Growth v. "Growth"
Consumer spending on big-ticket manufactured goods soared at an annualized rate of 22.3 percent in the third quarter, the most since the end of 2001. The jump largely reflected car purchases spurred by the government's "Cash for Clunkers" program that offered a rebate of up to $4,500 to buy new cars and trade in old gas guzzlers.The housing market also turned a corner in the summer. Spending on housing projects jumped at an annualized pace of 23.4 percent, the largest jump since 1986. It was the first time since the end of 2005 that spending on housing was positive. Purchases of home furnishings and appliances also added to economic growth.
The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires on Nov. 30.
The collapse of the housing market led the country into the recession. Rotten mortgage securities spiraled into a banking crisis. Home foreclosures surged. The sector's return to good health is a crucial ingredient to a sustained economic recovery.
Re: Cash for Clunkers, consider this Reddit commentary
I work in a small used car dealership. Let me tell you what this program has done to us.All of the quality vehicles traded in had to be removed from the road and destroyed. What this has done is inflated the value of used cars at auctions. Vehicles at a good bargain have become scarce, and buyers have become even scarcer. Cash for Clunkers is hurting all of us small guys who were not able to partake in this program.
I have no doubt though, we will soon see mass repossessions and values will plummet even lower than where they were, resulting in a net loss in value for us on our investments.
Comments (15)
bearing01
Yay for gov't intervention. What next? Maybe if they evacuated NY city and set off an atomic bomb to vaporize all the real estate, it would "stimulate" the housing market and the creation of new factories. Wealth would be destroyed, but that's okay. The gov't can just give a tax credits or Ben can just print money and lend it out, to provide the material wherewithal for rebuilding. Imagine how much better off we all would be with all that spending.
Published: October 29, 2009 10:22 AM
Ohhh Henry
"Wealth would be destroyed, but that's okay."
Good idea, but wouldn't it be a lot better to arrange for a group of disliked Middle Easterners to do the dirty work? That would be both a domestic stimulus "win" and a foreign policy "win".
Published: October 29, 2009 10:58 AM
iawai
The only two good numbers in the economy are the two biggest consumer subsidy programs in history.
What are the numbers w/o the Cars and houses? Instead of a 22.5% jump, would we have seen a 30% annualized drop? Even including a projection of "what would have sold anyway" by interpolating the trend before and after the programs and the rate of those not eligible for the handouts, I'd venture to guess "flat" off last year (in US$) would be an overestimate.
Published: October 29, 2009 10:58 AM
Frank
Sadly this increase will be used by bureaucrats in making the case to spend/waste even more money in the future. The next play in the bureacrats handbook will be to demonize those that have the audacity to question the results.
Published: October 29, 2009 11:19 AM
J Cortez
Just more distortions that will lead to busts. Thankfully, they aren't as big as the previous malinvestments. GDP has got to be one of the stupidest statistics ever created. Rothbard's PPR idea is much better.
Published: October 29, 2009 12:59 PM
Walt D.
"Extend and Pretend" . So the government creates subsidy $4,500 out of thin air and gives it to someone to buy a car? This is a one shot deal. What next? Why not create $25,000 out of thin air and give someone a new car? Why not give one to everybody? Or create $2 trillion out of thin air and give everyone free health care? Just think of the economic growth. Krugmanomics is an amazing thing!
Published: October 29, 2009 1:09 PM
Jeremy H.
@iawai
It's very easy to calculate what the growth figure would be without cars and homes. The BEA provides the data. Take a look at Table 2:
http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp3q09_adv.pdf
So without "motor vehicles and parts" and "residential investment," growth would have been 1.96%. Take out government spending, and it becomes 1.48%. Certainly not as robust as 3.5%, but not a decline either.
Published: October 29, 2009 2:15 PM
Thomas
@ jeremy h.
But don't forget that every dollar the government handed out to various consumers for homes and automobiles meant a dollar saved from that expenditure and spent elsewhere--so, for example, anyone who would've bought a car anyway but took advantage of the government's handout to save 4,500$ therefore had that much extra money to spend on other goods and services, or in investment and savings.
I'd say it's impossible to take the BEA's numbers and disentangle government stimulus spending. The secondary effects are Legion.
Published: October 29, 2009 6:58 PM
Ronald Pray
There are certain things a government must do which this administration is not doing to insure a safe business climate:
1. we should have a stable dollar which is as John Kennedy once said should be "as good as Gold" This administration has made the dollar very elastic as a matter of policy which drives away investors and when there is excessive debt is continually monetized it puts fear into the foreign purchasers of Treasuries and also drives the World Bank in considering replacing the dollar as the reserve currency.
2. The Rule of Law should be ironclad and not arbitrarily flouted by any administration. The property rights of the Indiana retired teachers and retired police officers having their retirement accounts held in Chrysler Bonds should have never had the assets of Chrysler given to the UAW by the Obama administration which vilates 150 years of securities laws. This is the road taken by Argentina which is why it is not a wealthy nation today.
3. This administration has misled us on every aspect of reform of the health care industry and cap and trade. On health care, the Congressional Budget Office has on many occasions belied the financial information the president has given us. Cap and Trade is based on the Spanish model whereby carbon emissions are strictly regulated and alternate energy like wind power and solar power are promoted. The Spanish economy as result has an 18.1 percent unemployment rate, double that of any EU nation, the cost per green job is any where from $780 thousand to $1.4 million, and take 2.2 jobs away from other sectors of the economy. Please see Dr. Calzada’s study at: http:// tinyurl.com/d79ye.
3. Property rights should be protected by government in order to insure that entrepreneurs who wish to use their property, buildings or whatever they own as collateral in risk taking activities. Also, property rights that are preserved under the rule of law attract entrepreneurs from all over the world to start businesses in this country. This administration has had a certain amount of disregard for property rights as mentioned in the Retirement accounts of Indiana retirees as well as the rights of companies to set the reward for their labor in regards to bonuses given to employees of financial institutions along with “risk management” by this administration. These initiatives of this administration drive out investors to places like India .
4. In order to start any heavy industry project here, especially in California , the requirement of licensing and environmental impact statements, EISs, and community input virtually makes doing business impossible. The business of government should be to loosen up the regulatory constraints and make starting up business relatively easy.
We need not ask why businesses are migrating offshore when the government makes the business climate unattractive.
5. Tariffs should never be excessively high or it would kill free trade across borders and drive up the cost of doing business. A case in point is the Smoot Hawley Tariff of 1929-1930 which ignited a tariff war which set off the Great Depression of the 1930s.
6. Taxes ought not to be excessive which is what followed Smoot Hawley by both Herbert Hoover and Franklin Roosevelt in the 1930s which killed any chance of a recovery. The Cap and Trade Bill is considered to be an opaque tax due to its hidden nature in billing energy companies and corporate manufacturers as well as conveyances of goods like trucking companies. The bill is basically a Value Added Tax on every level of production and distribution which is supposed to be the biggest tax increase in recent history. The costs will be passed down to the consumers.
It seems like the education of the American people in economics is a daunting task which is a little short in time and may come too late. One thing for sure is that the results will definitely draw them to the polls in 2012.
Ronald Pray,
Honolulu, HI
Published: October 29, 2009 7:13 PM
Bruce Koerber
http://economicnumbskulls.blogspot.com/
Thursday, October 29, 2009
Higher GDP Means Everything Is AOK - Duh!
How's your GDP?
Let's assume that you have a counterfeit operation at your disposal and you ask Helicopter Ben (the cutesy nickname you gave to the one who answers to your beckoning call) to crank it up.
Just call it 'TARP' or whatever you want.
Now suppose all of those TARP funds go to you; some goes in the right front pocket, some in the left front pocket, some goes in the right rear pocket, and some goes in your right rear pocket.
Wow! You now have a bigger GDP.
Based on that information it is safe to say that all economic nincompoops will be impressed and that the economic nincompoops in the media will demonstrate their stupidity by trumpeting the "great news."
Published: October 29, 2009 7:29 PM
Shay
A family eats out every weekend when times are good. When times are hard, they only eat out once a month. The family has been eating out only once a month for a while now, and they feel they need some stimulus, so they start eating out weekly. They start to feel things are going well again, since hey, they're eating out weekly. Only thing is, they're depleting their savings by doing this (I suppose a better analogy would be that they're breaking into their neighbor's at night and stealing money to pay for these weekly outings).
Published: October 29, 2009 11:30 PM
paul
New cars have never been an investment. They depreciate from the moment you have bought it.
Only old cars that have value based on collectors appeal could be considered an investment, it makes me cringe to think how many classic cars went into the crusher, for this clunkers non sense.
Published: October 30, 2009 7:33 AM
Walt D.
Jeremy H. said
"So without "motor vehicles and parts" and "residential investment," growth would have been 1.96%. Take out government spending, and it becomes 1.48%. Certainly not as robust as 3.5%, but not a decline either."
True, but the GDP does not take into account the $1.4 trillion deficit. Also it does not take into account the decline in the value of the dollar relative to the Yen, Euro or Gold.
Published: October 30, 2009 12:12 PM
Jeremy H.
@Thomas
The government is always intervening in the economy, so the data will be fishy in every quarter. Does this mean we should just ignore it? Maybe. But if we're going to bring up the data in blog posts such as this one, maybe we should try to make some sense of it rather than just cover our ears and scream "End the Fed!"
@Walt D.
The data is adjusted for changes in purchasing power, or at least they attempt to. Perhaps the adjustments are imperfect, but in principle they account for this.
Published: October 30, 2009 4:07 PM
Thomas
@Jeremy
You're exactly right, but when I hear the noise spewing from the propaganda machine, I do want to cover my ears.. And the more I study economics, the worse it gets!
And I agree with @paul, the real tragedy is all the cars that were destroyed in order to fuel those new vehicle purchases. But, after all, it's okay, since those cars were already counted in a previous year's GDP and therefore no longer matter.
Because GDP is what's important.
Published: October 30, 2009 10:05 PM