What's up with cuts in government spending causing negative economic growth?

[imagep]

If you trust CNBC analysis go ahead. But then again.. you like government spending.

Like you, I don't ever trust CNBC as a source, but Fox was saying the same thing. It seems like we have a rare agreement of opinion.

 

[CanadaJohn]

Even fox news apparently agrees that cuts in government spending can harm our economy. This morning I also ran across a similar article about the Spanish economy.



Seems to me that if we are going to be slashing spending to the point that it harms our economy, we need to be also cutting the tax rates of the consumer class so that increases in demand offset any harm done by government spending cuts.


Read more:US economy shrinks 0.1 percent, 1st time in 3 1/2 years | Fox News

Cutting taxes for Americans would be a great idea but when you are spending at a $1 trillion plus clip above the revenue you now take in you need to concentrate more on spending to need not spending because you like spending and spending is easy and popular. Once your country gets expenditures better under control and gets back to the business of doing only what government was designed and created to do, then both revenues and expenditures can both be lower and better aligned.

 

[gavinfielder]

I understand that, but it's hard to imagine that government spending dropped so much in one quarter that by itself (which is pretty much what the articles are claiming) it could drop us down to negative growth.

Multiplier effect.

Cutting taxes for Americans would be a great idea but when you are spending at a $1 trillion plus clip above the revenue you now take in you need to concentrate more on spending to need not spending because you like spending and spending is easy and popular. Once your country gets expenditures better under control and gets back to the business of doing only what government was designed and created to do, then both revenues and expenditures can both be lower and better aligned.

By that logic, government was created to occasionally cause recessions.

 

[austrianecon]

So no source, got it.

I am always sourced but I figured you'd be able to read the numbers yourself, guess you can't. . GDP Revised Up to 3.1% for Q3 2012 | The Economic Populist

U.S. Economy Stumbled To End 2012: Q4 GDP Down 0.1% - Forbes

 

[austrianecon]

Ad hominem fallacy. You're on a roll today, no sources, logical fallacies, whats next?

Oh of course.. name me 5 tv personalities on CNBC that isn't in favor of Government spending.. I'll help you.. I'll spot you three of them.. Rick Santelli, Michelle Caruso-Cabrera and Joe Kernen.

 

[JP Hochbaum]

I am always sourced but I figured you'd be able to read the numbers yourself, guess you can't. . GDP Revised Up to 3.1% for Q3 2012 | The Economic Populist

U.S. Economy Stumbled To End 2012: Q4 GDP Down 0.1% - Forbes

Well now your sources just proved you wrong, so thanks for that!

 

[CanadaJohn]

Multiplier effect.



By that logic, government was created to occasionally cause recessions.

There's no logic in government as it exists today, at the federal level, in the US - It has evolved in such a bastardized way as to be unrecognizable to those who founded your great country. It has taken upon itself roles and responsibilities never envisioned and has become a self-feeding monster growing more obese by the day. If you want a really great recession, just keep doing what you're doing, and God help the rest of us out here in the world who suffer the consequences every time you guys burp.

 

[Fisher]

I understand that, but it's hard to imagine that government spending dropped so much in one quarter that by itself (which is pretty much what the articles are claiming) it could drop us down to negative growth.

Multiplier effect.

It depends on what the effect is on the spending cut. If you cut spending with a low or zero ME, then you are not likely to see more than a dollar for dollar reduction of GDP at the very most which lowers GDP without having any impact on private enterprise as a whole one way or the other.

 

[justabubba]

... Despite not having “a lot of grand visions for the next four years,” Krugman says that President Obama should increase government spending and money-printing to solve the demand problem and return to economic growth.
Krugman envisions large public works projects and government hiring, naming teachers as an example. For Krugman, high fiscal deficits and public debt are not a big concern.
“I wouldn’t worry about fiscal policy until unemployment falls below six percent,” he says, ...

again, krugman gets it right
Obama hasn't a clue what is needed to cause the economy to rebound (despite requiring every cabinet appointee to read FDR prior to the first term)
and he is right that public policy should be to spend deficit dollars until the jobs crisis is over

now, i am confident those who are now wailing against deficit spending (when we need it) will still be voting for deficit budgets once our economy has fully recovered (when we don;t need deficit spending)
but we will need to address that once the economy has rebounded


those who see massive cuts in defense spending as undermining the recovery are absolutely correct
so those cuts should be offset by public spending which invests in infrastructure and the skills development of our citizens
anyone who wants a job should be able to have one. it will be low paying, so that there is incentive to leave government make-work employment
the added benefit will be the ability to then sort out the welfare/entitlement problem
those who need federal assistance thru no fault of their own, the disabled and infirm, should continue to receive it
but that group which now receives a government check only because they are without a job will now be without an excuse not to be working for their welfare check. want a check, go get a federal make-work job. or don't, and be found without money you did not earn



Krugman Calls for More Spending and Money-Printing | Economy & Trade | Business | Epoch Times

 

[austrianecon]

So inventories dropped during Q4? And thus manufactures will tend to replace that inventory in Q1 2013? I'm not disputing that, I'm just trying to make sure that I understand what you are saying.

Also, is GDP not seasonally adjusted (I dunno)? If Q4 gov spending always decreases, then it seems like if GDP is seasonally adjusted that we wouldn't have seen a decline because the decline would have already been factored in.

Yes, the seasonally adjusted annual rates.

Q4 in 2011 had a sharper decline in Government spending (1.49%), yet the economy still grew by 2.8% or so.

 

[austrianecon]

Well now your sources just proved you wrong, so thanks for that!

Proved me wrong in what way? I never claimed Government spending didn't fall in Q4 but rather Q3 is where Government spent which is when the most Government money is spent (so year over year Government spending is up). If you are that daft and can't look at debt increases and the annualized fixed rate in which the federal budget has to increase by law then that's your problem. Trying to play gotcha games when you can't make an argument in what I said is the lowest form of debate. It's typical of the uneducated and partisan hack.

 

[imagep]

Cutting taxes for Americans would be a great idea but when you are spending at a $1 trillion plus clip above the revenue you now take in you need to concentrate more on spending to need not spending because you like spending and spending is easy and popular. Once your country gets expenditures better under control and gets back to the business of doing only what government was designed and created to do, then both revenues and expenditures can both be lower and better aligned.

It's looking more and more like spending my be "on track". The 2012 deficit was nearly 20% lower than had been projected at the beginning of 2012, mostly because of lower than expected spending on welfare/unemployment and higher than expected tax revenue. It should be even lower this year if we don't go back into a recession. Our 2012 deficit was about a trillion dollars, hopefully if we can avoid recession, we should be able to knock about a hundred billion off of that figure due to the small tax hike on the top 1%, and restoring social security withholding tax to the "normal" rate will pull in another $150 billion, then adjust for a $100 billion cut in military spending, the projected $50 billion in less unemployment/welfare spending due to a lower unemployment rate, and another $50 billion in increased tax revenue also due to lower unemployment, and theoretically our deficit could be down to $550 billion, almost a 50% increase - if we don't screw things up.

 

[imagep]

Oh of course.. name me 5 tv personalities on CNBC that isn't in favor of Government spending.. I'll help you.. I'll spot you three of them.. Rick Santelli, Michelle Caruso-Cabrera and Joe Kernen.

I will one-up ya - all of the rest of them!

 

[CanadaJohn]

It's looking more and more like spending my be "on track". The 2012 deficit was nearly 20% lower than had been projected at the beginning of 2012, mostly because of lower than expected spending on welfare/unemployment and higher than expected tax revenue. It should be even lower this year if we don't go back into a recession. Our 2012 deficit was about a trillion dollars, hopefully if we can avoid recession, we should be able to knock about a hundred billion off of that figure due to the small tax hike on the top 1%, and restoring social security withholding tax to the "normal" rate will pull in another $150 billion, then adjust for a $100 billion cut in military spending, the projected $50 billion in less unemployment/welfare spending due to a lower unemployment rate, and another $50 billion in increased tax revenue also due to lower unemployment, and theoretically our deficit could be down to $550 billion, almost a 50% increase - if we don't screw things up.

I think I detect some pretty big IFS there.

 

[imagep]

There's no logic in government as it exists today, at the federal level, in the US - It has evolved in such a bastardized way as to be unrecognizable to those who founded your great country. It has taken upon itself roles and responsibilities never envisioned and has become a self-feeding monster growing more obese by the day. If you want a really great recession, just keep doing what you're doing, and God help the rest of us out here in the world who suffer the consequences every time you guys burp.

There is some truth to all of that, but at the same time our founding fathers could have never envisioned the world as it exists today. Our government is a living entity that has to evolve with time or it will become extinct. Not all mutations are good ones, some will cause harm, others will be good though, hopefully we will eventually sort out the good ones from the bad ones.

 

[CanadaJohn]

There is some truth to all of that, but at the same time our founding fathers could have never envisioned the world as it exists today. Our government is a living entity that has to evolve with time or it will become extinct. Not all mutations are good ones, some will cause harm, others will be good though, hopefully we will eventually sort out the good ones from the bad ones.

I wonder what the fall of the Roman Empire would look like in 2012? Good luck with your hopeful thoughts - there's nothing wrong with being positive, if also realistic.

 

[imagep]

Yes, the seasonally adjusted annual rates.

Q4 in 2011 had a sharper decline in Government spending (1.49%), yet the economy still grew by 2.8% or so.

Thanks for posting that. It's a great chart!

 

[imagep]

I think I detect some pretty big IFS there.

Sure, "ifs" are always big. Sometimes we catch a lucky break though.

 

[imagep]

I wonder what the fall of the Roman Empire would look like in 2012? Good luck with your hopeful thoughts - there's nothing wrong with being positive, if also realistic.

The decline of the Roman Empire from it's peak was gradual and took centuries.

 

[Dickieboy]

If we have another quarter of negative growth, I think that will mean that we are officially in another recession. This time one caused by a drop in government spending. It's an interesting experiment, and one that I believe may end some of our left vs right gridlock.

I would assume, that if we are in another recession, that we will start seeing a loss of jobs soon. I've heard a heck of a lot of conservatives say that if we reduced government spending and started to get our deficit under control, that we would have a better economy. I've seen many a Fox News economic pundit make that claim on those Sat morning Fox money shows. If we do end up in a recession caused by reducing the deficit and reducing federal spending, then that pretty much blows some conservative theories out of the water.

I will never root for a bad economy or for failure, so I hope that conservatives are right and that was just a one time drop in GDP and now GDP will start to soar.

But I fear for the worst. Even if we do end up in a recession, I am still optimistic that our government will do the right thing (whatever that may be), and correct the situation very quickly. This may be a very short lived recession.

I'm thinking a shallow recession is already baked in. I have to wonder how much of this reduction in defense spending is associated with the drawdown in ME. Further the restoration of the FICA rates and the increase in upper bracket rates will further hamper growth in the first quarter.

Somewhere I saw a graph indicating the three (?) previous recessions similar to this most recent. Two of the previous showed a shallow 'dip' after steady growth for a 12-24 mo period. Comparatively this recession has resisted this dip but I feel it is about to occur. I will try to find this again...

 

[JP Hochbaum]

Proved me wrong in what way? I never claimed Government spending didn't fall in Q4 but rather Q3 is where Government spent which is when the most Government money is spent (so year over year Government spending is up). If you are that daft and can't look at debt increases and the annualized fixed rate in which the federal budget has to increase by law then that's your problem. Trying to play gotcha games when you can't make an argument in what I said is the lowest form of debate. It's typical of the uneducated and partisan hack.

I am referring to when you said this:

So since Government spending hasn't gone down..

You then backtracked and said oh its supposed to go down at the end of the year.

 

[head of joaquin]

There's no logic in government as it exists today, at the federal level, in the US - It has evolved in such a bastardized way as to be unrecognizable to those who founded your great country. It has taken upon itself roles and responsibilities never envisioned and has become a self-feeding monster growing more obese by the day. If you want a really great recession, just keep doing what you're doing, and God help the rest of us out here in the world who suffer the consequences every time you guys burp.

Yeah, modern economies with their wealth and productivity suck. We need to go back to the good old days, when Big Gummit didn't stop kids from working in mines where they belonged, and didn't waste money on interstate road systems and the stupid commerce they created.

 

[CanadaJohn]

Yeah, modern economies with their wealth and productivity suck. We need to go back to the good old days, when Big Gummit didn't stop kids from working in mines where they belonged, and didn't waste money on interstate road systems and the stupid commerce they created.

I'm guessing you're an Obama voter since you've mastered the art of throwing up strawmen, claiming others support them, and then running to the rescue. Guess there's no middle ground with you - either your country is spent into oblivion or you revert to living in caves. Too bad someone who claims to be "progressive" isn't more creative.

 

[Donc]

Kinda looks like the ultimate source, the DOW is reacting with a big …MEH to the news so for. The Dow’s only down -44 a half hour out from closing.

 

[imagep]

Kinda looks like the ultimate source, the DOW is reacting with a big …MEH to the news so for. The Dow’s only down -44 a half hour out from closing.

Ya I noticed, I've been watching that all day. It doesn't look like the "bad" news is expected to make much difference in corporate profitability. Assuming that the stock market valuation is dependent upon investor confidence.