Selfish Citizenship

I did not realize that we are many years into President Obama’s economic boom times.  Reportedly, the Great Recession ended only a couple months after our President took office, but that must be former President Bush’s fault.  Yet, to me, it does not seem like we are years into an economic expansion, so I smell a rat.

Beyond what I see with my eyes and the knowledge that I have that I am underutilized and less productive than I was, two points are coming to mind: (1) President Obama saying that we cannot cut federal spending or GDP would fall, and that we needed to support state and local government spending, and (2) John Allison’s point in The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope that federally mandated accounting obscures reality.  In addition, the Financial Times reports that the methodology used to calculate GDP will be changed by the government resulting in a 3% increase in GDP just from the change of method.  As Brent Moulton of the Bureau of Economic Analysis explains it, “We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history.”

According to the Commerce Department’s Bureau of Economic Analysis’ FAQ, they provide the following guidance on defining a recession (emphasis added):

In general usage, the word recession connotes a marked slippage in economic activity. While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy.

The National Bureau of Economic Research provides the following description of their purpose and method (emphasis added):

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades…In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, we therefore place considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce…The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, we refer to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes…The committee’s approach to determining the dates of turning points is retrospective.

According to the NBER, the Great Recession ended June 2009 and we are in a period of economic expansion. Do you feel the economic expansion?  Me neither; I expect the same is true for all the unemployed and underemployed young people that I know.

Even if GDP is not the sole determiner of economic recessions, it is the key measure for that determination.  So how is GDP calculated?  As reported by Wikipedia:

GDP = private consumption + gross investment + government spending + (exports − imports)

REALLY???? Government spending?  No wonder our President warns that cutting government spending at the federal, state, and local level will reduce GDP; given a static analysis, it is right there in the equation.

Now, I am not an economist, and don’t pretend to have great insights into the field of economics.  However, I am pretty well familiar with something that I would like to introduce to our erudite economists:  “Economists, this is reality.  Reality, these are economists; please show them your consequences.”

Our governments’ share of GDP has risen by borrowing not production.  Let us look at some of that borrowing:

• At the municipal level, Detroit is trying to get bondholders to take 10 cents on the dollar for bonds that the city cannot pay, which is capital destroyed.
• At the state level, Illinois (the Land of Obama) is notorious for not paying its bills for services already received and is running a $100 billion funding deficit in its pension liabilities, which is causing Moody’s to plan downgrades based upon such deficits and the SEC to charge the state with securities fraud.
• More significantly at the federal level trillions of dollars of deficit spending is creating the mathematical appearance of GDP growth, but that borrowing is ultimately coming from dollars invented from nothing by the Federal Reserve.

Should this governmental malfeasance really be included in any measure of the health of the US economy?  As GDP is currently calculated, it is all good; happy days are here again!   In reality, the piper will have to be paid; these irrational government policies are a disaster that we are choosing to create and such is encouraged by the use of government spending in GDP.

In general, I am pretty sure that from some low point private business in aggregate has increased a bit; however, given the economic risks being created by government, I am not certain that we have actually hit the bottom of the trough.  Having some productivity numbers from economists that better reflected reality and eliminated government’s efforts to fake reality would be a benefit in understanding whether the Great Recession is really over.