WASHINGTON – When millions of voters went to the polls in November to narrowly re-elect Barack Obama, the economy was rapidly shrinking toward recessionary levels.
In the last three months of 2012, the gross domestic product (GDP) — the measurement of everything America produces — fell to an annualized rate of 0.1 percent, the Commerce Department reported Wednesday. This means the economy grew at a weak 2.2 percent rate for the entire year, little better than its feeble 1.8 percent growth rate the year before.
The Wall Street Journal, never one to mince words, said “U.S. economic momentum screeched to a halt.”
But apparently millions of voters didn’t know it or chose to ignore the handwriting on the wall that was there for all to see. In his campaign, Obama insisted the economy was “moving forward,” that “we’re making progress,” and that the nation’s economy was in recovery. His top advisers repeated the claim, as did his cheerleaders in the news media.
And millions of voters believed him. After all, there were few if any stories on the network nightly news shows about the nation’s still severely high unemployment. Newspapers often referred to “the recovery,” played up every downward tick in the jobless rate, even when the decline was largely due to long discouraged job seekers dropping out of the labor force. Twelve million plus Americans were officially out of work, and more than half of the jobs being created were low wage ones or only part-time employment.
Numerous business and independent economists were warning at the time that the Obama economy was slowing and were rapidly revising their fourth quarter growth rates to little more than 1 percent. But their estimates apparently fell on deaf ears.
Still, the Washington news media continued to cover for Obama whose four-year “economic recovery” record is the worst since the Great Depression.
The day before Wednesday’s bleak report that the once mighty American economy was no longer growing, the Washington Post ran a story grudgingly acknowledging that the economy had “slowed” but was still in “a solid recovery.”
Twenty four hours later, in its lead, front page story on the government’s dreary GDP numbers, the Post retreated a bit, saying it now looks like “a modest recovery.”
Excuse me? The economy’s creating a relatively small number of jobs each month ( only 155,000 in December), nowhere near the 358,000 a month needed to pound the unemployment rate down to 6 percent.
Declining U.S. exports plunged by $27 billion, or nearly 6 percent in the last quarter. The richest economy in the world is selling less abroad for a number of reasons, but the biggest obstacle is Obama’s job-killing resistance to new trade expansion agreements.
Businesses, too, were slashing inventories by $40 billion amid growing signs of a precipitous slowdown, adding new downward pressure on future orders that were reflected in declining fourth quarter final sales.
Capital spending was already falling in the third quarter, the first decline in over three years.
And let’s not forget that as Obama enters his fifth year in office, many states are still suffering from in recession-leaning unemployment levels:
California, the most populated state in the country, 9.8 percent; Florida, 8 percent; Georgia, 8.6 percent; Illinois, 8.7 percent; Nevada, 10.2 percent; North Carolina, 9.2 percent; South Carolina, 8.4 percent.
Does this sound like “a solid recovery”?
People who are unemployed or underemployed mean less consumer spending and lower revenues that drive up federal budget deficits. That’s not going to change anytime soon.
“The number of unemployed persons, at 12.2 million, was little changed in December,” the U.S. Bureau of Labor Statistics reported on Jan. 4.
But labor force participation is much lower today than when Obama took office, a major factor in the economy’s underlying weakness, says University of Maryland business economist Peter Morici.
Factor in “discouraged adults and others working part-time that would prefer full time work, the unemployment rate is 14.4 percent,” Morici says.
The White House and its allies blamed the economy’s sharp decline on the looming budget cuts, but there is a lot of smoke and mirrors behind that excuse. The big cuts are yet to come, if Congress does not avert the budget-cutting sequester before March 1.
The defense industries have been cutting jobs, largely in anticipation of Pentagon cutbacks, but a spurt in higher defense spending in the third quarter pushed GDP to over 3 percent. Of course, that level of spending was in the final analysis unsustainable.
We can’t spend our way into prosperity, though that has been Obama’s core stimulus policy prescription throughout his presidency that has pushed us to the brink of another recession — or the likelihood of four more years of sub-par growth, high unemployment and an economy in decline.
“The economy has less momentum going into 2013 than initially thought, making it vulnerable to external shocks,” warns Stuart Hoffman, chief economist at PNC Financial Services Group.
But the worst is yet to come. The “fiscal cliff” deal that Obama signed into law last month, pushing the top income tax rates to Clinton-era levels and raising the tax on capital gains and dividends will further weaken the economy.
The 2 percentage point payroll tax cut was rescinded, taking a bigger bite out of every workers paycheck at a time when the economy is still in a nosedive.
Nevertheless, Obama apologists are denying that the economy is in bad shape, characterizing the fourth quarter GDP rate as an anomaly. “I don’t think anything has fundamentally changed in the economy,” said Mark Zandi, chief economist at Moody’s Analytics.
NBC’s nightly news with Brian Williams chose to ignore the story altogether Wednesday night, deciding this was of no interest to the American people.
A half hour in an unemployment line might change his mind.
Making Sense of Keynesian-Laced GDP Reports
A timely example is the way the way government puts together data on economic output and the way the media reports these numbers.
Just yesterday, for instance, the government released preliminary numbers for 4th quarter gross domestic product (GDP). The numbers were rather dismal, but that’s not the point.
I’m more concerned with the supposed reason why the numbers were bad. According to Politico, “the fall was largely due to a drop in government spending.” Bloomberg specifically cited a “plunge in defense spending” and the Associated Press warned that “sharp government spending cuts” are the economy’s biggest threat in 2013.
To the uninitiated, I imagine that they read these articles and decide that Paul Krugman is right and that we should have more government spending to boost the economy.
But here’s the problem. GDP numbers only measure how we spend or allocate our national income. It’s a very convoluted way of measuring economic health. Sort of like assessing the status of your household finances by adding together how much you spend on everything from mortgage and groceries to your cable bill and your tab at the local pub.
The same principle is true – or should be true – for a country.
That’s why the better variable is gross domestic income (GDI). It measures things such as employee compensation, corporate profits, and small business income.
These numbers are much better gauges of national prosperity, as explained in this Economics 101 video from the Center for Freedom and Prosperity.
The video is more than two years old and it focuses mostly on the misguided notion that consumer spending drives growth, but you’ll see that the analysis also debunks the Keynesian notion that government spending boosts an economy (and if you want more information on Keynesianism, here’s another video you may enjoy).
The main thing to understand is that GDP numbers and the press coverage of that data is silly and misleading. We should be focusing on how to increase national income, not what share of it is being redistributed by politicians.
But that logical approach is not easy when the Congressional Budget Office also is fixated on the Keynesian approach.
Just another example of how the game in Washington is designed to rationalize and enable a bigger burden of government spending.