Why am I writing a blog post about economic recovery on a saddle website? It’s because I like business economics, it’s a hobby. While horses are my vocation and riding is my avocation, I like business too. Besides economics being wholistic and physics, at the end of the day real estate values, horses as commodities or as family members, are all stronger in a strong economy, and working with horses, I like strong.
The Washington Post had a great graphic last week about why it doesn’t feel like a recovery. And being that the business of politics is going to be spinning news at full throttle soon, I thought you might like to hear what it boiled it down to.
That the economy is merely growing again, which began in 2009 when it was declared the recession was over happened because the economy moved off of stagnant where it landed in 2008, and started growing again, which does not mean recovery. The rate of growth has been less than 2% and that is too slow to narrow the gap and get any closer to feeling the recovery. So slow in fact that at this rate we simply will not recover. Growth, the annual output of production of goods and services has to get to 3% and stay there. If it does we can close the gap by 2020. To put it into perspective, it would take a 6% annual rate of growth for the economy to feel the recovery by 2012, the last measurement in the second quarter of this year was 1.7 percent.
The graphic was a great illustration of actual output, and the output gap, between actual and the potential, when everyone who wants to work is working, machines are productive and office buildings are full. It showed the scenarios for unemployment too and what the less than 2%, the 3% or better, and the in-our-dreams 6% would mean. The years to reach full employment (still 5% unemployed) showed to be the same as the country’s production (output) scenarios.
Now that we know the goal is 3% or better to get a vibrant economy restored by 2020, we can measure who is believable when they tell us how great the economy is doing. As I was setting up shop. with American Express, the agent was bragging to me about low interest rates being a good sign for the economy. I for one do not want to have to wade through the confusing Wall Street rules about derivatives, or mortgage instruments and options. Tell me how you plan to get the country’s output to 3% or better please. Strong people and strong horses want a strong economy.