Why You Should Question What the Government Says About the Economy
Isn’t odd that the government’s economic growth number keeps climbing with each revision? You don’t think there is a political component to this, do you?
If you repeat something often enough, you may even start to believe it. So try this phrase: “The economy is improving. The economy is improving. The economy is improving.”
Certainly, the U.S. Bureau of Economic Propaganda (aka, the U.S. Bureau of Economic Analysis, or BEA) wants you think that’s the case. The BEA initially reported growth in gross domestic product growth of 4% for the second quarter of 2014. That seemed like quite a leap from the first quarter’s 2.9% contraction, but the BEA later adjusted that number to what it called “negative growth” of minus 2.1%.
That’s old news, though. Thanks to “a larger than previously estimated increase in nonresidential fixed investment,” the BEA announced in August that second quarter growth was really 4.2%. A swing of 6.3 percentage points in a single quarter: Well done!
But wait, there’s more. The BEA announced in September that second quarter growth was 4.6%. The BEA cited “growing personal consumption, private inventory investment, exports, both residential and nonresidential fixed investment, as well as local government spending,” none of which apparently existed when the BEA gave its first two estimates.
We can hardly wait for this coming Thursday morning, Oct. 30, when the BEA is scheduled to report third quarter results. Maybe by then, we’ll learn that second quarter growth exceeded 5%. It will be interesting to find out whether the first quarter’s negative growth was an aberration or whether the second quarter’s giant leap forward was.
So do you think we’ll find out that the recovery is over? Or will we finally break past the wimpy 2% growth we’ve experienced throughout the current recovery and see some real growth?
The third quarter results appear just days before an important national election. Right before the 2012 presidential election, you may recall, the unemployment rate finally fell below 8%. Maybe we’ll see another economic miracle right before this election.
So let’s assume that the numbers show growth for the third quarter, indicating that the recovery is continuing. We also now have an unemployment rate just below 6%. Of course that’s the U-3 rate, which doesn’t cover people who have stopped looking for work. But add it all up, and keep repeating the phrase, “The economy is improving,” and you may convince yourself that happy days are here again.
You could do that, but instead of cheering an unemployment rate that’s now under 6%, why not ask why it took so long to get there. While we’re at it, let’s find out why the jobs that are created are primarily part-time, minimum wage positions, and why there aren’t more higher-paying jobs that matter.
Let’s ask why the Federal Reserve Board is trying so earnestly to raise the inflation rate to 2% and, if it succeeds, why that will be such a good thing for the economy. Higher inflation is a symptom of a healthier economy, but raising the inflation rate doesn’t necessarily make the economy healthier. If American incomes are 8% lower than they were in 2007, raising prices will further erode our quality of life.
Let’s ask what the Fed’s next policy is and why Wall Street is so scared of the potential for rising interest rates – even though higher rates would be a return to normalization. When will we find out what the Fed means by “macroprudential supervision?” It apparently has something to do with the Fed’s using its powers to ride herd the financial services industry.
Let’s ask, too, why so little has been done to control the federal debt, which has grown to more than $17.4 trillion, or to control the unfunded liabilities from Medicare, Social Security and government employee pensions, which exceed $100 trillion. What happens to the cost of servicing that debt when interest rates rise?
Let’s ask why Congress and President Barack Obama have taken virtually no action to help the economy grow since before the financial crisis. True, we did spend nearly $1 trillion on “stimulus” legislation. Let’s ask for an audit and find out where that money went.
Let’s ask for tax reform. America still has the highest corporate tax rate in the developed world. Until recently, corporations addressed the problem themselves through tax inversions, in which they merge with foreign companies, then move their headquarters abroad to cheaper tax jurisdictions. When will the government take action to make the U.S. more competitive? When will tax subsidies for favored corporations stop?
Let’s ask why the average American’s income has shrunk to 8% below what it was in 2007. According to the U.S. Census Bureau’s 2013 Income and Poverty Report, real median household income has declined to the level it was at in 1994. In 1994, hardly anyone was using the Internet.
Let’s ask why GDP has been below 2% for five years and why today, it’s suddenly leaped forward. Let’s ask how those numbers are calculated.
Let’s ask why Fed Chair Janet Yellen is now sounding off about “income inequality,” even though Fed policy has created the greatest income gap in history. Let’s ask, too, who put the Fed in charge of economic policy? The Fed’s mandate used to be controlling inflation through monetary policy. Now the Fed manipulates the markets (superbly) and runs the economy (poorly).
Let’s ask why, even with the lowest interest rates in history, the housing market has not recovered. And if the market is as lackluster as it is today, let’s ask what will happen to housing when interest rates increase.
Maybe the economy really is improving, but the recovery would be more credible if some of these questions received answers.
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Written by Brenda P. Wenning, president of Wenning Investments LLC in Newton, Mass.
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