Thursday, October 30, 2003

Economy gets a fire lit under its tushie

Filthy Lucre

AP is reporting that in the third quarter, economic growth has jumped up to a 7.2% annual rate, more than double the not particularly anemic 3.3% growth rate of the previous quarter.  This is the strongest single quarter gain since 1984.

The economy’s recovery from the 2001 recession has resembled the side of a jagged cliff; a quarter of strength often has been followed by a quarter of weakness. But analysts are saying that pattern could be broken, considering increasing signs the economy finally has shaken its lethargy and is perking up.

Near rock-bottom short-term interest rates, along with President Bush’s third round of tax cuts, have helped the economy shift into a higher gear during the summer, economists say. The next challenge is making sure the rebound is self-sustaining.

Job creation surged to a net increase of 57,000 in September, the first increase in eight months - though job creation is generally a lagging indicator of recovery.  The article goes on to list improvements in other economic indicators - drops in unemployment claims, increases in wages and benefits, consumer spending, and business capital spending. 

As for the government’s role:

Federal government spending, which grew at a 1.4 percent rate, was only a minor contributor to GDP in the third quarter. Spending on national defense was flat. But in the second quarter, military spending on the Iraq war - which grew at a whopping 45.8 percent rate - helped to catapult economic growth.

The evidence suggests that businesses are still somewhat gunshy, and unwilling to trust in the economy’s rebound just yet.  But if, as economists predict, that the next quarter will show at least 4% growth, I think that we’ve turned the corner on the most recent cyclical recession.

Of course, one result of a growing economy will be the reduction in deficits as government tax revenue increases.  If the typical pattern holds, we will enter a period of economic growth that will last another decade before the next recession.  If this growth period is even half as potent as the last one, we should see deficits disappearing again so long as the increases in federal spending stays not to far ahead of inflation.

Of course, it would be better to see a reduction in federal spending.  I have played with the budget simulator that Ross linked recently, too - and balancing the budget is simple.  As long as you have your priorities straight.  I balanced the budget by increasing defense spending and simply halting increases in social spending, while eliminating the department of education and farm subsidies.

And, in answer to one of Ross’ claims in the previous post, what are you smoking?  Defense spending, including the Iraq War and Veteran’s Benefits, is $547.61 billion.  Spending for social welfare (Education, Health, Medicare, Social Welfare, and Social Security) is $1.27 trillion.  That’s almost one and a half times more for welfare boondoggles, not an order of magnitude less. 


Posted by Buckethead on 10/30/03 at 04:17 PM
Filthy Lucre • (0) Trackbacks • Permalink