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No, the negative fourth-quarter GDP report doesn’t prove ‘austerity’ is killing the US economy
American Enterprise Institute ^
| James Pethokoukis
Posted on 01/31/2013 6:24:44 AM PST by SeekAndFind
US economic output fell at a 0.1% annualized rate in the fourth quarter, adjusted for inflation. Blame spending cuts, say the Democrats. Blame Republican “austerity.” And one more thing: Stop the sequester. As the Center for American Progress put it: “The economy most certainly would have grown at a faster rate were it not for the ongoing political brinksmanship over the debt ceiling and the risk of sharp fiscal contraction in the form of the pending automatic ‘sequestration’ budget cuts.”
If you break down the GDP report, you begin to see the problem with this line of argument. Private-sector GDP actually added 1.2 percentage points to overall GDP during the past three months. A decent rise in consumer spending was slightly offset by a drop in business investment and a rise in imports. Government spending, however, subtracted 1.3 percentage points, turning the overall GDP number slightly negative.
But so what? Liberals are confusing a metric used to measure the size of the US economy with the actual US economy. What if GDP internals were reversed? What if government spending contributed 1.2 percentage points, and the private sector subtracted 1.3 percentage points? The overall GDP report would have been superficially the same, but in reality much, much worse with the real economy contracting.
Or what if government spending added 6 percentage points, and the private sector subtracted 2 percentage points? The news headline would say GDP rose by 4%, but that growth would be illusory and unsustainable. Should we have more government spending just to prop up the GDP numbers? As economist Tyler Cowen notes in The Great Stagnation: We are still valuing government expenditures at cost rather than being able to measure prices set in a competitive market.
The larger the role of government, the more the published figures for GDP growth are overstating the improvements in our standard of living.
Instead of kvetching about how spending cuts are hurting growth, liberals should focus on the fourth-quarter drop in business investment — and the impact this year of the 60% rise in investment taxes. From 1994 through 1999, GDP growth averaged 4% a year. But government spending added, on average, just 0.3 percentage points to that total. The other 3.7 percentage points came from private sector growth, with business investment adding a healthy 1.3 percentage points to that total. (Also note that federal spending as a share of GDP fell from 21% of GDP in 1994 to 18.5% in 1999. Still the economy boomed.)
Of course, liberals might argue that the drop in government spending is hurting the private sector. But that’s just the reverse of the theory that held the $800 stimulus would ignite the private sector into a multi-year, mini-boom of 4%-plus growth. In August of 2009, the White House predicted GDP would rise 4.3% in 2011, followed by 4.3% growth in 2012 and 2013, too. In its 2010 forecast, the White House said it was looking for 3.5% GDP growth in 2012, followed by 4.4% in 2013. In its 2011 forecast, the White House predicted 3.1% growth in 2011, 4.0% in 2012 and 4.5% in 2013.
But the fiscal multiplier didn’t multiply as predicted. The problem isn’t too little government spending, but too much government regulation and taxation.
TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: austerity; budget; spending
Its the new MO of the Left - the (inevitably) disasterous results of their policies are held out as justification to double down on those same policies.
Americans had better get a friggen grip, fast.
posted on 01/31/2013 6:28:42 AM PST
When has spending gone down?
posted on 01/31/2013 6:32:46 AM PST
(The Republic is dead. I do not owe what we have any loyalty, wealth or sympathy.)
Is that like how I see the Reagan administration described as turning back the clock on civil rights and ignoring the underclass because that’s what libs assumed a Reagan presidency meant, even though nothing in particular can be specified? Pubs have run the house since ‘10, thus we must be experiencing austerity. Back in reality, although Pubs block the path to yet more stimuli, they haven’t been able to “turn back the clock” on anything because, as you may have noticed, no budget has passed the senate in forever.
Gubmint is on autopilot, and unfortunately the baseline is set at the insane orgy of profligacy that was the first Obama Congress. There is no austerity. There are still bailouts and stimulus programs, however. They are run by Helicopter Ben and the gang of bandits known as the Fed Bunch.
posted on 01/31/2013 6:34:01 AM PST
What austerity? Democrats are liars. That’s all you need to know. This is just the latest in a series of lies. No decent person should respect these lying Democratic politicians.
posted on 01/31/2013 6:37:38 AM PST
(The right to self-defense is older than the Constitution.)
Notice the article quotes the culprit as “pending” cuts. In other words the economy stalled—if it was in fact previously moving—due to spending that hasn’t been cut yet but might be. Yes, they are that transparent.
I can listen to the argument that “brinksmanship” scares the stock market and pending cuts may frighten investors. Especially ones with skin in the gubmint money game, which is almost all of them. But the notion that possible future cuts have affected growth already? That’s insane.
posted on 01/31/2013 6:39:05 AM PST
The constant lying is not what gets me angry, (my irritation merely smolders in the background). What gets me angry is the quality of the lying, it’s just so blatant now only a low grade moron (or a democrat) could believe it. It’s beyond insulting to the intelligence. They spend outrageously and when it’s cut back a sliver , that’s the problem. Right.
posted on 01/31/2013 6:46:16 AM PST
(If liberals are not screaming you are doing it wrong!)
What “austerity?” I must have missed the memo.
posted on 01/31/2013 7:07:00 AM PST
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