Skip to comments.The Spending Sequester Will Grow the Private Economy - Don't Back Off
Posted on 01/31/2013 6:34:37 AM PST by SeekAndFind
Today's report of a 0.1 percent GDP decline for the fourth quarter came as a surprise to most forecasters. But it actually masks considerable strength in the private economy. Namely, housing investment in the fourth quarter jumped 15.3 percent annually, business equipment and software spiked 12.4 percent, and real private final sales rose 2.6 percent. All in, the domestic private sector of the economy increased 3.4 percent annually -- a very respectable gain.
And here's one for the record books: Working ahead of year-end tax hikes, individuals shifted so much money to the fourth quarter at the 35 percent top rate that personal income grew by 7.9 percent annually -- a huge number. And there's more: In order to beat the taxman, dividend income rose 85.2 percent annually. You think tax incentives don't matter? Guess again.
Now, all this private-sector strength occurred despite the fact that government spending -- namely military spending -- dropped 6.6 percent. Inventories also lost ground and the trade deficit widened.
But here's a key point: Military spending has now fallen virtually to its lower sequester-spending-cut baseline. It did so in one quarter by about $40 billion. So the brunt of the impact over the coming years has already been felt. (Normally, as of recent years, military spending has been virtually flat.)
Which leads me to another key point: Even with the fourth-quarter contraction, the latest GDP report shows that falling government spending can coexist with rising private economic activity. This is an important point in terms of the upcoming spending sequester. Lower federal spending, limited government, and a smaller spending-to-GDP ratio will be good for growth. The military spending plunge will not likely be repeated. But by keeping resources in private hands, rather than transferring them to the inefficient government sector, the spending sequester is actually pro-growth.
Big-government Keynesians think big spending provides big growth. They are wrong. This has been a 2 percent recovery -- the worst in modern times -- dating back to 1947. So let's try something different. Let's shrink government. Let's let the private sector breathe and generate entrepreneurship and risk-taking.
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Everything is a surprise to these forecasters. If they are so smart...why aren't they rich?
They’re “forecasting” because they aren’t good enough to make a living trading.
Just my opinion.....
No Larry, the brunt of the impact has not even really started to make its way into the economy. Layoffs and furloughs have only just begun; people are loosing jobs, or getting 10%+ pay reductions through furloughs, companies are losing contracts, factory orders are being cancelled, and the orders for supplies to meet those orders are alslo being cancelled.
The impact has only just now started to show itself; like an iceberg, its all of the stuff underneath we don't see yet that is the bulk of it.
I remember back in undergraduate school that GDP=C+I+G. So GDP may well fall if G falls. But I suspect every 1% fall in G may cause a substantial increase in C and I. Fewer bureaucrats with full time jobs devoted to messing up the real economy.
So even if the G component is falling, the real economy may be growing.
In what we would consider to be a normal world, you would be correct. Lower government spending would free up capital for investment that would grow the private side of the economy. However, we are in a new normal. Government spending and regulation have become so entwined with the private sector that the C + I depend on the government for a big part of their existence. Also consider that any newly available capital may likely be used to expand production overseas so as to maximize profit. In my opinion, domestic private sector growth is now tied to Uncle Sam. We are so screwed thanks to Krugman and the unintended consequences of economic and foreign policy over the last 20 years.
It’s not just freeing up capital for investment. It’s also removing the government employees that prevent businesses from starting, expanding, hiring, etc. A government with fewer employees messes things up less. So it’s not just a matter of the government sucking up private capital. It’s the government actively preventing the capital in the private sector from being used effectively.
Yes...just great. Cut DOD (the only constitutionally mandated government function) by a trillion resulting in rusting ships and a weakened overall defense (putting our men and when in the military at risk). Meanwhile, all the other government useless departments are growing.
What a great leaders we have...
...men and women...
What great leaders we have.
That is an absolute lie.
I didn't know I lived in North Korea, yet. How can someone spread such blatant disinformation?
Defense spending is about to be gutted (and every single member of the Joint Chiefs has used that word). The Sequester cuts have to come from Operations and Maintenance because Guard, Reserve, and Active Duty personnel accounts cannot be touched by order of Obama who was afraid of the political fallout. So O&M will decrease by 35%.
Defense spending dropped 22.1% last quarter, the lowest in 40 years, and it helped drag GDP into negative territory for the first time since 2009.
Sequestration will result in furloughs, layoffs, cancelled contracts, deferred maintenance, and plant closings.
On the "morality" side, this nation will be fully funding give away programs, Food Stamps, unemployment checks for 99 weeks to people who don't work (to the tune of $200 Billion just this year), but we are taking 50% of the Sequestration cuts from 17% of the budget that is a Constitutional piece of government (whereas Medicare, Social Security, EITC, and Medicaid are not).
People are trying to "spin" this issue when the facts are clear. That is lying, and that is wrong.
Amen. Finally, some sanity on this board. See my post above.
“The impact has only just now started to show itself; like an iceberg, its all of the stuff underneath we don’t see yet that is the bulk of it. “
The illusion of the iceberg began with the excessive, wasteful spending, not with the withdrawal of that spending. The economic growth fueled with borrowed money was never real or sustainable.
A job loss of a government employee, contractor is not a negative in the sense of the loss of employees and manufacturing capability in the private economy.
It’s tough on people just the same - especially folks in government service, or contracting to the same - as the vast majority will take time to realize that they never really were worth the money they were making and to lower expectations for standard of living until it matches what the private sector can provide.
It’s a cruel world out there when your expectations are set too high - but to be sure, the reduction of government IS a positive for growing the private economy. It’s not even rational to argue against it.
“Defense spending is about to be gutted (and every single member of the Joint Chiefs has used that word)”
here we go again.
Just because a bureaucrat-general says “gutted” doesn’t make it so.
A real general would get the job done - focus spending on war-fighting capability only.
But we don’t have “real” generals anymore we have bureaucrat-generals who defend “their” budgets over providing as effective a constitutionally mandated defense of country as is achievable with budgets provided.
The JCS has no business using political language like “gutted” Their job is to tell us what we get for the money provided.