Friday, September 4, 2009
It’s a new month which means the Obama Administration will and has begun its formulaic declaration of victory over the economic recession…again. If I remember correctly, we’ve declared victory every month since May, that would make this our fifth major declaration of victory. The only problem is that the recession still hasn’t taken the hint that it’s time to go into retirement. With new figures on unemployment showing a massive 223,000 jobs lost in August and recent news that GDP is stuck still at the falling rate of 1% per annum, who knows how many more victory declarations Obama will need to make before it’s all over? He’s like a weatherman (the non-domestic terrorist kind of weatherman) who calls for rain everyday so that he can say how right he was once it inevitably rains. Maybe it’s more like a Native-American rain dance?
I can’t just blame Obama, there are many economists that are saying stupid things lately. I guess that statement might be a bit too unfair, because honestly I’m not sure if it’s the economists or the reporters that are making the economists look foolish. For example:
"Mark Zandi, chief economist of Moody's Economy.com, said, "I don't think it's any accident that the economy has gone out of recession and into recovery at the same time stimulus is providing its maximum economic impact."
Huh? Don’t we need to see positive economic growth before we are in a “recovery?”
When he talks about making an impact, perhaps he means this?
“IHS Global Insight, an economic consulting firm, estimates that the stimulus has increased the 2009 gross domestic product by about 1 percent over what it otherwise would have been, with the benefit almost entirely in the second half of the year.”
A little background, we economists use GDP and only GDP as the yardstick for economic recovery or recession. No matter what is going on economically in the US, so long as GDP is increasing, we’ve recovered. GDP is defined in simple terms as Consumption (people’s spending) + Investment (company’s spending) + Government (government spending) +/- our net imports/exports (balance of trade between other nations). As with all measurements, it takes a little interpretation. If you think you are sick and the thermometer reads 56 degrees, the obvious question to ask is “are you a corpse or is your thermometer broken?”
Let’s take a look at our recession thermometer. According to last month’s GDP report:
“The decrease in real GDP in the second quarter primarily reflected negative contributions from private inventory investment, nonresidential fixed investment, personal consumption expenditures PCE), residential fixed investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction
in the calculation of GDP, decreased.”
In simple speak, GDP decreased a little less than the previous month, but not because of consumption or business investment were doing great, but because the government spent a ton of your money. The government spent so much of your money it made up for the fact you and your employer aren’t doing so well. If the government continues to Spend-Big (we are at a $2 trillion deficit just this year), we might finally have some positive GDP figures. This is what everybody in the economics world is getting excited about. This is how the stimulus is being heralded as a success. Since government spending is getting bigger and bigger, soon the GDP number will finally go up. The reality of the situation will be that a single number ticked up, we aren’t going to be better off because of it. It’s like getting fired from your job, but you’ve managed to get so many credit cards and loans you might be able to completely replace your income. It’s a hollow achievement if government spending does nothing for people and businesses to increase their side of the GDP equation. The USSR used to post massive GDP gains while they were a communist nation and all they had was government spending driving their GDP, the people in the country lived in squalor.
Congressman Davis had a recent Op-Ed and he gave the stimulus outlays to date:
“Despite promises that this money would be spent quickly to stimulate the economy, an estimated $80 billion of the $787 billion has been spent to date. Those funds breakout roughly as follows: $26 billion on Medicaid grants to States; $13 billion to States for education; $16 billion for unemployment insurance; $13 billion for one-time Social Security payments; $3 billion for food stamps; and $1.7 billion for transportation infrastructure.”
The ugly truth is that to date the stimulus has been more of a bail-out for government than an economic shot to the arm for consumers and businesses. It certainly hasn’t lived up to the sales pitch the Obama Administration made for the bill back in February.
So when team Obama goes out to claim victory over the recession in September and the Obamabots go out to echo the claim that the stimulus is working great, please suggest to them that we might as well repeal the remaining 90% of the unspent funds. After all, the recession is over and the stimulus has worked already. Do they need the money anyways? I’m fairly certain team Obama can package and use the properly poll-tested words on the teleprompter this month to convince the recession to leave the US, never to return.
Robert Verdi had a great fact check on Biden today. If you don't follow his blog The 46 you should. He finds all the interesting articles that are easily missed by the media.
Robert have another excellent find today!