“One could say that all the growth in the third quarter is attributable to the impact of the recovery act. Another way of putting it is, without the recovery act—given these estimates of its impact—the economy would have been flat rather that growing during the third quarter.”
- Peter Orszag, Director, White House Office of Management and Budget

So let me get this straight – the White House said that without them the US economy would not have grown in the third quarter. At face value, this is correct. But only as long as you don’t look behind the numbers. The first estimate of the GDP growth came in a 3.5%, but if you eliminate all government spending, you get a negative number. First time homeowner credit, cash for clunkers and many other government stimulus programs have all added to the GDP. But at what cost? And why does Peter Orszag act like this was real economic growth?

Motor vehicle sales added 1.66% to the third-quarter change in real GDP but this wasn’t real economic growth, it was government sponsored and that money has to come from somewhere. This “somewhere” always ends up being a) the American taxpayer and b) each and every person and government who holds US dollars or assets that are tied to the US dollar. Right now, the stimulus is being financed with borrowed money but one day the American taxpayer will have to start servicing this debt. Current estimates put the budget deficit for 2010 to around 1.5 trillion dollars. That’s huge!

So in the end stimulus acts to pull consumption from the future which means that going forward it will be very difficult to get real GDP growth. The administration might pull off a positive number for the 4th quarter (dollars for dishwashers, anyone?), but 2010 is going to be tough unless the administration pulls another ‘creative accounting’ trick from its sleeve.

Related Posts

• An Empty City Built to Boost GDP in China (0)
• Economic Depression? (1)