance’ issues to say the least and there are quite a few weaknesses needed to be addressed. The big pink elephant in the room for the next president of the United States to take out is the issue of economic growth and job growth, as both are interlinked and often rise and fall together. In being two are the most prominent indicators of economic health, economic growth and job growth are important to monitor throughout the year as they allow us to visualize what is happening ‘behind the curtains.’
While the United States has been fortunate, compared to its counterparts across the world, to benefit from positive economic growth, this doesn’t necessarily imply that all is going to plan. For one, if the current trend in growth continues, the average GDP growth through both of Obama’s presidential terms will average around 1.55 percent. You may be saying, “well, 1.55 percent is better than zero percent and it is definitely much more desirable than negative growth” and technically you would be right in saying that, but that’s avoiding the point. The point is that while 1.55 percent is greater than 0, so is the number 0.10 and that would essentially be referred to as economic stagnation. Do you see the point that I am trying to convey here?
When the current equilibrium is considered to be the new norm, people ought to worry or at least question what is happening. Take, for instance, that throughout the last decade real GDP growth rate per person has been roughly around 0.44 percent. Put this into perspective and compare it to historical figures and you’ll get an idea of how the idea of ‘growth’ has been redefined. The historical average for real GDP growth per individual is 2 percent, meaning that it will take 160 years for income to double at 0.44 percent versus 35 years at the historical norm of 2 percent.
While it is certainly true that the United States’ economy has matured to the point that we no longer will see the type of economic growth as seen in India and China, it would be self-deprecating to accept the current conditions as the new normal. Some, like Robert Gordon, a prominent American economist, suggest that we stop expecting high economic growth arguing that the ‘bursts’ of growth stemming from major innovations like airplanes, computers, and electricity have already run its course. Of course Mr. Gordon knows much more than I do about economics, there is no disputing that, but at the same time I can’t help but imagine that anemic growth is the acceptable and the new norm.
The most affected group of this economic stagnation, however, is none other than the African Americans and Hispanics of the United States who have, historically, been at an economic disadvantage.
Data that was compiled by Stanford researchers found that between the years of 2005 and 2009, “Hispanic households lost over 66 percent of their wealth while black households lost 53 percent.” Compare that to white households that lost only 16 percent of their wealth and it’s hard to argue about the effect of a poor economy on minorities. In addition, the unemployment rate based on data from 2016 Q2 data says that the unemployment rate among minorities is considerably higher than those of whites in America. Here is a chart that will illustrate the disparity between races in America:
So how exactly does this relate to redefining the term ‘economic growth?’ Well, considering that the annual GDP growth and unemployment are inextricably linked, as demonstrated via Okun’s law, we can expect the financial situation of minorities to either stagnate or deteriorate as the GDP rate remains anemically low.
Refusing to believe that the United States economy is more than capable of surpassing an annual growth rate of 1 percent is pure chicanery. I may not be the most well versed individual in the study of economics, but what I am sure about is the lack of cohesion and dysfunction that plagues our government. I would wager that most people can’t remember when the last time a comprehensive and groundbreaking economic bill was passed in the United States nor can people remember a time when the government was more concerned about the wellbeing of its citizens rather than engaging in intra-party conflicts.
The United States, despite its problems, has a vast amount of untapped economic potential waiting to be unleashed. The issue, however, is that until our representatives decide to recognize this and create comprehensive economic reforms across the country, maybe 1 percent growth will become the new 3 or 4 percent.