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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