Economist tells West Shore Chamber: Recovery will take more than 4 years
Business executives who are wondering why the economy isn't yet back to overall pre-recession levels might want to be a little more patient, no matter who wins the presidential election in November, economist Joel L. Naroff said Wednesday.
"If you get your economics from a politician, you get what you deserve," Naroff told the crowd during the West Shore Chamber of Commerce's annual economic forecast lunch at the West Shore Country Club.
Naroff is president and founder of Bucks County-based Naroff Economic Advisors Inc.
While the political campaigns are positioning themselves as saviors for tomorrow, it's likely going to take much longer than four years for the U.S. economy to reach pre-recession levels, he said. The largest issue is that those levels were highly inflated due to the housing bubble's excess residential construction and the subprime mortgage market that caused the financial sector crash in 2008, he said.
Taking those issues into consideration, the economy has been steadily improving for 23 consecutive months, including about 2 million jobs and year-over-year unemployment reductions of about 1 percent, Naroff said.
However, if you still find the rate of recovery disappointing, there are more complex economic factors to consider in why it hasn't rebounded as fast as in other recessions, he said.
For starters, the recession was caused by the collapse of the housing bubble and financial sector collapse, not by the Federal Reserve's raising interest rates, he said.
"You can't turn around an economy overnight when you have problems that take a long time to solve," Naroff said.
The jobs and wealth generated by that bubble aren't coming back, he said.
Secondly, he likened the slow recovery to a carnival "whack-a-mole" game where every time the U.S. economy sticks its head out of the hole a little farther, another club comes mashing down to knock it back.
Several factors contributed to that, including:
• $4-per-gallon gas, which increases transportation and product costs and slows consumer buying habits.
• The European debt crisis, which slowed buying of U.S. exports.
• The Chinese economy slowing because it exports heavily to Europe, which tamped down demand for U.S. products in Asia.
Compounding those issues is the U.S.'s small export base, Naroff said. It lags behind the rest of the world in export rates because the expansion of our economy after World War II largely relied on the growing domestic middle class, he said. Companies had no reason to be interested in exports, but today the world has shifted to a global economy that makes exports a necessity.
"We were kind of slow on the uptake," Naroff said.
And although many Americans like limited government, fiscal constraint can stifle government spending that significantly contributes to the private sector in the form of contracts, services and products, he said, pointing to Central Pennsylvania's reliance on both state and federal government in its relatively stable economy.
"There's no such thing as budget cuts that have no impacts," Naroff said.
Most economists will tell you that in order to balance government, you need to address spending and revenue, he said. That means cutting spending and increasing taxes — or cutting tax breaks — where they're likely to least harm the overall economy, particularly consumer spending.
"You need to look at the economic impact, not whether it affects one particular group that votes for (a politician)," Naroff said.