Robert Reich is pessimistic about economic recovery

Robert Reich, via Mark Thoma:

Are we finally in a recovery? Who’s “we,” kemosabe? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us – small businesses along Main Streets, and middle and lower-income Americans – forget it...

The US economy grew at a 5.9 percent annual rate in the fourth quarter of 2009. That sounds good until you realize GDP figures are badly distorted by structural changes in the economy. For example, part of the increase is due to rising health care costs. When WellPoint ratchets up premiums, that enlarges the GDP. But you’d have to be out of your mind to consider this evidence of a recovery.

Part of the perceived growth in GDP is due to rising government expenditures. But this is smoke and mirrors. The stimulus is reaching its peak and will be smaller in months to come. And a bigger federal debt eventually has to be repaid.

So when you hear some economists say the current recovery is following the traditional path, don’t believe a word...

I'm one of those who claim that the current recovery is following the traditional path, though I'm pretty sure Reich has never read this blog. I'm also pretty sure that Reich is going to be looking pretty silly in a couple months' time.

On the specifics: (1) It's pretty bizarre to claim that WellPoint's premium increases had a marked effect on GDP. We're talking about a very small fraction of GDP in play, and in theory the BEA controls for price increases in its measure of real GDP. (2) In the early stages of recovery it's normal to see big companies and stock holders getting healthier while "Main Street" is still mired in recession. These things take time; in a perfect world Main Street would recover before Wall Street, but that's never been the world we've lived in. (3) Fiscal policy at the federal level is still quite stimulative and will remain so for years, even though the degree to which it gets more stimulative is decreasing. And monetary policy is ridiculously stimulative. That's why growth is going to be strong in 2010.