Free Markets, Free People

GDP penalty


White House, GDP numbers and Orwell’s Ministry of Truth

The more I read political spin these days, the more I feel the shadow of Orwell’s “Ministry of Truth” from “1984” trying to solidify its existence.

Yesterday’s disastrous GDP numbers were followed up by this nonsense from the White House:

The estimates found economic growth slowed to 1.5 percent last quarter – down from 2 percent the previous quarter and 4.1 percent in the fourth quarter of 2011 — but the chairman of President Obama’s Council of Economic Advisers said that at least it’s still growing.

Yes indeed.  “Still growing”.  That’s a bit like saying a baby born without a brain and being kept alive on life support is “still alive”.

Technically true, but in the case of the baby, a condition everyone would agree is a tragedy.  In the case of this economy, as stated, those numbers are a disaster.

"Today’s report shows that the economy posted its twelfth straight quarter of positive growth," Alan B. Krueger wrote in a statement. "Over the last three years, the economy has expanded by 6.7 percent overall, and the private components of GDP have grown by 9.9 percent."

Yes sir, the private sector is “doing fine”.  9.9% growth in three years!  As for the GDP (which is forecast now to be at an annual rate of 1.3%), hey, it’s still growing.

Unsaid by the spokesman for the Ministry of Truth, is just “growing” just isn’t good enough to be considered “positive”.  Rule of thumb?

Therefore, economists agree the ideal GDP growth rate is more than 2%, but less than 4%. In between the two recessions, the annual economic growth rate was ideal:

  • 2.5% in 2003.
  • 3.9% in 2004.
  • 3.2% in 2005.
  • 2.7% in 2006.
  • 2.0% in 2007.

What economists are also coming to agree on is excessive debt – like that we’ve run up – puts about a 1.2% penalty on GDP.  Or said another way, we’re unlikely to see GDP growth return to the “ideal” anytime soon, given the 10 year plan by government to spend 46 trillion dollars we don’t have.  If you’re wondering what all that means, consult the Japanese economy for the last two decades.  That’s likely the new “normal” with the policies in place from this administration.

But hey, if everyone would rather talk about Mitt Romney’s wonderful European adventure (hey, at least he’s not bowing to everyone in sight), that’s fine.  It is certainly something the Ministry of Truth would approve.

~McQ

Twitter: @McQandO