This month the economic expansion brought to you by your Federal Reserve and by US government largess becomes the longest expansion in the history of the United States! That’s something, right? Something? Let’s take an honest look at what we now call great.
By “the longest expansion” we mean the longest period in which US GDP has been growing without a recession. Now, that’s something to crow about, right?
Not so fast for many reasons. It’s also been the most anemic expansion on the books, and it’s not too hard to see why it’s been the longest, having nothing at all to do with a great economy. It has cost us far more than any expansion (by an order of magnitude) because we’ve piled up ten times the national debt over any amount we accumulated during previous expansions. (I’ve said before, it’s easy to let the “good times” roll when you are buying it all on the company credit card.) We also quadrupled the size of the size of the Fed’s balance sheet. That didn’t cost anything, but we sure didn’t get much bang for the buck! We actually got less bang than in any previous expansion!
The permanent recession
Sure, we got outstanding growth in stocks, but growth in business revenue has been pathetic. Growth in corporate development has been even worse (i.e., new plants, improved productivity, etc.) Growth in earnings was decent, except for the fact that it is entirely a feint because it was created mostly by reducing the numbers of outstanding shares over which earnings are divided, not so much by growing business. (Why do you think Wall Street prefers to talk about “earnings per share, ” EPS, instead of just actual profits?)
We can pretend the strength in EPS was because business has been booming during the “long economic expansion,” but it wasn’t. We got less production growth out of this expansion than in any other expansion in US history, and that is easy to prove with the Fed’s own data. GDP went up, but the rate of growth in GDP has been in secular decline during each expansion: (Expansion periods are the periods between the gray recession zones in the Fed graph below.)
Of course, those are percentage changes, and the higher any number gets, the harder it becomes to get as big of a percentage change off that number. So, not so horrible, right?
Well, the real numbers look worse because, you see, the government has changed the way it calculates GDP over the years to make things look better when measured against history. If you go back to tracking GDP the way it was historically calculated (if for no other reason than to keep the formula being used consistent across the chart), it looks like this: (Top line in the chart below is the line from the Fed chart above; bottom line is what you get if you stay with the same formula throughout the chart.)
Oops. Worse than pathetic. Using consistent accounting through time, we discover we have actually been in receding GDP (recession) since 2000 with the exception of one little bump in 2004. We don’t want to admit that, so we we’ll just ignore that by saying we improved our accounting methods over time.
And that is why I say “It’s been a great recession” because we never actually left the Great Recession. Rather than the longest expansion in US history, we’ve been enduring the longest recession in US history ever since the dot-com bust. The above chart shows the GDP growth rate, and the REAL GDP “growth” rate, which has actually been contraction, not growth, for the past two decades if measured by historic standards. So long as GDP is growing, (above 0 on the chart above), we’re in expansion. Whenever GDP is shrinking (below 0 on the chart above), we’re in recession…..