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Nocera Gets Growth Badly Wrong

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Tuesday, 21 January 2014 05:43

Joe Nocera makes an important point very badly in his column today. He contrasts a sharp reduction in poverty in Brazil over the last dozen years with continued high unemployment in the United States. Nocera then notes Brazil's recent growth slowdown, which he attributes to slow productivity growth. He then notes the rapid growth in the United States in the third quarter and continually rising productivity and concludes that growth may not be the most important goal of the economy.

While the point is well taken, Nocera discussion of growth in the United States and Brazil is completely wrong. While growth in Brazil has not been especially strong for a developing country, it did not manage to achieve its reductions in poverty without growth. According to the IMF, Brazil's growth has averaged 3.5 percent in the years from 2002-2013. This is far from the rates that countries like Thailand and China have maintained, but it is very far from zero. It is unlikely that Brazil could have accomplished anywhere near as much poverty reduction if its growth had been zero.

In the case of the United States, high unemployment is directly connected to slow growth. While we had one quarter of relatively good growth (4.0 percent is not especially strong for an economy recovering from a severe downturn), economic growth has generally been weak in this recovery. In the years 2010-2012 the growth rate averaged just 2.4 percent, which is roughly the same as the economy's potential growth rate. This means that the economy was making up almost none of the ground lost in the downturn. Insofar as we were able to achieve reductions in the unemployment rate it was the result of lower than normal productivity growth and people dropping out of the labor force.

By contrast, in the three years following the 1974-75 recession, growth averaged 5.2 percent. In the three years after the 1981-82 recession, growth averaged 5.4 percent. There is no reason to believe that if we saw faster growth we would not see more rapid reductions in unemployment. The problem with the third quarter growth figure was that it has not been sustained. If I'm driving across country I get there more quickly if I drive 70 MPH than if I drive 50 MPH. But it doesn't make much difference if I drive 70 MPH for just 10 minutes. Nocera seems to think that it should.

Comments (1)Add Comment
Damned If We Do, Damned If We Don't - Don't Just Do Something Like Brazil, Stand There
written by Last Mover, January 21, 2014 7:18

Macroeconomic policy doesn't get any more contradictory and confusing than this.

Here we have Brazil with full employment, falling poverty and a booming middle class and what do the economists lament? Falling productivity is the cause, you see, and it can't last forever you know.

In contrast, America has relative higher productivity combined with high unemployment, rising poverty and a dissolving middle class. And what do (many) economists lament?

Not enough productivity (especially from structurally unemployed labor), you see, since supply does create its own demand doesn't it, so more productivity couldn't possibly increase unemployment even more could it.

So there you have it America. Even if Keynesian stimulus spending had been sufficient to achieve full employment, they would be saying it's all an illusion that will catch up with you in the long run and you will be dead anyway - like Brazil is today.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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