President Trump promised on the campaign trail that his presidency would deliver annual four percent (adjusted for inflation) growth to the U.S. economy – a performance that would considerably improve upon the average of 3.5 percent America achieved between 1950 and 2000. Jason Furman, former President Obama’s chief White House economic adviser, says that’s probably bunk. (See the previous link.) He adds that “most economists” are skeptical – and that even the Trump administration seems to be dialing back that promise.
I have no idea whether Furman and the rest of the skeptics are right. (If most of them had come close to predicting anything like the financial crisis, their judgments would deserve to be taken much more seriously.) What I do know is that both the growth pessimists and the growth optimists appear to be ignoring a far more important question – will whatever growth is experienced by the economy be high-quality or low-quality?
That subject matters – and matters decisively – because one of the biggest lessons the nation (and world) should have learned from the financial crisis is that low-quality growth tends to produce disastrous results if it’s low enough and lasts long enough. And the latest figures available from the U.S. government (which will be updated next week) make clear that the nation’s growth has continued to return to the patterns that prevailed during the run-up to the 2007-08 calamity.
The incriminating data, as I’ve written repeatedly, are those that specify the share of the nation’s gross domestic product (GDP) adjusted for inflation that’s made up by personal consumption and housing. Their bloat played a central role in triggering the crisis, and in tandem, their economic prominence peaked in the second quarter of 2005 at 73.27 percent of real GDP. Individually measured, consumption’s share of real GDP peaked in the first quarter of 2007 at 63.27 percent, and housing’s share peaked at 6.17 percent in the third quarter of 2005. (In other words, it’s clear that the housing market was showing signs of trouble way before its bubble actually burst.)
And where did those numbers stand as of the end of last year (our latest figures)? Personal consumption was actually higher than at that bubble decade top: 69.36 percent of real GDP. Housing was only at 3.55 percent – meaning that it’s still recovering from catastrophe. In toto, though, this toxic combination represented 72.91 percent of real GDP. That’s not too far off that bubble-era peak. And their combined role keeps rising.
Furman’s former White House boss deserves credit for recognizing the fundamental problem. Barack Obama spoke repeatedly of the urgent need to create “an economy that’s built to last.” Not to cast blame, but clearly, that didn’t happen on his watch. Indeed, when the current economic recovery began, in the middle of 2009, the toxic combination represented 70.99 percent of real GDP.
Once that recovery showed even the most meager signs of genuine life, Americans stopped hearing much from the previous administration about the quality of growth. And I can’t find any mentions of it from Mr. Trump or his aides. For their political sake, and the nation’s economic sake, that needs to start changing now.