A Weak Recovery

http://online.wsj.com/article/SB10001424052702304019404577418311631098508.html?mod=WSJ_Opinion_LEADTop

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"For the Flower to blossom, you need the right soil as well as the right seed. The same is true to cultivate good thinking." (William Bernbach)
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I'm continually annoyed with economists who call what we're in right now a "recovery." Just because it's not a recession doesn't mean it's a recovery. So, I'm going to call it a "non-recovery."

Harvey Golub has done a nice job of  defining the non-recovery: the Minneapolis Fed tracks the economic performance of each recovery and compares gross domestic product (GDP) growth and job growth, "... the two most important indicators of economic performance."

So, over the last 60 years, there have been 11 recessions and 11 recoveries. This non-recovery is at the bottom of all 11. Cumulative non-farm job growth is just 1.9% 34 months into the post-recession period: that's the 9th worst of the 11 and well below the average job growth of 6.5%. Cumulative GDP growth is just 6.8% 11 quarters into the non-recovery, less than half the average (15.2%) and the "WORST" of all 11.

So, what did all that "stimulus" money accomplish? I should probably separate my use of the term "money." The "monetary policy" of the Fed has resulted in low interest rates - almost zero for the past 3 years. The thought here was to increase borrowing by individuals and businesses, generating "increased economic activity." It's positive effects in this non-recovery have mainly been to help the government borrow more cheaply, large banks recapitalize more quickly, and homeowners refinance at low rates. Quoting Golub: "Uncertainty regarding ObamaCare and higher taxes on businesses and individuals has discouraged the type of borrowing and lending that low rates generally encourage. Near-zero interest rates have also resulted in historically low yields on savings and encouraged riskier investments. In effect, we have subsidized increased spending by penalizing savings."

"Fiscal policy which, according to Golub, is under the control of the President and his party, increased expenditures by roughly $700 billion per year since 2008 and launched a spending package of about $800 billion (along with various temporary tax deductions), all of which resulted in an increase in national debt of over $5 trillion. Golub again: "In other words, we borrowed $5 trillion, for which we will pay interest for who knows how long, in order to stimulate the economy now."

(Here, Golub is basically defining what both Warren Buffet and Paul Krugman said back in 2008 wasn't enough. Alan Blinder (Princeton University economist and former Fed vice chairman) has recently joined that view. )

So, what did we get? Golub's perspective is that the money was spent poorly and we will get very little future value from it. I'm shocked, shocked! "Billions were spent to reward favored constituencies like government employees and the auto industry. Billions more were spent on training programs that don't work." Not enough went to infrastructure or other assets that will help the U.S. create wealth over time.

If you don't know what the regulatory environment is going to be, or, if you suspect it's going to be negative toward the business community, do you invest? Did the National Labor Relations Board recently tell Boeing that they could NOT build the new plant they had already built in South Carolina to double their production of new 787s? That's a government agency, put in place to protect the rights on union workers so they won't get taken advantage of, telling a state that they can't approve a new factory coming in to add a large number of jobs and capital investment to it's economy. I could go on.

Bottom line. Golub has a point: "The massive costs of the stimulus have been wasted because of the heavy counterweight put on the economy by the administration's anti-business and pro-redistribution policies."