On the day after the Commerce Department reported that the nation’s gross domestic product fell by a tenth of a percentage point in the fourth quarter of 2012 and on the day the Labor Department reported new jobless claims jumped 38,000 in the past week, Harry Reid took to the floor of the Senate and declared the nation is in a recovery and any problems we may continue to have are all the fault of Republicans anyway.
“Mr. President, just a brief comment on my friend, the Republican Leader’s, statement. He continues bad-mouthing the recovery. We are in a recovery. The moral of the fourth quarter is a repudiation of the Republican playbook. Growth went down in the fourth quarter because of reduced government spending, and a resonance of the private sector as Congress fought over the fiscal cliff, and that fight came as a result of the Republicans being so unreasonable. We were finally able to work something out that was a compromise and that was good for the economy.
“The economy was rejecting the austerity and brinksmanship. So let’s hope the Republicans will understand that we have to move forward, that the Republican playbook of continual complaining about spending is something – we know we have to do something with spending, we understand that – but there’s more to making our economy recover than just continually harping on what’s going on with spending.”
He sounds like a teenager talking to his father after maxing out the credit card.
Harry is so wrong in so many ways it is hard to count them. First, Harry is self-contradictory. He says we are in a recovery but the economy rejected austerity and brinksmanship, apparently by declining.
Harry seems to think that more Keynesian spending would make the country better off, when everyone knows government merely takes money from productive citizens and spends it, doing nothing to create wealth or jobs. It simply moves the money from one person to another.
Dan Mitchell at Cato Institute explains that the GDP only measures how we spend our income. “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,” he says.
It makes more sense to judge your wellbeing by measuring your income.
The Wall Street Journal points out that most of the decline in GDP came from falling business inventories and less government spending — such as a 22.2 percent defense spending cut.
The editorial states:
“The government spending decline deserves a word because the Keynesians are using it to call for more ‘stimulus.’ The national income accounts include a Keynesian bias that equates higher government spending with growth, no matter how wasteful the spending. Thus the spending blitz of 2009-2010 gave a fillip to GDP, though not a sustainable one. The Keynesians now decry the very spending cliff they created.
“The real story is that the Keynesians promised that the stimulus would kick-start the economy to a higher growth plane. It hasn’t. Growth has sputtered in each of the last three years, and for all of 2012 was only 2.2%. That’s barely above 1.8% in 2011, which was below 2.4% in 2010. The biggest loser in all of this should be the notion that temporary bursts of government spending can produce durable economic expansions.”
Happy Harry remains a die-hard Keynesian and no amount of evidence will shake his stance.