Why '83 recovery will be hard put to attain 'growth'
Most economists are directing their attention to the probable rate of economic recovery in 1983, believing it will be subdued. But whatever the pace of recovery, economic ''growth'' will not resume this year.Skip to next paragraph
Subscribe Today to the Monitor
Does that sound like just another practitioner of the dismal science of economics foisting just another pessimistic point of view on the public?
The fact is, the economy simply cannot resume growth above its previous peak in so short a span as one year, after four years of failing to do so.
The normal short-term course of the United States economy is one of upswing and downswing - or expansion and contraction, or recovery and recession. Downswings have lasted about a year; upswings have varied from as short as one year to as long as nine years.
Economic growth is distinguished from mere recovery by the economy's moving to new and higher levels after every sequence of recovery-recession-recovery.
In every post-World War II recovery, the economy moved to new record highs well above previous highs. In every recession, the economy fell to lows that were higher than previous lows.
These higher and higher highs and higher and higher lows constituted long-term economic growth.
Since 1979, the economy has failed to follow its characteristic behavior.
Real gross national product in 1981 just barely exceeded its 1980 high; real GNP in 1982 just barely exceeded its 1981 low. For all practical purposes, the underlying course of real GNP since 1979 has been a leveling off.
Other major measures of the economy have fared even worse since 1979.
The government's coincident composite index consists of nonagricultural employment, deflated personal income less transfer payments (like social security), industrial production, and deflated manufacturing and trade sales. Those are four of the giants among economic indicators.
This coincident composite index never came close to regaining its 1979 high during the 1980-81 recovery, and its 1982 recession low was far below its 1980 recession low. Its high was lower and its low was lower. The course of the economy underlying recovery and recession was downward, the very opposite of economic growth.
Four years of a leveling off, a recession, a short-lived inadequate recovery, and a long-lived recession have robbed the economy of so much economic growth that it cannot possibly make up for that loss in a single year.
Just to return to the long-term growth trend established during 1969-79 would require roughly a 20 percent rise in GNP and in the coincident composite from year-end 1982 through year-end 1983!
Is a 20 percent gain during 12 months impossible?
No such one-year gain has occurred in the post-World War II years. The extraordinary GNP buildup in 1949-50 at the time of the Korean war was only 13 percent, and that was far and above any increase during any other year.
Of the projections by the major forecasters, the largest GNP gain expected by any of them during 1983 is 5 percent.
Statistical Indicator Associates feels the increase could be greater than 5 percent, perhaps as much as 7 percent. But prospects of a 20 percent rise are outside the realm of the possible.
Moreover, even a 20 percent rise would simply return the economy to its prior growth trend.
To make up for lost growth, the economy would have to move above that trend for as long and for as much as it has remained below it in recent years.
The differences in the various conjecture, forecasts, assumptions, and what have you over the shape of a probable recovery are nothing in comparison with what is needed for the US economy to resume the economic growth that persisted during the 1970s.
At best, 1983 can be the start on the way back to US economic growth. Such a start would be a major improvement over what has occurred during much of the last three years.
But the road back to economic growth will be a long one, and the forecasts of recovery for 1983 that you have seen do not begin to suggest the length of that road and how long it will take to reach renewed fresh growth again.
In 1983, the economy will move only a short way down the path toward renewed growth.