A Remarkable Coincidence That The Slight GDP Uptick Resulted From Government Spending

As a follow-up on yesterday’s report on GDP from Consumer Metrics Institute, this came out today from the Mercatus Center, by Veronique de Rugy. I am sure all this “good” news was merely a coincidence. While government spending does count as “spending” it is not the same kind of spending that businesses and consumers do. Government creates nothing really. While roads and bridges and other infrastructure can be good for the economy, my sense is that this current spending isn’t that. According to CMI 30% of government spending was defense related. The rest, mostly transfer payments (welfare, social services, and other entitlements), comes from money we private citizens would have spent on productive things or from funds borrowed which will never be repaid but the interest payments will become a bigger drag on the economy and our descendants. According to de Rugy:

According to the Bureau of Economic Analysis, the economy grew by a modest 2 percent in the third quarter of 2012. While this was stronger growth than the preceding quarter, all of the increase in GDP growth came from the biggest increase in federal government spending in over two years. Federal government spending rose 9.6% at an annual rate in the third quarter. It is worth noting that government spending fell by 0.1 percent in the second quarter. However, in the third quarter, it grew by 0.7 percent. Growth in the private sector fell by 0.1 percent to 1.3 percent in the third quarter—down from 1.4 percent in the second quarter.

 

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