Today's report that GDP increased by 3.5% last quarter technically ended the recession
that began in December of 2007. But, as everyone was quick to note,
jobless claims are still rolling in and unemployment, already at 9.8%,
is likely to continue rising. The most significant element of growth
was consumer spending, which rebounded dramatically as stimulus
programs such as cash-for-clunkers spurred consumers to buy up cars and
homes. As stimulus critics point out, this stimulus-based growth makes
this quarter's GDP increase somewhat artificial. The economy, then, has
not recovered so much as it has been electro-shocked into temporary
activity. So how can we turn this short-term GDP growth
into real, long-term economic recovery and put an end to
unemployment? Liberal blogger (and #41 on the Atlantic 50) Matthew Yglesias has an answer:
3.5 percent is solid growth. But given the prolonged period of increasing unemployment, the growth of the population during that period, the ongoing growth of the population, and increases in productivity, you’d have to sustain growth at that level for quite a few quarters before the labor market returns to good health. Another way of looking at it is that given the high unemployment rate and the recent contraction in output we should be able to sustain a period of abnormally high “catch-up” growth without sparking any inflation at all.
While noting the shortcomings of stimulus-boosted GDP growth, Yglesias explains why it's economically essential to maintain the stimulus if employment is to grow. Yglesias also somewhat glibly lays out the political challenge. "The key question going forward is will policymakers continue with growth policies until unemployment falls and wages are growing, or will they give in to demands from coupon-clippers and goldbugs to put the breaks [sic] on?" he asks. The political challenge, then, is to neither give up on the stimulus nor to declare victory prematurely.