Government Spending Erodes Weak GDP

A funny thing happened on the way to Utopia today. There I was, just galloping along, humming my happy tune and dreaming of unicorns and rainbows with my fellow travelers. Suddenly, there descended an abrupt assault on paradisaical bliss, halting and horrifying. It’s fins screaming that distinct aero-whine that flash-freezes the spine in the realization that there’s not even enough time to yell a futile “Incoming!” before impact. The logic bomb was upon us.

Munitions experts have identified the weapon as a Mark II Newton gravity-guided casing with a BEA high explosive warhead. The impact was devastating, leaving a massive crater on the Utopian landscape. Damage estimates are ongoing but reports indicate large swaths of the Utopian community, sheltered and intellectually impenetrable, are exhibiting signs of shell shock – PTSD – in the form of denial.

The weaponry report indicates as follows:

Real GDP increased 1.7 percent in 2011 (that is, from the 2010 annual level to the 2011 annual level), compared with an increase of 3.0 percent in 2010.

The increase in real GDP in 2011 primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending, private inventory investment, and federal government spending.  Imports, which are a subtraction in the calculation of GDP, increased.

Shedding the Utopian militarism, this is not as mumbo-jumbo as it may have seemed in your first passing. The first sentence tells you that GDP growth dropped from last year – by nearly 50%. But pay attention to that second paragraph again as it explains how and why. It says that all of the things you associate with positive economic developments (exports, consumer spending, et al) rose. And this is good. However, the second half of that sentence tells you all you need to know to discuss our economic woes directly and in plain English: Those gains were offset primarily by… wait for it…

  • Local Government Spending
  • State Government Spending
  • Federal Government Spending

Government spending at every level is “that giant sucking sound  you hear” whenever you get close. And our Debt to GDP ratio is now 1 to 1 (101%), meaning our federal government’s annual debt is now equal to our annual national GDP – everything we produce. We’re working overtime catching up to veteran Utopian states like Greece, Spain, Italy, Portugal and other keepers of the faith now desperately seeking international handouts to keep their entitled masses from burning down the palaces.

An America Built To Last
Obama’s Blueprint:  Utopian Economic Principles for America: Built to Fundamentally Transform

Simply stated, we do not have a government funding crisis or a taxation crisis. We have a government spending crisis, and it permeates every single level of government. Federal government officials start redistributing to politicians at the state levels, who in turn cater to local government politicians and officials. People do this, not some innocuous, faceless ‘government.’ There is a face and a hand behind (and in front of) every dollar exchanged. And the money is like crack – it creates a dependency chain in the reverse of the money’s flow.

This deep dependency is how a guy like me can live in an average 3 bedroom house built in 1950’s in an average town in New Jersey and pay $11,000 per year in property taxes. And that is out of what’s left after federal, state, sales, excised, utility and other seen and unseen taxes. And last I checked, our streets are not paved in gold and my children are not attending Harvard Middle School.

The size and scope of government at every level must be scaled back and liberty restored (and necessarily celebrated) in order for us to survive a violent societal and governmental implosion that would dwarf Greece. The presidential debates are about the federal level and the relationship between American citizens and the federal government. This same debate is required and in most places ongoing at the state and local levels.

We’ve seen the “blueprint,” President Obama. It’s written in Greek, Spanish and Portuguese. We’ll pass, thank you. Utopia turned out to be not an island, but rather a Potemkin village.

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  • Doug Mataconis

    You’re misreading the report. The negative contribution being referred to are the cuts in state, local, and Federal government spending in 2011. This was also one of the factors holding back GDP growth in the 4th Quarter.

    GDP is defined as “The monetary value of all the finished goods and services produced
    within a country’s borders in a specific time period, though GDP is
    usually calculated on an annual basis. It includes all of private and
    public consumption, government outlays, investments and exports less imports that occur within a defined territory. ”

    Cutting spending is a good thing, but one must recognize that it does result in at least a temporary negative impact on economic growth and, if government jobs are cut, employment.

    • sschippert

      You make a good point and thanks for pointing out my misreading, Doug.

      That said, while I perhaps may have misread this specific report, the principle still remains: Government must shrink – short term consequences be damned – or it will consume the economy and this society.

      • “Government must shrink – short term consequences be damned – or it will consume the economy and this society.” 

        You are so right, Steve. We have reached the point where government spending is such a large portion of our economy that any effort to shrink the size and scope of government will be a short term difficulty. 

        It’s not unlike an alcoholic trying to break his addiction to alcohol: He’s going to feel like shit for quite some time before he feels better, but if he sticks with it, he’ll make it through and will feel like a whole new person.

        • Commander_Chico

          Let’s stop invading other countries, that would save a lot of money. And a lot of pain.

          • jim_m

            We’d save far more money by reforming entitlements.  Unfortunately, that is something the left will never do and the right lacks the guts to do.

            We can afford the military spending simply because it amounts to only a fraction of entitlements.  We cannot afford either in the long run without reform.

            The good news(?) is that if we do nothing entitlement reform will eventually happen regardless as the economy (and the dollar) collapses under the burden of debt.

          • “We’d save far more money by reforming entitlements. “

            Really, Jim? Care to lay down some facts that support that? Facts s that show social entitlements reforms compared to spending on the Iraq War?

            Or are you just making up crap again?

          • retired.military

            Defense budget goes down.  Spending goes  up.   Now i know that Obama is giving a lot of money to his fatcat friends running green energy companies (who then go bankrupt a year later) but most of that money is giong towards entitlement spending.   

          • jim_m


            First of fall:  F you. 

            Second:  According to the federal government
            Entitlements are over $2T of the federal budget.  Defense is $737B (this number excludes foreign aid and spending for veterans)

            Entitlements such s Medicare and Social Security are expected to go up with the aging of the population in a manner that has been alleged to be unsusatainble by even the dems (or at least it is unsustainable when a republican is in power, it seems that it is OK when a dem is in power.  Go figure)

            Simply looking at the figures one can infer that there is a lot more opportunity for savings wit $2T than there is with $737B.

            [edit] Add in the state entitlement spending in this graphic and you get ~$2.8T. There os not only room for reform but a desperate need for reform[/edit]

          • 914

            Have some more cherry you village idiot!

          • jim_m

            Once again we see Stephen calling people liars and demanding data to back up their assertions.  The data and links to it are provided and he conveniently disappears. 

            I guess mommy grounded him from the internet again.  What a coward.

          • Commander_Chico

            We can afford doing things like invading Iraq, even if it’s a total bloody maiming killing waste of $1 trillion, and propping up Karzai for another trillion or so, plus another trillion for the VA in the future because of the foolish wars, but can’t afford to pay for granny’s mac-and-cheese and medical bills?  O-tayyyy. On to Iran.

          • herddog505

            DOD budget (proposed, 2012): $553B

            Deficit (proposed, 2012): $1.101T


            Yep, cutting defense (when have libs NOT wanted to cut defense???) will solve all our ills.

            / sarc

          • jim_m

            Since another one of obama’s green companies is about to file chapter 11 and send another $118 M of tax payer dollars into the toilet, I’d say that we should stop playing VC to the far left entrepreneurial set. 

            That would save us billions AND it would put people in dead end jobs on unemployment where their benefits would help boost the economy, because obama tells us that unemployment benefits are one of the single most effective ways of stiumulating the economy.

          • No more research and development in new technologies? Back to the stone age with the Tea Party leading the parade?

            No thanks.

          • jim_m

            Having worked for several start up companies I will inform you that the majority of research that gets developed into new businesses does not come from government hand outs to the friends of the president,but it is generated through academic research at the university level and the universities then license out the technology to start ups using venture capital.

            Private investment is what has traditionally driven that engine, not government handouts.  Government should stick to the little it does do reasonably well which is issuing grants for research.  I did not criticize that.

          • herddog505

            I work in the chemical industry.  Our company, though not one of the Big Boys (Dow, Rohm and Haas, etc.) develops new products all the time.  Uncle Sugar has nothing to do with that.

            The idea that Uncle Sugar is responsible for ANY R&D is a relict from World War II (specifically the A-Bomb project) and the Cold War, especially the Moon shot.  We forget that – somehow – Americans prior to 1941 invented such things as the airplane, the telephone, the telegraph, anesthesia, the liquid-fueled rocket, the incandescent lamp, the submarine, etc. without Uncle Sugar’s help.

            Government’s proper role in R&D is to do two things:

            1.  Uphold patent and contract laws so that people can enjoy the profits from their inventions without somebody else stealing them;

            2.  Maintain schools (including universities) that provide a large corps of well-educated people and facilities for conducting research (this is mostly done at the state and even city level);

            3.  Issue contracts to PRIVATE companies for newer, better devices (this is mostly military).

            As we’ve seen from Barry’s excellent green energy adventures, government has NO business directly funding companies in the hopes that they will somehow take off; “if you build it, they will come” is a line from a movie, NOT a philosophy for government spending.

          • Commander_Chico

            A lot, if not most, of the wars have been funded in supplementals, off-budget.

          • jim_m

            I see.  So having unplanned emergent situations is an excuse to perpetuate a poorly run, wasteful and unsustainable program. 

            “Sorry, we can’t reform entitlements because we had to pay for wildfires in Texas this year.” 

            That’s probably the lamest argument you’ve ever made.

          • retired.military

            Lets stop giving millions in loans to bankrupt companies run by Obama’s friends and donors.  That will save a lot of time and money.  And a lot of pain.

          • Commander_Chico

            Say what you want about Solyindra, it’s corrupt, sure, but it didn’t kill 5000 Americans and maim tens of thousand more, as Iraq did.  Of course, Iraq was also tens of times more corrupt than Solyindra when you factor in Custer Battles, KBR, etc.

            I’m surprised as retired military you don’t appreciate the difference.

      • Gotta wonder why Steve, who now knows he misread and misstated the report – won’t take a minute or two to correct his post?

        I guess she prefers the misinformation to the truth…

        Makes you wonder why he writes at all – except to spread misinformation perhaps? Seems to the order of the day. I caught Rodney “mis-stating” on another thread, and then there are the conservative commenters like Jimm who just flat out make crap up, then deny, deny deny that they’ve “mis-stated” anything.

        • jim_m

          You make up far more BS than anyone else here. 

          You post racist screeds and then excuse them by blaming conservatives for putting he thoughts in your head.

          You ask for proof and then run away when it’s given.

          You almost always fail to provide a link to anything supporting your BS.

          Screw you Stephen.  You’re vile, immature and a hypocritical liar.

          Oh, And I should add that you go aback and edit your posts to change their meaning and then lie about having done so when caught.

    • jim_m

      I think you may be right on the interpretation.  It’s poorly worded, which is standard for a government report.

      Even so, it is a quarterly analysis, an changes in spending from quarter to quarter are expected.  The real issue is the annuallized spend which has not changed.  Federal spending has not decreased.  The deficit continues to grow at record pace.

      We will join the PIIGS as a country on the edge of default very soon.  But then that is exactly what the dems want.

  • Dr_Lynn

    “our federal government’s annual debt is now equal to our annual national GDP – everything we produce”  It’s actually the total federal debt that is now equal to GDP, about $14 trillion.  The annual deficits are a shade less than $1.5 trillion.  We’ll still be in going over the falls in 5, 4, 3, 2….

  • Even the federal and state spending is misleading as so much of it is money borrowed from the FRB, which has no money to lend.  There is a huge inflation bomb tucked away – Bernanke thinks we can avoid it if things go just right, and he is correct.  However, his ability to guide things that specifically is imaginary.

    Spending and government employment has to be cut.  There is no way to sustain it.  It doesn’t matter what Obama says or what someone ‘believes’ anymore.  If something cannot go on forever, it won’t.  This won’t.

    This is why I believe the next President will necessarily be a one-term President.  The cuts which must be made to save our fiscal skins will increase unemployment.  Failing to make the cuts will harm the economy.  Either way, one term.

    Recessions are useful and necessary.  They squeeze the excess and waste from the economy and force resources into more productive and efficient use.  The pain is real but temporary, the resulting growth lasts longer and impacts the future much further than we realize.

    But Democrats (with some assistance from Republicans, too) have tried to use deficit spending to eliminate the pain of recession.  In doing so, they have prevented the usual reallocations of resources.  The recession was less painful than it would have been, at the cost of a robust recovery – which is why we are in a slow growth stage today.

    There is no avoiding the pain in the long term.  The sooner we take it, the sooner we recover.  It’s too bad that the Republican President who does what is necessary will suffer at the polls and the Democratic idiot who follows him will get the credit for the growth that follows, but that’s politics. 

    If only people who paid federal income taxes voted, we wouldn’t have gotten into this mess in the first place.  We will be paying the costs of the votes of the parasites for a long time.

    • jim_m

      Doesn’t Bernanke’s plan to avoid hyperinflation basically rest on the hope that the rest of the world remains mired in economic stasis for the next decade?

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  • GarandFan

    But…but….but….it’s working out SO WELL for Greece!  Isn’t it?

    Maybe Barry can sell 1/2 our super carriers to China, that should give the socialists some more money to play with and pay off friends……….for about 6 months.

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  • Brucehenry

    Amazing. Wizbang commenters are amazing.

     Here we have a piece the premise of which is disproved in the very first comment, and conservative commenters continue to wax philosophic about it as if nothing had happened. The writer of the article blandly posts that despite evidence to the contrary, his thesis is still correct — Faith Based Economics.

     Again, amazing.

    How is austerity working out for the UK so far, Geniuses? Is growth skyrocketing under Cameron? No? How come, y’all reckon?

  • Brucehenry

    The writer of the first comment on this thread writes for Outside the Beltway. It’s a blog on which the writers are fairly conservative (but not nutjobs), but most of the comment section is fairly liberal. Many of the commenters here could learn something by lurking there, as I often do.

  • Brucepall

    Mr. Schippert,

    I understand your point; outta control Federal spending and no budget  – sticks in my craw too.  But it appears to me that many get side-tracked on millions, or billions spent on this or that… one person’s waste being another’s necessity… as we argue around and around defending some expenditure – and thus we end up loosing sight of the big picture. 

    Perhaps what is needed is something simple… something that cuts through all the static.  Something we absolutely cannot do with out… and is more vital than any other expenditure in our national budget.

    I’m speaking of interest on our national debt.  Which is some percentage, call it “X”, times 15 Trillion dollars.

    “X” is not a concern to most; because everyone of us, standing alone as individuals, could carry a trillion dollar interest only loan… if the interest rate was zero.  

    But what happens when “X” starts to increase, and is something greater than zero?  Lets be conservative shall we, and say it goes to 7%… which is not high by historical standards, and is in fact, below average.

    7% times 15 Trillion equals more than 1 Trillion dollars in interest.  Something that has to be paid before anything else.  Year after year after year.

    1 Trillion Dollars in Interest!  And that’s just the floor of the must be paid before everything else  – if interest rates revert to their mean, and we never borrow another dollar from here on out.

    Interest rates have gone much higher in the past – remember Carter?  And as long as our current President has been alive (he after all is a Boomer) our country has owed more each and every year than the one before… and so he has known nothing else for his entire life (and it shows).  Thats how our principal debt grew to 15 Trillion dollars in the first place.

    And soon, we will be paying 1 Trillion plus dollars in interest.  Think about what that means.

    1 Trillion dollars in interest!  

    Can you say bankrupt?  God help us – cause our creditors surely will not.

    FWIW, Semper Fidelis-