Slower Growth: It’s Not Just Government

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

At an all-day meeting (gasp!) but let me dash this off quickly.  There’s a bit of meme I hear growing that sure, when it comes to economic growth right now, the government sector is a real drag, but otherwise we’re doing pretty well.  The Federal Reserve policy statement on Wednesday kinda sorta goes there:

“Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy.”

I disagree.  The chart below shows year-over-year changes in real growth in gross domestic product for the total economy and minus the government.  You can see how the stimulus (increased government spending) helped offset some of the Great Recession back in August 2009.  And lately, when you take out the fiscal drag, the private economy is clearly growing faster.

But it too has decelerated, and of course, despite silly declarations to the contrary (“the government doesn’t create jobs!” â€" except that there are currently 22 million government jobs), the two sectors are highly interdependent.  And they’re both (a) decelerating and (b) growing too slowly.

Two Pictures of Economic Growth

Sources: Bureau of Economic Analysis, author’s analysis.