GDP is a worthless calculation. It goes down as imports increase, it goes up as government spending does, and it increases not due to productivity, but if production of any kind has happened. In other words, the revival of the worst of the worst businesses from the dead would be additive to GDP, and without regard to how economically crippling it is to have “zombie” businesses hogging precious capital.
Which is a comment that if anything, the latest GDP number reflects slower economic growth than would otherwise be the case. To be blunt, GDP is frequently backwards due to how it’s calculated. To give readers a sense of the meaning of the previous sentence, GDP soared during Jimmy Carter’s presidency.
All of the above (minus the Carter anecdote) and more was written right after the release of the Q1 GDP figure three months ago. It revealed a 0.3% decline. In response, I put out a column titled “GDP: Worthless Number Meets Mindless Economic Policy.” The full write-up can be found here, but below are its concluding comments:
“Which is why economically ignorant Democrats eager to pounce on the GDP number should hold their tongues. At the same time Republicans should at least try to not sound more economically ignorant than they already sound. Tariffs are anti-import, they’re pro low value production, and since they sap economic growth, they likely foretell more government spending to mitigate the damage done by the tariffs. All three are good for GDP.
Yes, GDP will go up to reflect a weakening economy. Worthless number, meet mindless economic policy.”
What’s important is that it required no insight to predict a rebounding GDP number. All it took to see the obvious was an understanding of how backwards GDP is to begin with.
As with most things believed by economists, up is down and good is bad. Economists even believe “too much” economic growth is bad, all on the charitably ridiculous belief that growth causes inflation.
Those same economists believe near unanimously not only that government spending boosts economic growth, but that war really boosts it. Bailouts of corporations left for dead by investors (think GM and Chrysler, 2008) are also additive to GDP. Again, what’s bad is good with GDP, and vice versa.
Back to the negative Q1 GDP figure, the obvious will be stated: Tariffs are bad policy, as is any policy that taxes production. Ahead of the Q1 GDP calculation imports surged as producers feverishly bought foreign production to get ahead of President Trump’s tariffs. The surge logically took down GDP, even though imports on their own in no way signal economic weakness. Quite the opposite, really.
Since then there’s been a pause in the mindless tariffs. The pause presumably enabled less feverish importing. What’s on its face not a very bullish signal unsurprisingly increased GDP. Again, it was all in the write-up from May 2nd.
The argument made then is that what would cause a rebound in GDP would signal a relatively weaker economy. As always, what’s up is down with economic calculations, GDP most of all. What had economists up in arms after the Q1 read will logically have more than a few puzzzled or ebullient (depending on their Trump stance) after the Q2 figure.
Ignore it all, and do so confident that what lifts GDP often has nothing to do with economic growth. That tariffs logically restrain growth while boosting GDP is very telling on the matter. As with Q1, the Q2 GDP figure is most notable as evidence of what happens when a worthless calculation meets mindless economic policy.
