The core of President Obama’s re-election argument is this: The economy is on the right track; things are getting better — stay the course.
Thus, White House economist Alan Krueger said last Friday of the October job report’s showing of 7.9 percent unemployment: “While more work remains to be done, today’s employment report provides further evidence that the US economy is continuing to heal . . . It is critical that we continue the policies that are building an economy that works for the middle class as we dig our way out of the deep hole that was caused by the severe recession that began in December 2007.”
If only that were true. But 41 months into a supposed economic recovery, the wounds inflicted by the Great Recession continue to fester.
For instance, job growth has averaged 157,000 per month thus far in 2012, about the same as 2011’s average monthly gain of 153,000. Those wouldn’t be bad numbers if the labor market were already at full health. But it isn’t — not even close.
This “recovery” has yet to bring us a period of strong job growth to make up for what was lost in the recession — to close the “Jobs Gap.”
As the Brookings Institution figures things, the US labor force will grow by around 100,000 jobs a month over the next decade or so. So the economy needs to add many more jobs than that each month to begin to return to pre-Great Recession employment levels.
But at October’s new-jobs rate of 171,000, we wouldn’t close the Jobs Gap for another 11 years and three months. And even that assumes we don’t suffer another recession before then.
To look at the Jobs Gap another way, consider that employment typically grows about 2 percent a year. Since that hasn’t happened since before the Great Recession, we’re nearly 15 million jobs below the below the pre-crisis trend level.
But the Jobs Gap is really a function of another deficit, the Growth Gap. The economy is growing far too slowly to generate many jobs — its total growth in this recovery is only 7 percent. Over the same span during the 1980s Reagan recovery, the economy grew three times as fast.
If the Obama recovery had been as strong as the Reagan recovery, GDP this year would be $1.5 trillion higher than it is currently.
Normally, the worse a recession is, the stronger the initial recovery: You get a couple of “catch up” years of superstrong growth. In 1983 and 1984, for instance, growth averaged 6 percent.
Say that, from here on out, the economy grows at trend, 3 percent or so a year. Because we never had those “catch up” years, GDP will be lower in the future than if we’d had a normal recovery. In 2037, for instance, it’d be some $5 trillion lower.
And lower GDP not only means lower job growth, it makes servicing the exploding national debt a lot harder.
Staying the course means never filling the Jobs Gap or the Growth Gap. It means accepting the New Normal as the permanent reality. But the New Normal isn’t so new anymore; we’ve been living with it since 2006.
With a real recovery, the New Normal would be one of growth and prosperity, where jobs are plentiful and take-home pay is rising. But to get there, we need to close one more gap, the Policy Gap between what Washington could be doing to help and what it is doing.
We need tax reform that rewards investment rather than lobbying. We need entitlement reform that creates a safety net rather than a debt trap. And we need a president who understands that wealth is created by innovators, not regulators.
So when you go to the polls tomorrow, be sure to mind the gaps.
James Pethokoukis is the editor of AEIdeas, the blog of the American Enterprise Institute, and a CNBC contributor.