Low Growth as Decline

Forecasters are understandably interested in when America will experience another recession, but in Trump and the slowing economy, Jared Bernstein observes that a declining rate of growth can feel like a recession to those who experience the decline:

If I told you the real GDP growth rate was going to fall from 3.5 to 1.5 percent, you might not love that, but it probably doesn’t sound too scary. But if I told you growth was going to flip from 1.5 to -0.5 percent, you might run from the room screaming “recession!” Yet, in both cases, the decline in the growth rate was the same two percentage points.

I get it: Falling below zero isn’t anybody’s idea of a good time, but most people don’t think in GDP terms, and the effect of slower growth can be almost as bad as “negative growth.” For example, one thing that will happen if GDP slows as much as expected is that the unemployment rate will (after a lag) reverse course and start rising.

Bernstein’s analysis doesn’t only apply to national trends; it’s useful to explain Whitewater’s economic condition.  A community that, year after year, remains a low-income community will experience relative decline (as against percentage gains elsewhere) even if wages don’t fall in absolute terms.

Looking at Whitewater only by whether her economy will collapse as it once did (it won’t) ignores the more probable challenge that a low-wage community faces: not absolute, but relative, decline.

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