Positive GDP growth despite Obama’s failing stimulus

Thursday, October 29, 2009

Today is a good day for the economy, at least as far as the economic numbers stand. The BEA just announced that the country experienced the first growth in GDP since the recession began as the projections show 3.5% growth. It is also a good day for the Obama administration. They will get to walk out to the podium and declare victory over the recession. Unlike, the previous 5 declarations, they finally have a solid number to support their repetitious claims that the economy is on the road to recovery. The administration will also get the added benefit that few will actually read the GDP report. Here are a few critical points that the media will fail to write about while they are busy lauding the stimulus.

“Cash for Clunkers” stimulated the economy by how much?

Christina Roemer came out and in true liberal fashion and declared:

"Obviously fiscal stimulus is playing a crucial role…"

The lie of omission was, which fiscal stimulus are you referring to?

According to the report:

“Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change…The third-quarter increase largely reflected motor vehicle purchases under the Consumer
Assistance to Recycle and Save Act of 2009 (popularly called, “Cash for Clunkers” Program).”

In normal person speak, this means that “Cash for Clunkers” was the big boost for GDP in the 3rd quarter. I doubt anyone will be asking the Obama administration why a $3 billion “Cash for Clunker” program was more effective in GDP growth than $768 billion in stimulus. I would love to laugh at the explanation. While it is nice to see GDP growth as a result of “Cash for Clunkers,” it has now created a nice little GDP growth hurdle for the fourth quarter when we will have to weather the massive drop in car sales as a result of the end of “Cash for Clunkers.”

Did anyone else notice that companies are still reducing inventories…by a lot?

“Private businesses decreased inventories $130.8 billion in the third quarter, following decreases of $160.2 billion in the second quarter and $113.9 billion in the first.”

This is good news and added almost a 1% growth in the GDP number. However, inventory reduction is still looking poor. It is a sign that the economy growth is very fragile and that jobs aren’t coming back soon.

Hey, look how good those ideological rightwing tax credits are doing!

“Real residential fixed investment increased 23.4 percent, in contrast to a decrease of 23.3 percent.”

Personally, I think the first-time homebuyer tax credit is going to cause a “Cash for Clunker” home sales abyss once the program ends in December. So my comments here are a little hypocritical. However, I do find it interesting that the largest growth from the stimulus is through tax credits, which are essentially tax cuts. Does anyone else find it ironic that the left is lauding the government spending side of the stimulus, while housing tax credits are having a larger impact?

I applaud the positive economic growth. I hope that it continues. However, the truth regarding the Obama stimulus was best summed up by Republican Kevin Brady:

"While some may promote the stimulus as the savior of the economy, it is a claim only the Balloon Boy's dad would make. The critics were right: the stimulus is too slow, too wasteful and too unfocused on jobs."


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