Obama’s Incredible Shrinking Economy

I believe that the funniest reaction to Wednesday’s government report on Gross Domestic Product (GDP), which showed that the economy contracted by an annualized 0.1 percent in the fourth quarter of 2012, was posted at my home blog. A mere 23 minutes after the report’s release, my commenter noted with mock surprise: “This bad even with all the extra guns that were sold. And they aren’t cheap.”

Government officials, wire service reporters, and pundits galore inadvertently attempted and failed to top my commenter’s sense of humor throughout the rest of the day. Sadly, they were all trying to be serious.

An unbylined dispatch from the Associated Press, aka the Administration’s Press, released shortly after the report was issued — actually, I’m not sure about that, as the time stamp at CNBC’s web site where the report is carried is 8:11 a.m., 19 minutes before the government’s supposed embargo on the information expired — earned the award for most accidental jokes per column-inch. The report’s top three laugh lines related to “stimulus,” “cuts” in “government spending,” and tax increases.

AP’s unidentified writer characterized the contraction as “possibly providing incentive for more Federal Reserve stimulus” — as if we haven’t already had more than enough of that.

Gee, there was the $900 billion “stimulus plan” which stimulated nothing except a longer recession and slower subsequent growth. The government has run $5 trillion in deficits during the past four calendar years while adding an even larger amount to the national debt. Keynesian economic theory, which at this point would even embarrass the Keystone Cops, tells us that deficits, especially of such unprecedented magnitude, should stimulate the economy to recover at a faster pace. That’s obviously not happening. On top of all of that, Ben the Betrayer Bernanke at the Federal Reserve has bought up over $3 trillion in government debt and kept interest rates at nearly zero for several years. Those actions are also supposed to be stimulative.

With all that stimulation, the economy, according to Keynesians, should be growing at a roaring pace. Instead, annual growth since the recession officially ended 3-1/2 years ago has averaged just 2.2 percent. Average annual growth during the first 14 full quarters after the 1980s recession ended (1983, 1984, 1985, and the first half of 1986), as President Ronald Reagan was employing those allegedly useless, ineffective, and counterproductive supply-side economic policies, was 4.9 percent — over twice as fast.

AP’s next fable had to do with how “government spending cuts” were largely to blame for the negative result. In making this claim, the AP repeated a mistake the press has been ignorantly making for years in assuming that “government spending” is the same thing as “government consumption expenditures and gross investment”  in the GDP report.

It isn’t. The latter term represents purchases of real goods and services plus capital investments in fixed (long-lasting) assets. It isn’t even one-third of all federal “government spending,” which includes transfer payments and myriad other items which, though in some cases defensible, don’t add economic value. The fact is that “government spending” skyrocketed by 12% from the third quarter to the fourth quarter, rising from $810 billion to $908 billion. Since expenditures and gross investment included in GDP went down, spending that added no value clearly soared by even more.

The AP’s final major gag line had to do with taxes. All of a sudden, today’s bad news “could raise fears about the economy’s ability to handle tax increases that took effect in January.”

Wait a minute. I thought that the established wisdom was that tax increases don’t hurt the economy. At least that’s what we were told during the fiscal cliff negotiations a month ago when the objective was to figure out how much the Republican House would allow the government to “soak the rich” (actually, “soak those with the highest incomes who may or may not be rich”). I think the revised formulation is: A tax increase on high earners isn’t a problem, but a Social Security tax increase on those who were promised that it would be the rich who would pay during Obama’s second term is. Uh-huh.

Giving AP’s reporters extra time to digest the news only increased the decibel level of their howlers. In a late-afternoon report, the wire service’s Christopher Rugaber trembled in fear over “the biggest threat it (the economy) faces in 2013: sharp government spending cuts and prolonged political budget fights.” Beside your problem with calling two things a (singular) “threat,” Chris, there haven’t been any “cuts.” If we’re lucky, we’ll only see reductions in the rate of previously projected spending increases. The economy will have a better chance of seeing a meaningful recovery if your dreaded “prolonged political budget fights” lead to even a modicum of control over what is now a runaway government. If you’re looking for threats, try looking into over-regulation, the war on fossil fuels, borders which are out of control, and at least two dozen other far more relevant factors.

Reuters pitched in with its own humdinger — “[E]conomists said Superstorm Sandy, which struck the East Coast in late October may have reduced GDP by about half a point.” Nice try, no sale. Growth during the third quarter of 2005, when Hurricane Katrina inflicted perhaps as much or even more damage to the nation’s productive capacity, especially in energy, was an annualized 3.2 percent. The Obama economy hasn’t seen a growth figure that high in three years.

Bloomberg decided to go into “What difference does it make?” mode (© 2013 Hillary Clinton), whining that “[P]oliticians have increasingly come to rely on … (GDP) as a singular tool for calibrating public policy. This is a mistake.” Folks, no matter what “tool” you use, it’s bad out here in the real world, whether you look at employment, unemployment, under-employment, wage contraction, disposable income contraction, low business start-ups — I could go on forever.

The top humor entry in the government apologists’ division came from Paul Ashworth at Capital Economics, who actually said in a note to clients: “Frankly, this is the best-looking contraction in U.S. GDP you’ll ever see.” Last time I checked, Paul, no contraction “looks good.”

There seems to be at least some chance that the GDP figure will move from contraction to a tiny amount of expansion during the next two revisions in February and March. Building on the genuine humor of my commenter, maybe the government bean-counters will find that they underestimated the value of guns purchased and concealed-carry classes held in December after the politicians started making noises about taking our guns away.

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  • http://www.adinakutnicki.com AdinaK

    They will spin, bob, dodge and weave until the cows come home, or the economic house collapses-whichever comes first.
    The stage was set – as soon as he set foot into the People's House and disgraced the office in 2008 – for an economic collapse, despite all the hand wringing to the contrary. Bailouts…schmailouts…stimulus too, they understood that creating money out of thin air, plus exploding the deficit/spending, would lead to an INCREDIBLY shrinking economy. In other words, they are the socialist doctors feeding the masses their medicine, whether they like it or not.

    So, we are now witnessing the end point to their deconstruction, regardless of the Wall Street rally, also based on thin air, albeit on a hope and a prayer – http://adinakutnicki.com/2012/12/27/dhs-americas-

    Isn't it curious, the financial house is on fire, at the same time that the radicals are moving forward – at warp speed – to eviscerate the Second Amendment. Ya think?

    Adina kutnicki, Israel -http://adinakutnicki.com/about/

    • Guest

      Who owns the Federal Reserve? Of course, everything is going just as plotted.

  • κατεργάζομαι

    Re: "Obama’s Incredible Shrinking Economy"

    An Alinsky Cloward-Piven Orgasm!

    MEN! – NEVER trust your Shrinking Economy to a Blue Poison Pill, like …. Ben S. Bernanke……..

  • Mary Sue

    You know, you'd think people would learn that continuing to do things that fail each time they try them is just plain insane/stupid.

  • SHmuelHaLevi

    I know how the Israeli types work. The quietly announced that the truth was that in 2012 we had a bigger deficit than that published before elections… Larger by a mere 38 billion Shekels or 10 billion dollars. We expect a furher "adjustment" after the new "coalition" is glued up with more cash glue.
    I assume that the same procedure was followed in the US.
    Elections over. First report of a 0,1% slump on GDP before elections.
    As soon as the new administration is set up, there will be a further data correctiion. The direction of which will depend on whose derriere the leader would like to nail or promote.
    The true conditiona are known both here for us and there for the US folk. And I am sure are far worse than that published.

    • John

      I am getting tired of corrections. I have not yet exhaustively looked at the correction for the last 2 to 4 years. My understanding was the unemployment was always underreported with corrections coming later mostly in one direction.

      I have taken course sin statistics & forecasting. One thing you learn is that of your forecasts are always wrong consistently high or consistently low for a statistic, then the statistic is BIASED. So you come up with a better method. That has not been done. Government statisticians went to school too. They are not that stupid. Therefore their bosses must be telling them if they want a job they will goose the figures.

      So much so that I cannot in good conscience believe government statistics. Now I follow private statistics. The one that are free. I guess I am no longer on government welfare.

  • John

    Larry Kudlow said the private portion of GDP ( the REAL GDP as opposed to the public GDP) grew by 3.4%.

    This is good news. I just wonder if it is a blip caused by pent up demand or spending brought on by people taking advantage of the old tax regime.

    We'll see.

  • Barakus abomadidas

    Taxation should cause the economy to expand as people have less to spend. oops–my bad

  • CurmudgyOneJr

    Washington is like the City of Chelm. (Look it up.)

    • Joel

      Yes! Yes! Yes!

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