oldreliable67
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GDP Q3 Advance Estimate: +2.0% vs +1.7%
Real final sales were anemic, at +0.6% versus +0.9% in Q2. Inventories contributed the majority of the GDP increase, adding 1.44 percentage points. The rather slow pace of final sales suggest that a significant portion of the inventory accumulation was involuntary; just how much remains to be seen.
Personal Consumption Expenditures accelerated to +2.6% versus +2.2%.
First take: a weak report; the only bright spot being the acceleration in PCE. But, this is only the advance estimate - revisions to come. As of this moment, data expectations would suggest approximately offsetting revisions, leaving the final estimate almost unchanged from the advance.
Provides added impetus for QE2; might boost calls for coordinated fiscal stimulus in form of tax incentives for hiring.
GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X - M).
Yawn, government spending is not worth the full price that they pay for it. Paying people to not grow food, and you add it to GDP? I don't follow GDP, it's deeply flawed.
GDP, in and of itself, is an uninteresting number. However, it is the summation of all the forces and influences at work in the economy - as you have identified with the econ 101 identity - and that makes it, whether you like it or not, a number that moves policy.
This has no bearing on my criticism, though.
IMO, your criticism is shallow and incomplete. By extension, your criticism applies to all government spending, which would include unemployment benefits, social security, defense, research and development grants for alternative energy, FDA, guarantees of debt of FDIC, et al. Do you lump them all under your 'yawn' category, as your post suggests? If you do, I suggest you need to rethink your 'yawn.'
Milton Friedman said:The first and most common way in the private sector is people spending their own money on themselves. In this case, the buyer is interested in both quality (the best product or service that he can afford) and value (getting it at the best price) because he is both the producer of the wealth being spent and the consumer of the good or service being procured.
The second way is when people spend their own money on others (such as gifts). Here they are still concerned about value (it's their money), but less concerned about service quality as they are not the consumer.
The third way is spending other people's money on yourself. Think of the rich man's girlfriend who buys herself the nicest dresses in the store on his credit card without even looking at the tag. She wants quality, but value is irrelevant since she sacrifices nothing.
The fourth way is when people spend other people's money on other people. In this case, the buyer has no rational interest in either value or quality. Government always and necessarily spends money in this fourth way. This guarantees inefficient public spending because the spenders have no vested interest in efficiently allocating those funds.
phattonez said:It's not a yawn, but I do believe that $1 spent by government does not bring nearly as much benefit as $1 spent by an individual.
Actually, I am a pretty firm believer in that as well.
In an analytical sense, one can think of GDP as big cash flow statement, or alternatively referred to as sources and uses of funds statements. You may have heard business cash flow statements referred to as "where got, where gone" statements: where the money came from, where the money went. The GDP report is the only one that brings it all together in one place. Like a business cash flow statement, the summation of the cash flows (GDP) is less interesting than the specific sources and uses of the funds that comprise it.
The point of my criticism is that it seems to me that a lot of the growth in GDP is just because of increases in government spending and not really a general rise in business activity.
Understand. But if you don't look at the components, how would you know?
Probably, because I see short-sighted solutions as hurting the long run, while it seems to me that you're willing to sacrifice the long run for the short-term.
The point of my criticism is that it seems to me that a lot of the growth in GDP is just because of increases in government spending and not really a general rise in business activity.
That may be true. But as you should know, economics is as much fact and figures as it is mentally. That is why the rule of thumb (for sane economists and people) that if there is a recession, the government has to up its spending to compensate for the fall in private spending so that the recession does not get really bad.
Now we can disagree or agree on this principle, but the fact is that trying to separate "government" spending and private spending/business activity is damn hard since they are so interconnected. Much of the stimulus and general government spending is given to the private sector after all. This creates jobs in government and in the private sector and those jobs create more jobs because of spending by the people and so on and so on.
This is where the mental issue comes into frame, since the private sector and those employed in the private sector need to be mentally in the right frame of mind to up their spending and make the economy grow. Now here comes facts and figures in.. like GDP growth, unemployment numbers, and so on and so on. It is "positive" news, and that can easily spur more spending. But just as easy can negative news spur a stop in spending, which is what we saw the last 2 years.. yes my claim is that the negative attitude of the media and certain "experts" made the crisis far worse than it should have been. At the same time my claim is also that these same people, also made the crisis possible in the first place as they did not expose it in good time.
But what it boils down too.. you might hate government, but their spending DOES create GDP growth in the private sector, which in turn creates even more GDP growth under the right circumstances.
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