The U.S. economy today

Here’s a bit of interesting news: Today’s excellent jobs report from the Bureau of Labor Statistics sent the NASDAQ stock index to its highest level in 11 years.

As we’re all painfully aware, the United States is in the process of climbing out of a deep economic hole created by the worst recession in nearly 80 years. But as Catherine Rampell pointed out this morning (in a piece written before the unexpectedly good jobs numbers came out), the economy has actually been growing for 10 straight quarters since the federal stimulus came into effect, and while the growth rate has been lower than we’d have liked, at this point our gross domestic product (GDP) is actually larger than it was before the recession began in 2008.

Unfortunately, unemployment has remained a stubborn problem. As the graphs in this excellent piece by Steve Benen indicate, the private sector job situation started improving very soon after stimulus measures started taking effect two and a half years ago. At first jobs were still being lost, just at a rapidly declining rate, but for most of the last two years the private sector has been adding job again. Government jobs, especially at the state and local level, are still in decline, but not so much as they had been.

Among the dangers still facing us is a strong possibility of repeating a serious mistake from the mid-1930s. As you can verify for yourself by looking at historical GDP data (make sure you look at the “real” series adjusted for inflation and deflation), the economy fell off a cliff from 1929 through 1932 but then started growing again not long after President Franklin Roosevelt took office and the first New Deal programs came into effect. In fact, growth was so rapid that by the beginning of his second term the GDP was essentially back to where it had been in 1929. At that point FDR, worried about the size of the deficit, prematurely persuaded Congress to try to balance the budget. The result was a brief return to recession from mid-1937 to mid-1938. Fortunately that mistake was soon corrected and growth resumed, then soared during World War II when massive deficits fueled growth rates as high as 20 percent.

To be clear, I’m not suggesting that running huge deficits year after year is a good thing. But as long as the government is able to borrow on the financial markets at some of the lowest rates in history (which is currently the case) it’s not a crisis, and it’s still too soon to balance the budget without triggering another recession. Worst of all would be copying the massive spending cuts attempted for example by Ireland with terrible economic results. (See Martin Bashir’s recent report on that.)

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