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.
Yesterday, this came out (and, most surprisingly, on Ezra Klein’s blog, although not by Ezra Klein):
What’s the real harm of a massive government deficit? Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff find that high public debt is associated with a significantly lower level of GDP in the long run.
In a new paper for the National Bureau of Economic Research, the researchers examined the historical incidence of high government debt levels in advanced economies since 1800, examining 26 different “debt overhang episodes” when public debt levels were above 90 percent for at least five years.
And what do you suppose they found?
The debt episodes included everything from Netherlands’ Napoleonic War debts and the Japan banking crisis of the 1990s to Greece’s current fiscal crisis. On average, the researchers found that growth during these periods of high debt were 1.2 percent lower on average, consistent with Reinhart and Rogoff’s findings in 2010. What they also found, however, was these episodes of high debt and lower growth were quite lengthy, averaging 23 years. And the accompanying long-term drag on GDP was substantial. “By the end of the median episode, the level of output is nearly a quarter below that predicted by the trend in lower-debt periods,” they explain.
Japan’s “lost decade” has lasted much more than a decade, hasn’t it?
And the policies being pursued by this president seem to be offering up an attempt to see if this country can’t move that average beyond 23 years.
Need a picture?
We’re at 101% of debt/GDP so, according to these folks, we’ll actually perform below the red line.
But hey, more spending please. Because, you know, we need more government jobs (the private sector is doing fine).
Forward (into economic oblivion)!
Yes, we’ve finally done it – and almost immediately after the Spender-in-Chief signed the new law:
US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday.
Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country’s spending commitments reached a breaking point and it threatened to default on its debt.
The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.
Public debt subject to the official debt limit — a slightly tighter definition — was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier.
Treasury had used extraordinary measures to hold under the $14.29 trillion cap since reaching it on May 16, while politicians battled over it and over addressing the country’s bloating deficit.
The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months.
No linger time there, huh? We now owe more than we produce in a year. And let’s be honest, we didn’t get here just during the last 3 years – although we did switch from a horse-drawn sled to a rocket sled – this has been a long process aided and abetted by both parties. Yes, one has been worse than the others at times, but it pays to remember that George W. Bush gave us Medicare part D and No Child Left Behind … both horribly expensive programs.
But it’s not slowing down is it? And that’s a problem for economic recovery as Dale reminded us:
…a body of peer-reviewed work has been developed (PDF) that shows that an excess of government debt serves as a drag on the economy, shaving at least a full percentage point off of annual GDP growth. And we’ve learned that this negative economic effect has a non-linear effect on economic growth as debt increases.
There seems to be little real recognition of how drastic and the enduring government cuts in spending must be to change this so the debt isn’t a drag on the economy. Granted they must be intelligent so as not to compromise our national security or disrupt what we deem as basic essential services government provides, but that leaves one heck of a lot of the pie to cut. And that would include massive cuts in entitlements. You’re not entitled to something someone else can’t afford. And that’s where we are. I wish we’d quit calling those programs which are pure welfare “entitlements”. There is a difference between paying into something for years and a program in which recipients are getting something for nothing. It is the “getting something for nothing” programs that deserve a first hard look. Unfortunately the programs in which taxpayers were forced to contribute and were subsequently looted by spendthrift politicians need to be reviewed and cut as well.
We can pretend this isn’t a real problem, like most of the politicians in Washington DC, or we can face the reality (and pain) of the situation and start to work doing what is necessary to bring fiscal sanity to our nation’s finances.
A good start would be cleaning the lot of them out DC and starting over. You’re likely to find at least as competent a group as are up there now by randomly picking 535 names from a phone book. Yes, I know that’s not going to happen, but we’ve got to come up with some way to scare those people straight. Suggestions are welcome.
I’m sure this is a CBO report (the “gold standard” remember) that Democrats and the administration will try to ignore. Especially since adding to the debt so significantly with ObamaCare.
President Obama’s fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation’s economic output by 2020, the Congressional Budget Office reported Thursday.
In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president’s budget would generate a combined $9.75 trillion in deficits over the next decade.
Of course that’s a static assessment that assumes nothing changes over the next few years. Or said another way, if left to their devices, this is precisely what Democrats and this administration plan for our future. And all the denial in the world won’t change that. This is a plan for fiscal ruin.
To put it in a more easily understandable context:
The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it’s headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO’s deficit estimates.
That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America’s debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.
So, is it time to demand those calling the path we’re on “unsustainable” (i.e. Timothy Geithner, Barack Obama and the Democratic Congress) to put up or shut up? As usual, we continue to hear Democrats blather on about PAYGO, but we continue to see them ignore it in legislation they pass. It appears, given the budget numbers, they also plan to ignore it in the future – wouldn’t you say?
Look at that per household figure from 2008. It was already outrageous and yet within the next 10 years they plan on tripling it to $172,000.
Anyone have any idea of the effect such debt will have on our economy?
For countries with debt-to-GDP ratios “above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more,” according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.
Hey, when you have the fiscal policy of Greece or Argentina, what do you suppose the end result might be?
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