A recovery with growth so slow that unemployment and excess capacity rise isn’t a recovery

[Kurt_and_Hunter]

Professor Krugman stating the ever-elusive obvious.

A modern economy that is not growing above a certain rate is, in practice, shrinking.

It is silly to think of growth in terms of +/- 0% when the baselines that represent "no change" are not equal to zero.

We have to create jobs at least as fast as we create net new workers. We need inflation somewhere over 2% or people will never be able to pay back loans. We need GDP of somewhere over 2% just to utilize the same capacity. And so on.

(The headline of the OP refers to the discussed "recovery" prediction on 1.5% GDP growth. It is not a statement that unemployment and excess capacity are rising today. They may well be, but the Krugman comment is that a prediction of 1.5% growth is a prediction of technical growth but an effective double-dip recession. We have had some quarters of decent GDP growth in the last year and those were good quarters.)

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July 17, 2010, 11:05 am
De Facto Double Dips

From Ed McKelvey at Goldman Sachs, which has been very good at calling recent economic trends (no link):

Real GDP growth appears to have dropped below its 2½%-3% long-term potential range last quarter, judging from the latest data on retail sales and foreign trade. We have cut our estimate for second-quarter growth
from 3% to 2% (annual rate).

This slowdown is occurring just ahead of the loss of growth support from fiscal stimulus and the inventory cycle that we have been anticipating would occur at midyear. With the various headwinds to private-sector growth (excess vacant housing, state and local budget stresses, lack of lending, reluctance to hire) still firmly in place, we reaffirm our view that real GDP will grow at only a 1½% rate during the second half of 2010, and we worry that reacceleration in 2011 will not occur as now projected.

Despite these growing downside risks, US authorities do not exhibit much urgency to apply more policy stimulus.

Let’s be clear: a recovery that involves growth so slow that unemployment and excess capacity rise, not fall, isn’t really a recovery. If we have only have 1 1/2 percent growth, that will amount to a double dip in all the senses that matter.

http://krugman.blogs.nytimes.com/2010/07/17/de-facto-double-dips/

[dkf]

1. We have to create jobs at least as fast as we create net new workers...

Exactly why illegal immigration and an unchecked surge of new workers are a problem.

[emilyg]

5. Right.

[xchrom]

2. recommend

[Tierra_y_Libertad]

3. But..but..we are creating jobs...for cannon fodder in Afghanistan.

[defendandprotect]

4. K&R --

[customerserviceguy]

6. Interesting

He's the first major economist I've seen that is actually calling for inflation. Many, myself included, see it as a very real possibility, but I know I don't really hope for it. Any of us who lived in the 1960's knows that once the inflation genie is out of the bottle, it's damned difficult to put it back in again.

I wonder why Krugman is advocating it?