OMG! It's GDP!
So, I was on a radio show, "The Takeaway," this morning at 7 am and 9 am, over at the Duke ISDN studios. (Had to leave home at 6:10 am; kind of groggy).
(Podcast of shows here, or soon will be...)
Anyway, it turns out that GDP is up 3.5%.
It ALSO turns out that that number is almost totally fake, in the sense that it does not reflect real growth. Much of it is the "my cash for your clunker" program. Cash for Clunkers was a pretty dumb program; Edmunds estimated that the program cost taxpayers $24,000 for every car sold, over and above the cars that would have been sold anyway. (Here are the Edmunds numbers....)
And the "First time homebuyers" fraud...um... program? Don't get me started.
GDP is C + I + G. Spelled out, that means that Gross (total, before exports) Domestic (what we do in the US) Product (aggregate economic activity)
equals the sum of: Consumption by consumers (C)
Investment by business (I)
Spending by government (G)
So, the total went up by 3.5%, and that seems like growth.
But all the increase is in G, financed by the increased deficit. It's fake. It's not real growth. It's just shifting money from taxpayers tomorrow into Obama's approval rating today.
Seriously, all we did was blow up G like a giant helium flying saucer, with no balloon boy in it. The 3.5% "growth" is fake. It's all G. Ask yourself: why is this a "jobless recovery?" Why aren't consumers going back to the stores, if this is a real recovery? Answer: it is NOT a real recovery.
Check this quote from Christina Romer:
“Data released today by the Commerce Department show that real GDP grew at an annual rate of 3.5 percent in the third quarter of the year. This is in stark contrast to the decline of 6.4 percent annual rate just two quarters ago. Indeed, the two-quarter swing in the rate of growth of 9.9 percentage points was the largest since 1980. Analysis by both the Council of Economic Advisers and a wide range of private and public-sector forecasters indicates that the American Recovery and Reinvestment Act of 2009 contributed between 3 and 4 percentage points to real GDP growth in the third quarter. This suggests that in the absence of the Recovery Act, real GDP would have risen little, if at all, this past quarter.”
Right. Without the increase in G, there would be no increase. BUT EVERY DOLLAR WE SPEND ON G IS BORROWED FROM OUR CHILDREN!!!! Keynes said that we should pay people to go out and bury jars full of money, so that other people would have "jobs" digging up the jars. No. No, no, no.
Simple answer: this is the Keynesian fallacy.
If I buy a refrigerator, that is a real transaction. And it counts toward C (consumption)
If I own a business, and I buy a new machine tool, or fork lift, that is real, also. It counts toward I (investment).
Real recoveries are led by C + I
The Keynesian fallacy, based on the "multiplier" theory, is that government spending causes growth. And it COULD, if the money is spent on infrastructure, keeping us safe, etc. But then the growth that it causes come from the consequent, LATER increases in C and I. (And, the multiplier is NOT 4; it's more like 0.8 to 1.1, at best. It may be negative!)
THIS growth, this GDP number today, is just an accounting trick: Suppose I borrowed $10,000 on my credit card, and then told my wife, "Look, here's the $10,000, our income has gone up by $10,000!" Then I go out and spend the "income" on a new bass fishing boat.
She would hit me with a chair! Borrowing money and spending it is NOT increased income.
Well, the income of the nation is GDP. But we are borrowing money (the deficit) to finance increased spending in G (government).
So, an accountant might say that C + I + G is going up. But if the increase is all G, and it's borrowed, then that is not real growth.