2013 Economic Outlook
January is a time to look ahead and plan. It is also an opporttunity to look back and take stock.
Paul Krugman, the Nobel Prize-winning Princeton University economist and op-ed columnist for The New York Times, contends that the United States is in a depression. He makes a distinction between a recession, a time when the economy is falling, and a depression, which is a “sustained period of really lousy economic performance and an enormous amount of suffering.”
Not many economists would agree with Krugman’s view, since the National Bureau of Economic Research (NBER) declared that the Great Recession ended three years ago. But here is the rub: There is no commonly accepted definition of a depression. Even the NBER, which is responsible for dating recessions, provides no concrete definition.
One economist who would have sided with Krugman is the late Paul Samuelson. In his classic textbook, Economics, Samuelson wrote that a depression was “a prolonged period characterized by high unemployment, low output and investment, depressed business confidence, falling prices, and widespread business failures.”
Whatever one calls this thing we’re experiencing, Krugman and Samuelson offer an apt description of the struggles of the United States economy since 2000. Economic growth, whether measured in terms of real Gross Domestic Product (GDP) or employment, has fallen tragically short of expectations.
In 2000, shortly after the NASDAQ stock market crash triggered the dot-com downturn, Wharton Econometric Forecasting Associates (WEFA), a prominent forecasting firm, produced a 20-year forecast. Similar to other national outlooks at the time, the WEFA projections reflected the optimism of the late 1990s high-tech boom. Between 2000 and 2011, real GDP was predicted to grow at a 3.2 percent annual rate and create 19.2 million new jobs. By 2011, the nation would have $15.9 trillion in real GDP (2005 dollars), 151.1 million payroll jobs and a 4.9 percent unemployment rate.
But two subsequent recessions—the Dot-Com/911 Recession and the Great Recession—and tepid growth in the interim left the economy in ruins. During this 11-year period, the economy expanded at a 1.6 percent annual rate (one-half the trend rate) and lost 400,000 jobs. In 2011, real GDP amounted to $13.3 trillion ($2.6 trillion less than forecast), payroll jobs totaled 131.4 million (19.6 million fewer than predicted) and the unemployment rate stood at 9.0 percent (nearly twice the expected rate).
Among the most dismal economic numbers were forgone