The main reason GDP increased at a rate larger than forecast was a large increase in government spending. As hard to believe as it may be, government spending’s contribution to real GDP had actually decreased since the second quarter of 2010. Anyone who understands the economic consequences of government spending knows that this was a good trend if we want to promote long-term economic expansion.Alas, this trend underwent a dramatic reversal over the past three months. Real federal government expenditures increased 9.6 percent. National defense spending alone increased 13 percent over the third quarter. These increases at the national level contributed to an overall increase in all government spending (federal, state, and local) of 3.7 percent. Government spending is what drove the increase in real GDP. Unfortunately, we cannot rely on government spending to generate sustainable economic expansion. The economy is not a machine that is ailing from a dead battery. Yet modern macroeconomists and policymakers often talk and act like it is. They speak of “jump-starting” the economy with a little government spending or monetary inflation or both. Such actions, however, do not generate real wealth. They surely do cause a redistribution of wealth, benefiting some while harming others, but they do not provide any general social benefit. Neither government spending nor monetary inflation results in more production of more goods that are able to satisfy the subjective ends of people in our social economy…The bottom line is that increases in GDP statistics caused by monetary and fiscal stimulus signals an economic expansion that is more apparent than real. Any economic expansion that does not result from increased voluntary saving and investment cannot be sustained. 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. Capital malinvestment and the misallocation of factors of production no longer can be covered over as official statistics catch up with reality.
Tuesday, November 06, 2012
Obama’s Potemkin Economy
I have been saying here that asset markets have subject to intense political interventions since so much has been at stake for the career of politicians.
For instance, US Federal Reserve chief Ben Bernanke’s "QE Forever" could be construed as having been connected or linked to his tenure under the President Obama presidency.
I guess even the recent statistical economic growth of the US economy may have been propped up for election reasons.
Writes Professor Shawn Ritenour at visionsandvalues.org (bold mine, hat tip Mises blog)
President Obama seem to have employed a deft win-win political strategy. A simulacrum of economic growth may work in favor of his re-election. Otherwise a loss should translate to a 'graceful' exit.
Nonetheless, artificially stimulated growth simply means blowing bubbles which eventually gets to be pricked. Unfortunately, society suffers from the eventual bubble bust, which had been implemented for the self serving interests of politicians.