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Not Out of the Woods

March 1, 2012 by James K. Glassman

Recent unemployment figures and a scattering of other data have led many economists and policy makers to conclude that, at long last, the U.S. is recovering from a terrible recession. The Dow Jones Industrial Average, considered a predictor of future growth, crossed the 13,000 mark for the first time since May 2008, GDP for the fourth quarter was revised upward to 3 percent, and consumer confidence jumped in February to the highest level in a year. Perhaps most dramatically, the price of gold dropped nearly $100 an ounce on Wednesday, which some analysts interpreted as a indication that the economy is doing so well that the Fed may revise its easy-money policies, thus pushing up interest rates. Higher rates may mean that investors will abandon gold for assets that pay income, like bonds and dividend stocks. The economy is definitely getting better in the very short term, but to call this recovery anemic is the understatement of the century. Some perspective is necessary, and typically the worse the recession, the stronger the recovery. History shows that in past declines GDP fell below its trend-line growth of 3.5 percent, but, after a few years at a higher level, it settled back to the average. As Jim Grant pointed out in the Wall Street Journal: “The Reagan recovery, starting in the first quarter of 1983, rushed along at quarterly growth rates (expressed as annual rates of change) over the next six quarters of 5.1 percent, 9.3 percent, 8.1 percent, 8.5 percent, 8.0 percent and 7.1 percent. Not until the third quarter of 1984 did real quarterly GDP growth drop below 5 percent.” Compare our recent growth rates. Yes, we made it to 3 percent for the final quarter of 2011, but growth for the year was just 1.7 percent. The bipartisan Congressional Budget Office is predicting 2 percent for the full year 2012 and just 1.1 percent for 2013.

There are a number of reasons for this gloomy prospect, but let me list just one: The U.S. budget deficit is 8.7 percent of GDP. That is the third-worst among the 42 countries tracked weekly by The Economist magazine. Only two countries – Greece and Egypt – outdo us. The U.S. economy will not truly recover – and more important, will not truly reach the sustainable level of 4 percent growth that’s needed for opportunity and prosperity – unless policies change. The lesson of the past few years is that policy matters. Specifically, we need policies that promote growth – which means that government has to establish an environment where entrepreneurs can start companies, where established businesses can expand, where individuals have incentives to enhance their skills, and where investors can feel some confidence when they take risks. When numbers are getting better, the urge to complacency is hard to resist. But the truth is that one big reason that consumers are buying more is that they have bought so little in the recent past. The average age of a car on the road in the United States is 11.1 years, a record. At some point, you have to buy a new car. Americans are not out of the woods. We are still wandering around, deep inside them. What we all need now is a growth map to get out.
This post was written by James K. Glassman, Founding Executive Director of the George W. Bush Institute.

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James K. Glassman
James K. Glassman

James K. Glassman is the Founding Executive Director of the George W. Bush Institute and the interim Director of the Military Service Initiative.

He served as undersecretary of state for public diplomacy and public affairs from June 2008 to January 2009, leading the government-wide international strategic communications effort. Among his accomplishments at the State Department was bringing new Internet technology to bear on outreach efforts, an approach he christened “Public Diplomacy 2.0.”

From June 2007 to June 2008, Glassman was chairman of the Broadcasting Board of Governors (BBG). He directed all non-military, taxpayer-funded U.S. international broadcasting, including Voice of America, Radio Free Europe, and Alhurra TV.  Glassman was a senior fellow at the American Enterprise Institute in Washington, D.C., from 1996 to 2008, specializing in economics and technology.

He has been moderator of three weekly television programs: Ideas in Action and TechnoPolitics on PBS and Capital Gang Sunday on CNN.

Glassman has had a long career as a journalist and publisher. He served as president of Atlantic Monthly, publisher of the New Republic, executive vice president of U.S. News & World Report, and editor and co-owner of Roll Call, the Congressional newspaper. Between 1993 and 2004, he was a columnist for the Washington Post and the International Herald Tribune and continues to write regularly for Kiplinger’s Personal Finance and Forbes. Shortly after graduating from college, he started Figaro, a weekly newspaper in New Orleans. His articles on finance, economics, and foreign policy have appeared in The New York Times, The Wall Street Journal, the Los Angeles Times, and various other publications.

Glassman has written three books on investing, and in April 2012 was appointed to the Investor Advisory Committee of the U.S. Securities and Exchange Commission. He was formerly a member of the Policy Advisory Board of Intel Corporation and a senior advisor to AT&T Corporation and SAP America, Inc.

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