The president's top economic adviser, Larry Summers, made an interesting comment during a panel discussion at the World Economic Forum in Davos. Summers said the US is experiencing "a statistical recovery and a human recession." Let's explore that further.
The "statistical recovery" refers to last quarter's 5.7% GDP growth, which was boosted in large part by inventory adjustments. It's highly unlikely the economy will see 5% growth this quarter, and economists say fixing the "human recession" -- bringing down the unemployment rate -- requires sustained 5% GDP growth. More from the New York Times:
Most analysts say economic activity will slow to 2.5 percent or 3 percent growth for the current quarter as the benefits fade from government stimulus efforts and from companies drawing down less of their stockpiles.
That's why the Federal Reserve and outside economists think it will take until around the middle of the decade to lower the double-digit jobless rate to a more normal 5 or 6 percent.
Another way of looking at it: A net total of about 3 million jobs would have to be created this year to lower the average unemployment rate by 1 percentage point for 2010, economists estimate. Yet even optimists think the creation of 1 million net jobs is probably out of reach this year.
In a gross understatement, Summers called the level of unemployment "disturbing." He seemed to point a finger at China and the US trade imbalance with that country. From The Independent:
Mr Summers - sharing a panel with the deputy governor of China's central Bank, Zhu Min - said: "Not everyone can have export-led growth. Countries that traditionally have export-led growth desire to continue the growth; countries that have been substantial borrowers want to reduce that borrowing. There's a mismatch; it's serious."
Is Summers making veiled protectionist threats to China? The UK's Daily Mail reads it that way:
While protectionism has thus far been the dog that didn't bark in the global crisis, the topic is clearly exercising the mind of Mr Summers.
The National Economic Council director pointed out that the great American economist Paul Samuelson began to argue late in his life that free trade is not always win-win for everyone.
When a nation's unemployment is significant, demand is tumbling, and mercantilist policies are being pursued abroad, there can be qualifications to arguments for free trade, said Summers, who is Samuelson's nephew.
Those words ought to ring alarm bells in Beijing. The relationship between China and the West is about to get much rockier.
Is it really? Seems like I've heard this threat before -- China, stop devaluing your currency (which boosts exports) or you'll be punished with an import tax here. From the Buffalo News:
Sen. Charles E. Schumer, D-N. Y., has proposed bills to punish China for this for five years. They die quietly. His office says the Senate has been absorbed by health care, and adds that the Democratic leadership wants to do something in earnest. I will send roses when it does...
"Obama listens to [economic adviser] Lawrence Summers, a friend of Wall Street and a dyed-in-the-wool outsourcer," Tonelson said.
With Summers around, you won't hear Obama saying what centrist French President Nicolas Sarkozy said last week: That free trade has "weakened democracy" because it has been prioritized above all else.
On the other hand, there are those who say the US should stop worrying so much about what China does and focus on itself -- the budget deficit, for starters. Either way, simple finger-pointing by Summers isn't going to alleviate the human recession.