If you haven’t figured it out by now, our economic growth rate is flattening. On Friday, the Commerce Department reported a paltry 2.4% growth rate for the second quarter of 2010, down from the 2.7% growth rate for the first quarter of the year and significantly less than the 5.6% growth recorded in the fourth quarter of 2009. President Obama tried to make lemonade out of that economic lemon by noting that we have just successfully put a whole year of actual economic growth under our belts. Of course when you’re standing at the bottom of a hole, the only place to look is up.
The Commerce Department also revised its economic growth estimates for the last few years. These new numbers characterized a recession that was considerably worse than what had previously been assumed:
The revisions in gross domestic product, or GDP, now show zero growth in 2008. That compares with a 0.4 percent gain previously estimated.The economy also grew less in 2007 (1.9 percent) than earlier thought (2.1 percent).
For all three years, consumers spent less and home builders cut more deeply than had been thought. Those factors help explain the downward revisions on the economy.
The revisions also show that struggling state and local governments cut spending more last year than previously thought. And they spent less in 2007 and 2008.
The economy slid into its worst recession since the Great Depression in late 2007. Many economists think the recession ended last summer, although a panel of academics that dates the start and end of recessions hasn’t declared when this one ended. The panel usually does so well after the fact.
Still, the Wall Street Journal was somewhat optimistic about a number of stabilizing factors that have emerged since the end of last year:
About the best that can be said is that the report showed no signs of a looming “double dip” recession. Domestic demand was strong enough to suck in a burst of imports, which rebuts the Keynesians who are predicting another depression. Investment and business spending were strong, thanks to inventory rebuilding and some comeback in housing and commercial real estate. Disposable income also grew at a 4.4% annual rate, with less than half of it coming from government transfer payments.
Savings by households also increased again, to above 6%, which is back to the range of the early 1990s and is a healthy sign. The great deleveraging that began with business last year is now continuing with consumers. While some economists fret that this is bad for consumer “demand,” savings don’t vanish from the economy. They are recycled into lending and investment that can drive future growth if businesses see the right opportunities and have enough confidence.
Unfortunately much of the “growth” of the last three quarters was artificially manipulated by government stimulus, specifically the “cash for clunkers” program and the generous federal housing credits for new home buyers. Now that all the data is in, “cash for clunkers” seems to have itself been a complete clunker — it piled up automobile sales in the third and fourth quarters of 2009, but did absolutely nothing to raise the average automobile sales figures for that year. In addition, it took thousands of good used cars off the market, significantly narrowing choices for consumers who, in the midst of a serious recession, could not afford a new car. And now that the federal housing credit program has ended, new home sales in June 2010 have fallen to the lowest on record.
All of this was done at an enormous cost to the US taxpayer. Cash for Clunkers alone is estimated to have cost the government somewhere around $24,000 per car. And this is what the Obama Administration doesn’t seem to understand. Their recovery programs have utterly failed to meet advertised goals (we should be sitting at around 8% national unemployment now, as opposed to the current 9.6%), yet in order to spur this dismal “recovery” they have, in the span of only a year and a half, racked up nearly $3 trillion in debt as a result of wild stimulus spending and an unprecedented expansion of the Federal government.
Undoubtedly the current recession has spurred businesses and consumers to straighten out their balance sheets, pay off debts, and save money. All of those things are expected behaviors. But taxpayers, particularly businesses and financially stable individuals, know that they will be the ones expected to pay for the Obama Administration’s new super-sized government. What’s causing the current slowdown in economic growth isn’t a Keynesian “paradox of thrift“; it’s a serious climate of fear created by huge impending tax increases and the cost of new government regulations. And that fear is significantly squelching both business and consumer confidence.
The economic message that Democrats seem to be test-marketing in anticipation of the fall elections is “Hey, it could have been a lot worse!” But it doesn’t take a lot of common sense to understand that without their massive expansion of government, right now things would probably be a lot better.