GDP, 2011Q2: Congress, This is Not an Economy You’d Want to Toy With

July 29th, 2011 at 9:11 am

And now, for the next installment in our series of disappointing status reports on the American economy, GDP grew by only 1.3% in the second quarter.  If there’s good news here, it’s that with new, revised data out this AM, that 1.3% is a gain on last quarter’s 0.4% (take out the inventory build-up from last quarter, which gives you a cleaner look a “final demand,” and we posted a zero!).

No wonder the job market is stalled.  We’re living on fumes out there in terms of demand.  Consumer spending, closely tied to the job market, was flat in Q2, and in a 70% consumption economy, that says it all.  Also, state and local governments continue to contract, taking 0.4 percentage points off growth in both of the last two quarters.

More to come, including a look at some pretty big negative revisions.  According to these data the Great Recession was even worse than we thought.  EG, I thought the nadir in 2008q4 was a cliff-diving -6.8%.  According to today’s revision, we were contracting at an annual rate of 8.9% in that quarter.

I’ve got no idea what it would take to get Congress to stop threatening to make this bad economy worse.  But this is not an economy to fool around with.


Print Friendly, PDF & Email

6 comments in reply to "GDP, 2011Q2: Congress, This is Not an Economy You’d Want to Toy With"

  1. jonathan says:

    Nonsense. All that demand nonsense. The real problem is that suppliers aren’t producing and hiring because they lack confidence and they lack confidence because they expect tax increases from those Democrats. Haven’t you read the memos? Aren’t you familiar with the Chicago school’s method for preserving its models? My God, man, you act like reality matters.

  2. Jeff H says:

    Apparently nothing will convince congress that it was the running out of the stimulus that is causing the problem, not the stimulus itself.

  3. Keith Roberts says:

    I agree that Pres. Obama is a good man doing his best. But he has made important tactical negotiating errors that as a Harvard Law School graduate and a student of Lincoln, FDR, and JFK he should have known how to avoid. He has committed the classical game theory mistake of continuing to negotiate with opponents who refuse to do so, while at the same time negotiating with his own supporters. He has failed to rally the outside support that might have let him prevail, both in the business community and with the public. His last minute flurry of speeches counts for little. And he has failed to take the rhetorical advice of Democratic advisers like Drew Westen, which could have made his speeches on this topic far more effective.

  4. Michael says:

    The President wants to use the shock doctrine to give his Wall Street buddies access to Social Security, and the Tea Party wants to burn everything.

    Sounds like both sides have something to gain from continued economic failure.

    • Fred Donaldson says:

      Shock doctrine is not only for access to SS by Wall Street, but more access by health insurance leeches by raising Medicare age.

      In the old days we just gave our virgin daughters to the local lord for “training,” now our masters want her, the wife, the grandchildren and any pets over the age of one – plus we are supposed to feign happiness that we voted Democrapic in 2008, which was unfortunately a vote for elites everywhere.

  5. Misaki says:

    I think I might try something different: the motives of consumer behavior. It’s just hard to summarize in a couple of sentences, beyond which it becomes hard to integrate in arguments and people lose interest in reading…

    The essential point is that the economic profession needs to stop encouraging people to act in a way that directly leads to the employment situation becoming worse. Working harder because your company doesn’t want to hire of the abundant, cheap labour available due to concerns about future demand, and spending one’s income on iPods when one does have a job, are both logical consequences of the average person’s understanding of the economic situation, are both intended to improve the situation, yet in reality do nothing of the sort.

    Changing the way compensation works would remove the perceived congruence of social benefit with nominal personal benefit, and would lead to the conclusion that the choice of working full time or a lesser amount of time is socially neutral, and whether it should be done depends on the specifics of the company and the individual.

    …See, like I said it’s too hard to explain and no one seems able to understand it anyway.

    >Consumer spending, closely tied to the job market, was flat in Q2, and in a 70% consumption economy, that says it all.

    Except that the composition of consumer spending can have widely varying effects on employment. Obviously, or nations with per-capita GDP under $1000 USD per year would have ~10% employment of the workforce instead of 75%+.

    Sometimes it might be reasonable to assume that the composition of this spending will be constant, and economic models and predictions will be based off of this. But this is well-known to be untrue and is demonstrated in the specific case of today’s economy by the sale of iPods and of corporations other than Apple. Keep in mind that unlike the rest of the economy, corporate profits were revised up for both 2009 and 2010 by ~10% for both years.

    Unemployment remains high only because economists do not understand the method which would decrease unemployment, and for no other reason.

    but i wanted to paste the same thing i said on Mike Konczal’s blog that had a similar reference to consumer spending/aggregate demand.

    The problem with economists saying things like this is that it causes the public to believe that if they only spend more money, jobs will be created. One might be lead to assume that even if the amount of work needed to produce the goods one buys isn’t high, the people who receive that money could create jobs depending on their pattern of spending.

    This assumption is invalidated by the correlations between the amount of income one receives as surplus value from the sale of one’s products or services, and the prices one is willing to accept in higher qualities of a good, as described once again in the detailed explanation of how to fix unemployment. One cannot just assume that spent money will “eventually” lead to the same effect no matter how it is spent, since on average purchasing products whose price is not justified based on absolute utility (but only on marginal utility of money for one’s specific financial situation) will just cause that money to flow within the wealthy subset of the population at much slower velocities than money spent on cheaper goods, again as mentioned in the above link.

    Buying iPods simply does not have the same effect on the economy as purchasing goods made by people who have more reason to be attentive about how they spend their money. The focus on simplifying the economy’s problem to “low aggregate demand” ignores this complexity and prevents any improvement of the problem because it causes people to accept overwork as mentioned on this blog several days ago and to spend their money in ways which do not contribute to an increase in the total amount of work done.

    This, then, is the result of the failure by the economic profession to understand the implications of patterns of spending. People become uninformed on the best way for them to contribute to the return to a healthy economy.

    Unfortunately, there does not seem to be any hope of educating the economic profession on the consequences of their failure, as all efforts have shown there is a high resilience to comprehension or change.