Green Shoots or Astroturf?

An excellent post by Shawn Rittenour, titled “Two Percent Economic Growth: Real or Apparent?”:

 The U.S. Bureau of Economic Analysis (BEA) has just announced that GDP grew at a rate of 2 percent during the last three months. Keynesians like Paul Krugman should be happy, and the so-called “market monetarists” like Scott Sumner should be happy. When we mistake GDP for the economy, a 2 percent quarterly growth rate looks like something to celebrate, at least compared to the previous quarter’s 1.3 percent increase. Alas, as Macbeth found out, not everything is as it seems.

This quarterly release demonstrates the danger of looking to aggregate macroeconomic statistics as a guide for how an economy performs. To better understand how the economy changed during the past quarter, we must (as is always the case) drill deeper into the numbers. It turns out that the deeper we go, the less rosy things appear.

The main reason GDP increased at a rate larger than forecast was a large increase in government spending.

Read the rest here.

Comments

  1. “The minute the government slows the rate of government spending or the Federal Reserve slows the rate of growth in the money supply, the economic lie is exposed and economic law once again asserts its authority.”

    But isn’t that lie the entire basis of how Krugman-ites define the health of “our economy”? They seem to think as long as consumption expenditures are up, economic “growth” is occurring, even it that consumption is entirely funded on the basis of inflationary credit expansion.

    Others have noted that if inflation was correctly accounted for we would be showing GDP decreases, not increases. That would seem to be true especially considering that lower global labor costs and increased productivity should have resulted in greater price decreases for many consumer goods than has actually occurred in recent years.

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