Watchers of the American economy cheered when the announcement came in from the Bureau of Economic Analysis (BEA) last Tuesday revising upward the estimate of growth of the real gross domestic product (GDP) for the third quarter of 2014. BEA had originally set its estimate at 3.5 percent, and after revising that upward to 3.9 percent last month, now has the number at a robust 5 percent. That number is a significant one, since it is the largest gain made in that most important statistic since the Bush economy of 2003, some 11 years ago.
The measurement of GDP, which basically is a measure of what the economy created, is probably the best measure as to the general health of the economy. A number that came in at the highest in a decade gives us reason to hope that the economy is finally turned around and heading back on the path to prosperity.
Liberals and conservatives both reacted to this news, albeit differently. Paul Waldman, writing for The Washington Post’s “The Plum Line” blog, could barely contain his glee, writing, “If both growth and job creation remain strong for the next two years, it’ll be somewhere between difficult and impossible for a Republican to win the White House in 2016, since the state of the economy swamps every other issue in presidential campaigns.”
Over on the right, Reihan Salam wondered what the new reality of the economy will mean for the right politically. “In the next two years… it will get harder to deny that the economy is picking up a head of steam, that unemployment levels have gone from high to halfway decent, and that the federal budget deficit is getting smaller,” he wrote. As such, it will severely hamper the Republican Party’s efforts to argue that the sluggish and struggling economy is a reason to put them in charge.
But is the economy really doing that much better? Both Salam and Waldman need to attach a huge “if” to their analysis. They are assuming that this rate of growth will continue for the next two years. But, regretfully, there’s no reason to believe it will. Goldman Sachs and Macroeconomic Advisors both revised their 4Q estimates upwards after this report was released, but they both pegged it at under 3 percent. Assuming that it would come in at 3 percent, the year’s GDP growth would still only be around 2.6 percent — which would put it in line with the economic performance of the last four years. Even assuming we have another 5-percent quarter — something that hasn’t happened in 30 years — it would only make this year’s total growth, after the first-quarter contraction, exactly the same as it was last year. So it is entirely likely that the economy is self-correcting to make up for the negative number from last winter.
It’s entirely possible that we are seeing an economy that is breaking out of its slumber. I certainly hope that we are. But a good quarter or two does not a good economy make. The fundamentals of the economy, contrary to then-Republican nominee John McCain in 2008, are far from strong.
So why do people think it is? The simplest explanation is that they have gotten used to a terrible economy and any improvement is seen as a great step forward. Some of this is wishful thinking. But for the most part, it is due to the phenomenon of people coming to the point where they accept things as “the New Normal.”
An Adam Gadol, upon spending his first Shabbos in Yerushalayim after fulfilling his life’s dream to move there, fainted in shock when he saw chillul Shabbos in the holy city. The next week, however, he did not faint when he saw the desecration of Hashem’s name that takes place every week. After Shabbos, he began preparing to move out of his apartment, and out of Yerushalayim. When asked why, he responded: “I see that I did not react to chillul Shabbos the same way this week as I did the week before. It must mean that I am accepting it as reality, and it has become somewhat normal to me. I can not allow that to happen to me.”
On a mundane note, the more we experience something, the more accepting we become that it’s just the way things are. But it should not be that way. That we have been experiencing this downturn for as long as we have means that a lot of people have come to accept this as the new normal. They shouldn’t. The incoming GOP majority should get to work addressing the underlying causes that have created and sustained this new reality, and fix it.
But the pundits, consultants and politicians fear that they don’t have the political capital to do anything big if people think everything is all good again. To them I say, have no fear.
In a piece that was meant to highlight the ignorance of the American voter, Ipsos MORI found that, on average, Americans think the unemployment rate is 32 percent. The thinking behind the publication is that Americans don’t really get the state of the economy as well as the professional economists and political elite. But in many ways, they understand it better.