The Obama administration got good news and bad news on the economy Thursday.
The bad news: The Commerce Department revised the economic growth rate downward, to just 1.3 percent in the second quarter of 2012, down from an earlier estimate of 1.7 percent. That’s close to stall speed, not nearly enough to generate enough jobs or income growth. To add to the administration’s bad day, durable-goods orders dropped 13.2 percent in August.
The good news: The Labor Department revised the job-creation numbers upward, including an impressive 386,000 in March. (But March was a long time ago.) Housing prices finally hit bottom, according to several reports, and have started to rebound.
Still, these are not good numbers. If the government doesn’t radically change its economic policy, we will face a protracted slump for years to come. The only thing that could alter the trajectory is fiscal policy—not the grand bargain to cut the deficit that Messrs. Bowles, Simpson, and a platoon of corporate CEOs keep lobbying for—but quite the opposite.
The U.S. economy needs a new stimulus program in the range of half a trillion dollars a year, at the very least, for three or four years to come. It can get some of that money by temporarily increasing the deficit and some of it by taxing the wealthy and putting the money into public infrastructure spending and state and local budget relief. The chances Obama will embrace such a program: slim to none. The chances a major stimulus could make it through Congress: less than zero. Unless the election changes that equation or Obama hires a drastically different set of economic advisers, we face a dismal future of slow growth.
So the economic picture is not so bleak that it will cost Obama the election, not as long as Mitt Romney is his opponent. But there is nothing on the horizon that suggests a major recovery next year or the year after, and a grand bargain on deficit reduction would only make things worse.
Thus the mixed news is mostly bad news. I wish it were better. They don’t call economics The Dismal Science for nothing. It needn’t be dismal, of course. But that takes much more courageous politics than we have.