NO ADVERTISING, GOVERNMENT OR CORPORATE FUNDING
DONATE TODAY


  June 26, 2014

Why Did Economy Shrink So Dramatically During the First Quarter of 2014?


Robert Pollin: Five years after the Great Recession, austerity as the dominant policy agenda is keeping the recovery weak
Members don't see ads. If you are a member, and you're seeing this appeal, click here
   


Audio

Share to Facebook Share to Twitter



I support The Real News Network because it is not entertainment...it is real news. - David Pear
Log in and tell us why you support TRNN


biography

Robert Pollin is Distinguished Professor of Economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts-Amherst. He is also the founder and President of PEAR (Pollin Energy and Retrofits), an Amherst, MA-based green energy company operating throughout the United States. His books include The Living Wage: Building a Fair Economy (co-authored 1998); Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity (2003); An Employment-Targeted Economic Program for South Africa (co-authored 2007); A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States (co-authored 2008), Back to Full Employment (2012), Green Growth (2014), Global Green Growth (2015) and Greening the Global Economy (2015).


transcript

Why Did Economy Shrink So Dramatically During the First Quarter of 2014?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Anton Woronczuk in Baltimore. And welcome to another edition of The Pollin Report.

Now joining us is Robert Pollin. He is a professor of economics and a founding codirector of the Political Economy Research Institute at the University of Massachusetts Amherst.

Thanks for joining us, Bob.

ROBERT POLLIN, CODIRECTOR, PERI: Thank you very much for having me on.

WORONCZUK: So let's talk about the recent figures that were released by the U.S. Commerce Department that showed the U.S. economy contracted by 2.9 percent in the first quarter of this year. Give us some context for this number.

POLLIN: It's a massive contraction. You know, we're talking about roughly a 3 percent decline in GDP growth in one quarter. That is greater than the decline that occurred in the entire recession of 2001 and in the entire recession of 1970. So this is, you know, a huge number.

Now, the number is being generally dismissed as having been a blip due to two factors, one being the severe winter in the first three months of 2014 in the Northeast, which I experienced, I must say, and the other being the rollout of Obamacare and the disruptions caused by the way that that was rolled out badly, given that the share of health care in the economy is 17 percent. So when something is disrupted there, that is going to weaken the level of GDP, which is the level of activity in the economy. So on the one hand, we do have these explanations.

On the other hand, we have to keep in mind that, you know, you can't just call it a blip. It by itself constitutes the equivalent of a recession if it were to go on another few months.

WORONCZUK: So if I turn on CNN, it will tell me as well that this is a temporary freak event, and like you said, that it was triggered by a harsh winter. And, I mean, they say not to worry about this, because if you look at job creation in the past few months, that there have been more people hired. So is that the case? Or, like, what would you say are the structural problems that are driving the decline here?

POLLIN: Well, all of the above, really. The fact is that the severity of the downturn was probably not consistent with the longer-term trajectory that the economy is on. The economy is on broadly something like a recovery. But now we have to put that in context. The Great Recession ended officially five years ago, at the end of June 2009. So we're at the end of June 2014--the recession ended officially five years ago. However, the recovery from the recession has been a weak all along, not just the last quarter. So it wasn't just a blip.

What happened in the last quarter was broadly consistent with the weakness of the recovery, just to give some evidence on that. In the previous eight recessions that the U.S. has had since World War II, you see strong recoveries after the recession ends, so that, say, three months after the recession ends, the economy is growing on average at about four and a half percent a year. That's positive four and half percent growth on average. In this recession, after the recession ends in 2009, average growth has only been 2.3 percent--half the rate of improvement that we've seen in the eight previous recessions. So we could say that this massive one-quarter contraction was a blip, but it wasn't just a blip, because it comes amid a very weak recovery that's been going on now for five years.

WORONCZUK: So when an ordinary citizen hears that the economy has contracted by 2.9 percent, this might seem like an abstract idea. Give for our viewers what is lost and who suffers from this contraction. Like, when you hear 2.9 percent, what is lost or who suffers?

POLLIN: So what we're measuring is the rate of expansion of GDP, gross domestic product. Gross domestic product is the way--it's very imperfect, let's say, but it is a way that we have, a statistical measure that we have of all the activity that's going on in the economy at any given time.

So normally the level of activity in the economy is increasing. For one thing, there's more people. So, you know, little by little, as there's more people born, moving into the labor force, GDP goes up. Secondly, on average generally productivity, the amount any given person can produce over the course of a day, over the course of the year, that is going up, even if modestly. So overall GDP tends to go up.

So when you see a contraction of this magnitude, a three percent contraction--so normally GDP is going up 2 percent, 2, 3 percent. So relative to the normal trend of a 2 to 3 or even 4 percent increase, to see a contraction of 3 percent means that something has really gone wrong.

Now, again, you can say, well, this really was just due to these unusual circumstances--very bad weather and the rollout of Obamacare. And those things are certainly problematic. But the broader issue is the economy has not figured out how to get out, fully out of the Great Recession, the financial collapse and great recession that caused mass unemployment and continued ongoing suffering.

One of the biggest factors as to why we haven't fully recovered yet is that the financial imbalances were so severe and that households in particular had taken out big mortgages--and they still are suffering over the burden of debt that they're carrying, and they're not able to spend, they're not able to move, because they can't get out of their houses, because their mortgages are so big. These are things that are being reflected in the weak recovery.

WORONCZUK: So then what policy recommendations would you propose in order to prevent this kind of decline or contraction of the economy?

POLLIN: Well, first of all, we have to recognize that we are in a recovery, yes, but a very weak recovery, and that therefore any notion that the economy should move toward something like austerity that has been the dominant policy agenda for the last three years or so is completely wrongheaded. The only conceivable justification for cutting back on public spending is when the economy is flourishing. The economy is not flourishing. It's not close to flourishing. Imposing austerity, which is cuts in the public sector, cuts in education, cuts in health care, cuts in social insurance, cuts and environmental spending, all of those things, those are keeping the recovery weak. So it's a completely wrong policy. So for starters we have to reverse austerity. We have to continue to expand government spending in the public sector.

Secondly, the Federal Reserve that conducts monetary policy has to promote credit getting increasingly available to small businesses. Small businesses are big sources of job creation. The public sector is a big source of job creation. Right now, those sectors of the economy remain weak.

WORONCZUK: Okay. Bob Pollin from PERI, thank you so much for that report.

POLLIN: Thanks very much for having me.

WORONCZUK: And thank you for joining us on The Real News Network.

End

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.



Comments

Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at contact@therealnews.com

latest stories

How Western Military Interventions Shaped the Brexit Vote
Britain Votes to Leave the European Union
Would the Cops Be Convicted if #FreddieGray was White?
Historic Ceasefire Agreement Signed in Colombia
Outrage after Officer Accused of Murder in Freddie Gray Case Found Not Guilty of All Charges
To End War in Syria, Adopt "First, Do No Harm" Diplomacy
Police Accountability Suffers Major Blow with Goodson Acquittal
Gun Control Sit-In Political Theater Can Be Used to Our Advantage
Commentary: Oaxaca Teachers Strike Is About Defending The Revolutionary Educational Tradition
The Empire Files: Puerto Rico's Debt to its Oppressors
Can the EU be Reformed from Within?
Green Party Candidate Margaret Flowers on Healthcare, Climate Change, and Community Economics
Kshama Sawant: Attempting to Work Within The Democratic Party Only Stymies Outside Strategy
How Union Contracts Shield Police Departments from DOJ Reforms
Is Foreign Direct Investment Driving Capital Flight from Africa?
RoseAnn DeMoro: Sanders Campaign a Historic Source of Political Education
Naomi Klein on the Ousting of President Rousseff
Nine Killed in Police Crackdown on Oaxaca Teacher's Strike
Banking for a Baltimore Undivided
Days of Revolt: From the Ghetto to Auschwitz (3/5)
The History of the Kurdish Struggle in Turkey
Naomi Klein on the US Elections, the Democratic Party, and What the Movement Does Next
Europe Will Drift Further to the Right if Britain Leaves EU
Greek Austerity Leading to Brain Drain with No Economic Recovery in Sight
UN Report: A Record 65.3 Million Displaced
In Closing Arguments, Defense Blames Gray for In-Custody Death
Hollande Capitulates to EU Pressure on Labor Laws Risking His Own Presidency
The People's Summit: Saturday Morning Speeches
Grassy Narrows to Ontario: No Reconciliation Without Clean Water (1/2)
Cornel West vs. Robert Wexler on Israel and Palestine

TheRealNewsNetwork.com, RealNewsNetwork.com, The Real News Network, Real News Network, The Real News, Real News, Real News For Real People, IWT are trademarks and service marks of Independent World Television inc. "The Real News" is the flagship show of IWT and The Real News Network.

All original content on this site is copyright of The Real News Network. Click here for more

Problems with this site? Please let us know

Linux VPS Hosting by Star Dot Hosting