Saturday, October 31, 2009

GDP up 3.5%? Obama's Hollow Cheerleading....

Apparently, we're supposed to pop the champagne corks and celebrate: GDP is up 3.5%, the recession is over, and the Recovery has begun. At least that's what the prObama Media outlets and White House are telling us.

My ECO 101 students could do a better job analyzing that statistic than most of the talking heads currently reporting it.

GDP (Gross Domestic Product) is a measure of all the goods and services created within a society's economy. Due to the work of noted Economist Arthur Okun, we know that GDP and Employment move in the same direction: when Employment increases, GDP increases, and vice versa. After four or five quarters of negative GDP, an increase of 3.5% would normally be a welcome sign. Except in this case, the figure is highly deceptive and manipulated, for the following reasons:

1) While GDP increased 3.5%, Consumer Spending - purchases by you and me - decreased by .5% AGAIN. In other words, the increase in purchases of goods and services did NOT come from "the people." Our spending fell. Rather, this spending came from the Federal Government as it purchased flashy orange signs to erect around the country proclaiming that our tax dollars were at work.

2) This additional spending was a one-time shot in the arm by the government. Does the White House and Congress expect to authorize 787 Billion every quarter to keep that up? Much of the increase in spending was in the "Cash for Clunkers" Program....which is now over, and which did not create a single job anywhere.

3) The White House claims that One Million jobs were saved or created through the stimulus. Since the stimulus was 787 Billion, that amounts to $787,000 tax dollars (not including future interest) spent per job. I would rate that as a FAILED effort.

4) The White House also claims that most of these jobs were in Construction and Education. How jobs are considered highly seasonal, and when these workers lose their jobs in the winter, they are often excluded from the unemployment figures, which are usually presented as "seasonally adjusted unemployment" figures. The White House is now *counting* these jobs when they are created to credit the Stimulus Package, but you can bet these job losses will be *excluded* when the winter unemployment figures are released because they will be 'seasonally adjusted.'

5) Education, while important, doesn't create products or jobs. Saving jobs in education may ingratiate Obama to teacher's unions, but this sector does not create products or create wealth in the economy as other sectors do. It is no surprise that while GDP increased, Unemployment increased to 9.8%, and most economists expect it to hit double-digits this month - a month when pre-Christmas hiring would normally reduce this figure.

With unemployment increasing and consumer confidence and purchases falling, the 3.5% GDP increase is a make-believe number based on the Federal Government maxing out it's credit cards with few places left to turn when they come due.

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