3.5 Percent GDP Boost Is Wasteful Growth
Economy: As we said as far back as February, it was likely the U.S. economy would grow by the third quarter of this year. Well, it did - and the 3.5% rebound was better than expected. But hold the hallelujahs, at least for now.
It's almost certain that the U.S. emerged from recession sometime during the summer, most likely in June. But those who want to credit the $787 billion "stimulus" package passed in February should likewise refrain from saying "I told you so."
They include presidential adviser Larry Summers, who said last week that "thanks largely to the Recovery Act, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery."
We have, in truth, stepped back from the abyss. But sorry, Dr. Summers, it was no thanks to government.
The strongest parts of the third-quarter GDP report came from personal consumption (up at an annual rate of 3.4%), inventories (up almost 1%) and homebuilding (up 23.3% after declining for 14 straight quarters). Government's contribution to GDP growth was up just 2.3%, slower than overall growth.
Cash for Clunkers and the $8,000 first-time homebuyer credit boosted consumer spending and housing. But these gains are one-time, not permanent. In reality, we merely took money from one hand and put it into another. Net change: zero.
With 4.1 million jobs lost this year and no verifiable boost to the economy from the stimulus, it's fair to say this has been a bust.
The average workweek is 31.1 hours, the lowest in decades. And 9.8% of Americans don't have jobs, the highest since 1983. White House officials promised that 3.5 million jobs would be saved or created as a result of the stimulus. But so far, the Associated Press reported Thursday, "the government has overstated by thousands the number of jobs it has created or saved."
In late July, economist J.D. Foster of the Heritage Foundation put it succinctly: "This is no longer an experiment in economic policy. The results are in: Keynesian stimulus does not work." This GDP report doesn't change that conclusion a bit.
If that's so, our only hope going forward is the private economy. Though hindered by massive government intervention in housing, banking and industry, it's still the most resilient in the world.
Businesses and households have cut spending to the proverbial bone. Now they're reaping the first benefits of all that pain.
That, and a flood of fresh money printed by the Federal Reserve - bank reserves, at over $800 billion, are about 200 times higher than normal - are the main reason for the third-quarter bounce.
What's of greater concern is the future. In a normal recovery we'd be growing much faster than 3.5%. That's what usually happens when you have a huge drop in output - a V-shaped recovery.
Few think that will happen this time. More likely we'll see slow growth of 2% or so, with fewer jobs and slower income gains - a real jobless recovery.
Why? Big government threatens our well-being with irresponsible health care "reform," higher taxes on entrepreneurs, a tax-filled cap-and-trade energy bill, a host of new business-strangling regulations and trillion-dollar deficits as far as the eye can see.
Champagne? No thanks. Put it on ice until a real recovery begins.
