Bloomberg - "U.S. Economy: Consumers, Government Propel Return to Growth"

[TomCADem]

Republicans will argue that this growth is fake, because it depends on the stimulus, and that "real" growth should rely on the free market without any government interference. Of course, Republicans will reverse themselves and sound like born-again Keynesians when the subject is military spending.

http://www.bloomberg.com/apps/news?pid=20601087&sid=az.WmgvOw1_g

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U.S. Economy: Consumers, Government Propel Return to Growth

Oct. 29 (Bloomberg) -- The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars.

The world’s largest economy expanded at a 3.5 percent pace from July through September, figures from the Commerce Department showed today in Washington. Household purchases climbed 3.4 percent, the most in two years

Policy makers will now focus on whether the recovery, supported by government spending and tax credits, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit means President Barack Obama has little room for maneuver as he tries to keep unemployment from rising above 10 percent, while Federal Reserve policy makers wind down emergency programs in a bid to prevent a surge in inflation.

“We’re still very much dependent on the stimulus” for growth, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We’re on a recovery path, but there are a lot of headwinds.”

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[Truth2Tell]

1. I will also argue that this growth is fake.

Not for stimulus vs "free" market reasons, but because this growth is based on credit expansion rather than capital investment.

"We're on a recovery path" my ass.

[TomCADem]

2. What is your definition of the difference between credit expansion v. capital investment?

I would think that the stimulus infrastructure expansion, smart grid investments, and even the restructuring of GM and Chrystler would qualify as capital investment, but maybe we are using different definitions. How often does capital investment occur without any new debt?

Indeed, the formal definition of "capital investment" is the money paid to purchase a capital asset or a fixed asset. Thus, whether the money is borrowed or paid out of current cash flow is irrelevant.

Finally, if a person is employed on a stimulus project, I would not consider their job "fake." Even military industry employees are working in "real" jobs, though we may disagree with what they are building.

[Truth2Tell]

3. The things that you describe certainly do qualify

as capital investment. However, I actually believe that this growth in consumer spending is being fueled more by the actions of the Fed than by the stimulus. This is the trickle-down from the Fed banking infusions. Mostly it's just another unsustainable expansion of the consumer credit bubble IMHO.

So I guess my point isn't that the stimulus isn't creating "real" growth, but rather that most of the "growth" isn't resulting from the stimulus.

[TomCADem]

4. However, Hasn't The Criticism Of Obama Been...

That he has not done enough to ease consumer and small business credit? Indeed, Paul Krugman has specifically criticized the White House's financial bailout for saving investment banks, rather than consumer banks, resulting in tight credit for normal folks. If this growth in consumer spending is attributable to consumer credit, then Paul Krugman's criticism of the White House is actually unjustified.

I do agree with you that consumer spending has increased due in large part to programs like cash for clunkers. However, I think the growth is directly attributable to federal aid to states, which would have had to layoff thousands of employees without such aid.

[Truth2Tell]

6. Good points...

although I think aid to consumer banks can mean different things than simply turning on the credit spigot. If Krugman thinks we need to be expanding access to consumer credit in general then I disagree with him. If he thinks simply that some faltering consumer banks needed saving, that's a different matter.

Also, regardless of where this little boost is coming from, it's relatively meaningless. Even if it's all the result of the stimulus, that's not sustainable in the long run. And beyond that we haven't fixed the systemic problems.

[TomCADem]

7. True, But World War II Was A Huge Artificial Stimulus

The problem with the Bush era was that economic growth was largely due to speculation in financial markets without any new manufacturing capacity or substantial increases in productivity. Worse, manufacturing continued to be out-sourced overseas.

World War II, and even the Reagan era, showed that deficit spending (yes, even Reagan's policies were largely Keynsian due to his combination of tax cuts and increases in military spending) can be stimulative, but short term. However, in the case of Reagan, the benefits of his stimulus went to defense contractors, thus unemployment hovered above or near 10 percent until his third year in office. With President Obama, I think unemployment will top 10 percent, but should reverse by his second year, unlike Reagan, since President Obama's stimulus is not concentrated in the defense industry.

The key will be how to ease of the stimulus without plunging the country into yet another recession. George H.W. Bush is largely blamed for the recession caused by Reagan's policies. Likewise, President Obama is going to get blamed for the deficits that are largely the result of Dubya's tax cuts to the rich.

[AllentownJake]

5. Here is the actual report

http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp3q09_adv.pdf

Why don't you read it for yourself. It is 3 pages.