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PeakTrader:

JBH says: “The sequential increase in joblessness is due to the sequential growth from one cycle to the next in the US trade deficit as a share of GDP.”

Trade deficits allow tax cuts to generate demand and raise employment. However, average annual U.S. per capita real GDP growth from 1982-07 was 2.30%, which was strong growth, over 26 years, although increasingly larger trade deficits, over that period, subtracted from GDP growth.

Since the V-shaped recovery, in the early 1980s, and subsequent strong expansion from 1982-90 (when real GDP per capita growth averaged 3.14% in those nine years), the U.S. had three recessions: one moderate, one mild, and one severe.

There was a slow recovery after the 1990-91 recession. Real GDP per capita growth averaged 1.24% over the five years 1990-94. Over the subsequent six years 1995-00, real GDP per capita growth averaged 3.14% (coincidentally the same as 1982-90, but with much larger trade deficits).

In the 2001 recession, real GDP per capita didn’t fall in 2001. The spectacular structural bull market from 1982-00 ended and a structural bear market began. Real GDP per capita averaged 1.92% from 2002-07, on top of the huge economic gains, from 1982-00, and trade deficits peaked in the mid-2000s. The “long boom” was extended into 2007.

Because of trade deficits, a large tax cut was needed after 2007 to either reduce the severe recession or achieve a strong recovery. The Bush tax cut in early 2008 not only lessened the recession, it gave the Fed time to catch-up easing the money supply. However, the economy fell off a cliff when Lehman failed in Sep 2008. A large tax cut in early 2009, e.g. $5,000 per worker or $700 billion, may have jolted the economy into a self-sustaining consumption-employment cycle, particularly with other pro-growth policies, e.g. deregulation and a higher minimum wage, and fewer anti-growth or counterproductive and ineffective economic policies, which were expensive.

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