Thursday, September 03, 2009

GDP Without Government Spending

I have termed them "derivative dumbasses."

People in the media who are excited when things "aren't worsening as fast as they were."

For example no doubt many of you have heard reports or in the news;

"Housing sales have slowed LESS RAPIDLY than in the past, sending the Dow Jones up 3%!"

"Unemployment has increased, but at a rate slower than last quarter, which prompted analysts at Goldman Sachs to change their recommendation from "sell" to "strong buy!"

Or, I'm waiting for the day the MSM reports this one;

"Barack Obama's approval rating, currently at 28%, is dropping at a less rapid rate, suggesting Americans are starting to realize how brilliant this man really is indebting us and our great great grandchildren!"

Of course it's inane and the reason it's inane is that the situation is still WORSENING, it's just the rate or "first derivative" at which it's worsening has lessened. Which is again like a doctor saying to a cancer patient,

"Hey, GREAT news! The cancer is spreading at a SLOWER rate than before."

"So is it in remission?"

"Oh, hell no! It's still spreading, but we've upgraded your life expectancy from 3 weeks to 6 weeks!"

But one that the MSM and leftists in the media/government complex were drooling over were the latest revisions to GDP figures which showed the economy going from -6.4% to "only" -1%.

The economy is STILL CONTRACTING, but at a slower rate.

This of course was then heralded as a great achievement of Obama and the stimulus plan. However, there was just one small problem. Government accounted for a disproprationate amount of the improvement.

If you look at the details, government spending was rather dramatically increased by 1.27%. Had this spending not occured, then the economy would have contracted by 2.27%, not the 1% people are all swooning over.

Now I know it's still an improvement, but don't you worry, the economy is not going to boom any time soon. I predict it's either going to stagnate like the Japanese economy did and we limp along for the next decade trying to find ryhme or reason in working more, or it double dips which some are also predicting.

However, allow me to make a couple predictions/observations;

1. If we are all excited about Obama getting a -2.27% "REAL" REAL GDP growth rate, it doesn't matter if the economy never recovers and never goes positive because even a -1% real real GDP growth rate will be an improvement.

2. As long as the economy's decline SLOWS, the media will still report the Obama administration as a success. It doesn't even have to reverse into positive growth. GDP's first derivative just must slow.

3. Remember when we were coming out of the 2000 recession after the Dotcom Crash. The PRIMARY chorus of the left that the economy was not recoverying FAST ENOUGH. This will be the measure by which Obama will be judged and he will be judged against that most incompetent and idiotic man in the world: George Bush.

Let's just see how great that Keynesian stimulus plan works.


Anonymous said...

It's really incredible to see how big the difference in tone is between recessions during Bush's administration and ones during Obama's.

Naturally, it shows how they naturally want their favorite candidate to win and can't prevent that from covering their reporting.

Anonymous said...

"As long as the economy's decline SLOWS, the media will still report the Obama administration as a success. It doesn't even have to reverse into positive growth. GDP's first derivative just must slow."

Yeah imagine if ur some how manages to taggr into a positive number, you know Something like 0.5% +/- 2%

The administration will be the BEST PRESIDENT AND ADMININSTRATION , EVAH!


Hydrick said...

I have to cite the "Most Improved Athlete" postulate here.

Those of you that played sports with a "Most Improved" award at the end remember that in order to be the most improved athlete, you had to have plenty of room for improvement. Good athletes have little room for improvement.

Likewise, now that the economy is closer to financial reality, it simply has less room to get worse than when there was insane amounts of credit floating about. The economy isn't getting worse as quickly as before because there simply isn't as much room for getting worse without businesses dropping their ability to supply below current levels of demand.

Robert Miller said...

If the length and depth of a recession were known in advance, it would be fitting and proper for government fiscal policy to maintain incomes and consumption through automatic stabilizers like unemployment insurance, tax reductions, and transfer payments. Government could maintain liquidity in secondary markets where private financial institutions fear to tread. This isn't Keynesian, it's just smart. If we lost our jobs we'd dis-save. If we're in a recession, government should run a deficit. Unfortunately, we and the government were dis-saving when times were good. The ant and the grasshopper were both living large!

But we are not blessed with that knowledge. Government policy will eventually crowd out private investment and prolong the recovery. That's why things like unemployment insurance need to be fully funded by workers rather than pay-as-you-go government systems. The states squandered every dollar of unemployment premiums during the boom on worthless, feel-good social programs and vote-buying expenditures.

It was unwise government housing policy which created the financial crisis, and now we entrust government to bail us out by expanding the Fed's balance sheet with scads of MBS and ABS purchases?

I can think of many public goods which are long overdue for repair and replacement. Unfortunately all these "stimulative" programs which were supposedly "shovel ready" won't even begin until the end of this year. All spending to this point was just to extend unemployment benefits and maintain state government employment. With those incentives, it's little wonder people aren't going back to work and state governments are increasing their budget deficits next year.

Obama and the economy will have its comeuppance in that latter half of this year. Commercial real estate is near total collapse. Alt-A and Option ARMS will be recasting over the next couple of years. There's no sign of unemployment rates topping off or even slowing down. Delinquencies and foreclosures are pushing to new record highs each quarter. The first-half push for housing, production, and spending have evaporated in the dog days of summer. The long, cold fall and winter are coming.

dtrum said...

I would have expected an even bigger increase in government spending, considering the magnitude of Obamas programs. It probably takes some time, but I bet we will see far bigger increases in government spending in 2010.

By the way, your table has an error in it: Imports didn't increase, but DEcrease in the last quarters. Nevertheless, nice statistics. Where did you get them?

Fudgepie said...

It's really incredible to see how big the difference in tone is between recessions during Bush's administration and ones during Obama's.

BushHitler = Baaaad!
Obama = ponies and ice cream for evabody Yaaaaay!

Anonymous said...

When you see stuff like :

where a 36 year member of congress believes the national debt is a measure of the wealth of the country, you know we're doomed.

Econmom said...

Amen Babe!

Captain Capitalism said...

Hello Mr. Trum,

The data comes from the NIPA tables at the BEA (

Pretty much right there and easy to look up.