Commentary: Our economy has recovered when...

The Kansas City StarSeptember 17, 2012 

The long and staggering recovery has made a distant memory of what a normal economy on two feet looks like.

There is one thing, however, we should know by now: It’s really hard for government to light the fires of an organic recovery that leads to self-sustaining growth.

Yes, the nearly $900 billion stimulus of 2009 and the bank and auto industry bailouts were good shots of medicine. They did prevent an even deeper recession and kept in place the foundation for future growth.

You can argue that the stimulus and bailouts should have been bigger. But that ignores that we’ve been running trillion-dollar deficits in the federal budget for four years now and will continue to do so. And that since 2008, the Fed has purchased $2 trillion in Treasury and mortgage bonds. And that in its meeting this week, it may decide to buy more.

All told, the government and the Fed have poured several trillions into the economy.

Now, some might say that the failure of the stimulus efforts should stick a knife into Keynesianism. But as a letter writer to The Wall Street Journal recently argued, we haven’t been practicing Keynesianism for more than 50 years.

Keynes, he pointed out, advocated that governments run surpluses when economies are good and spend those surpluses, rather than taking on debt, to help end recessions.

If only we had kept running the surpluses that began in the late 1990s.

And all this is not to say that just because the efforts at stimulus came up short, we don’t need a strong safety net, long-term jobless benefits and worker retraining. Government spending can do a lot to help people navigate tough times.

In case you indeed have forgotten what a good economy looks like, here in no particular order are some reminders.

We’ll know we’re back to normal when:

• You can quit your job, walk down the street to a competing company and get hired pronto. Or you can count on getting a job just out of college and start paying down student loans.

• You don’t grimace when the monthly jobless numbers come out. It’s discouraging to hear that there are about 800,000 more long-term jobless people than when the recovery began in June 2009 and that the number of people not in the labor force has risen by 8 million. In Friday’s report, the percentage of people not in the labor force reached a 30-year high.

• You no longer pore over your company’s earnings reports and wonder whether more layoffs or furloughs are coming.

• You can count on retiring when you planned instead of working longer than you wanted. And you no longer worry so much about whether your pension will be there.

Mercer, the personnel consulting firm, recently reported that the funded status of defined pension plans sponsored by companies in the S&P 1500 has fallen from 81 percent in 2010 to a record low of 70 percent as of July 31. That represents a $689 billion shortfall.

• You stop worrying about some European country going broke.

• You no longer see studies and reports about the shrinking middle class. Or reports about falling real median incomes. A recent study from Sentier Research showed that real median income has declined 4.8 percent since the start of the recovery. That’s a steeper decline than the 2.6 percent drop during the recession itself.

• You aren’t surprised by the latest consumer confidence data. In August, according to the Conference Board, U.S. consumer confidence “unexpectedly” weakened to its lowest point in nine months.

• You don’t see so many “Price Reduced” real estate signs on homes for sale.

• Your hear that corporations have started spending down their hoards of cash, now estimated at more than $2 trillion.

• You happily greet the government’s announcement that it no longer owns a big part of General Motors. And that the government has finally decided to wind down Fannie Mae and Freddie Mac.

• You can’t remember what “too big to fail” meant.

• You don’t see so many empty strip mall storefronts.

• You hear that the Fed is no longer in the bond buying business and interest rates return to historical levels — about 4 percent for a 10-year Treasury bond. Now that rate is well under 2 percent.

As noted here before, the Fed letting rates find their natural level would signal it thinks the economy really is healthy.

• And, because the Fed is letting interest rates rise again, you no longer hear savers complaining about low CD rates.

A final effect of a normal economy might improve the political climate. Good economic growth would mean robustly rising government revenues. So the parties might be able to agree on budget deals that wouldn’t require such huge tax increases or spending cuts.

We can only hope.

A defining challenge

• Some readers object to the term “entitlement.”

They think that getting an entitlement is like getting welfare. Or that because they’ve paid taxes, they’re just getting them back in the form of benefits.

Well, it’s an entitlement because you by law are entitled to benefits no matter how much you paid in taxes to support those benefits. Many Social Security recipients are getting more in benefits than they paid into the system. And if you’re on Medicare and suffer a difficult or long illness, you can get way more out of Medicare than you paid in.

If you don’t agree with that, argue with the dictionary definition: “A right to benefits specified especially by law or contract, or a government program providing benefits to members of a specified group.”

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