In my previous post I wanted to see what GDP looked like when we took out the government component of GDP. It made for an interesting observation, but as many of you know that component of GDP does NOT account for the majority of government spending. The majority of government spending is on social programs aka "income transfers," or by it's real name "theft".
I then posed the challenge to create the argument why government spending in its entirety (most of which really is theft) should be DEDUCTED from total GDP. Keynesians have logically and traditionally argued that government expenditures on goods and services should be considered part of GDP in that they DO indeed result in additional goods and services being created. However, us slightly higher-caliber of economists know that there is something fishy about just "assuming" government spending translates into higher economic output and thus higher standards of living. So allow me to explain.
First, there is the broken window fallacy that many of you are familiar with. Missiles and bombs built here in America only to be exploded on the Iraqi population does NOT indeed improve standards of living here. Over-paid government contracts handed out to connected cronies in Washington DC to do make work job to "improve diversity" or "study connectedness" does NOT improve standards of living. Ergo, you can assume the "G" in the C+I+G+(E-I) formula in GDP is most likely completely overstated.
Second, how does one account for the theft euphemistically called "income transfers?" The Keynesians rightly point out that income transfers do NOT result in additional GDP. Parasites (and that's what they are) receive money in exchange for NO labor, NO production, and NO economic product. Ergo, no increase to GDP. However, while Keynesians would argue that there is no increase in GDP and "that's it," I would argue that the money blown on "income transfers" is a lost potential of economic productivity.
In a free market where there would be no parasites, that money would "command" genuine economic production from somebody. Ergo, the $3 trillion we piss away annually (never mind local and state budgets) on theft/income transfers COULD HAVE GONE TO PURCHASE/DEMAND GENUINE ECONOMIC PRODUCTION.
In other words "income transfers" are like steroids. They boost nominal "economic performance" but do not speak to the genuine economic productive capacity of a nation. Therefore, I argue to subtract out ALL government spending to see what the core productive capacity of the country is.
When we do this, the results are interesting.
It takes a keen eye, but what we suspected all along was true. During the depths of the recession TRUE economic growth was much worse than what the obfuscation of government spending attempted to convince of other wise.
However, in all intellectual honesty, economic growth in the private sector has outpaced government spending since 2011 and has posted gains in excess of government spending. Further research shows that this is indeed the truth as government spending has indeed stagnated:
What this shows is an important lesson for any real economist or person who desires to be intellectually honest. It doesn't matter what president is in office and what his political affiliation is. It only matters what POLICIES are effected by the entire government.
If you look at the chart you'll see that the ONLY president to reside over any modicum of fiscal discipline was President Clinton. There (again, partially enforced by a Republican congress) the OVERALL government restrained spending and enjoyed an economic Dotcom boom. This resulted in a non-government economy growing at a rate much faster than government spending AND a drastic reduction in our nation's debt. But since Bush Jr, and most certainly Obama, you see economic growth below governement spending and the resultant crushing national debt.
The recent restrain of government spending is a good thing and a sign of genuine hope that has never really existed in the Obama presidency. I would like to say that if current trends continue private sector economic growth will outpace government spending and the US would inevitably pay off its debts, outgrow the national debt, and we'd be on our way to a glorious future.
Sadly a visit to your:
Local public university
will tell you this is merely a fleeting economic condition and our general plunge into 3rd World-ism will continue.
Enjoy the decline!