An Associated Press story last week told of Americans driving fewer miles, after decades of driving more each year. It's all a big mystery, we're told, because the economy is growing.
"After rising for decades, total vehicle use in the U.S. - the collective miles people drive - peaked in August 2007. It then dropped sharply during the Great Recession and has largely plateaued since, even though the economy is recovering," the AP tells us (emphasis ours).
The economy is recovering (a given fact in the article) and somehow this does not translate, for the first time, into more driving. Suddenly, 2 + 2 = 3 and no one knows why.
Americans drive more in a growing economy because more people must get to and from jobs. We travel more for vacations, family reunions, business meetings, weddings and other activities that flourish during improving economic conditions.
To emphasize the mysterious nature of this disconnect between growth and transportation, the AP says this: "Gross domestic product declined for a while during the recession but reversed course in 2009. Auto use has yet to recover."
Maybe the oft-reported economic recovery and expanding GDP aren't real. Perhaps this recovery we hear so much about is an economic mirage.
The AP is correct about a growing GDP, the Department of Commerce indicator widely accepted as the most comprehensive barometer of economic health. The GDP has grown since 2009 and Thursday the government reported an annual rate increase of 2.5 percent in GDP for the second quarter of 2013.
Yet, unemployment remains above 7 percent. Wages are relatively stagnant for a "recovering" economy and years of record low-cost mortgage rates have barely afforded tenuous recovery in housing that includes only the highest-qualified buyers. Prices of nonproductive assets, including gold and silver, remain uncharacteristically high for an economy that's four years on the mend.
Despite a steadily rising GDP, Americans don't feel as if they've experienced economic growth - which may explain why they drive less. Maybe it's time for media organizations to scrutinize government's GDP compilation as a genuine indicator of economic health.
A major factor in the GDP is what economists call "velocity of money," or the number of times a dollar changes hands through transactions.
A high velocity of transactions means people have money, the cash has value and consumers are confident to spend. With steady GDP growth, we would expect to see corresponding velocity. The higher velocity would probably include more gasoline transactions, as common economic activity involves transportation.
But the Federal Reserve's velocity chart shows a dramatic decline since 2009. In general, it means less economic activity among ordinary buyers and sellers. It means the economy, as it pertains to most individuals and businesses, isn't bustling with trade.
But the GDP doesn't measure velocity alone. It also gives extraordinary weight to the money supply. That means the GDP goes up with expanding government debt, government spending and inflation of the money supply. Since late 2008, just before the "recovery," the Federal Reserve began its experiment with quantitative easing in which the central bank creates money with the click of a computer mouse. Investors are invited to sell treasury notes, bonds and other safe government paper to the Federal Reserve. The bank buys the notes by crediting trading accounts of sellers. In doing so, at the urging of the Federal Reserve chairman, the bank's board hopes to stimulate lending and investments in elements of the economy that produce jobs but are riskier than government promisories.
With each new round of easing, the stock market has risen as a result of new capital - not as an accurate reflection of endeavors that create constructive goods and services in the market. Nearly every hint of an end or reduction to the program has resulted in stock market declines, with investors scrambling for the safety of nonproductive assets. Only time will tell whether this odd experiment at healing the economy can have lasting results in the form of constructive activities that create good jobs.
For now, we know quantitative easing - an inflationary policy that liquefies upper-echelon investors - has created the illusion of steady growth. It has not increased the velocity of market transactions, which means recovery hasn't reached a majority of Americans who create jobs when they buy and sell more goods, services and commodities.
That's probably why the GDP can grow at the same time Americans haven't the need or ability to drive more miles.