Last fall, in the desperate throes of campaign misery, Republicans marched around like little Elephanteers in bowties and shortpants, insisting that a recession required two consecutive quarters of downturned gross domestic product. Democrats were unimpressed by our slavish devotion to Investopedia.
Well, hooray, now it’s our turn to call bullshit.
As widely reported, the Commerce Department said yesterday the economy grew at a 3.5 percent annual rate in the first estimate of third-quarter GDP, the fastest pace since the third quarter of 2007. The growth, however, is short-term, like going to rehab for cocaine addiction and then getting dropped off in Manhattan with $500 cash.
To quote economist Megan McArdle: “GDP is at best a proxy for our well-being, not a direct measure of it.” GDP tells us literally just that: how many things we’ve made and how many services we’ve performed — not their value or efficacy. But here we are, like the factory workers in the Emerald City, singing about the end to the recession, ignoring the value and efficacy of the spending that struck up the band.
The U.S. government borrowed heavily from abroad to finance, among other things, the economic stimulus package. That money had to show up eventually in the GDP, and so it has. Two elements of the stimulus package — cash-for-clunkers and the home-buyer tax credit — drove our GDP rate increase; one program’s already been withdrawn, the other’s set to expire soon and neither can be considered anything but expensive gimmicks irrelevant to business growth
According to automotive information firm Edmunds, through the cash-for-clunkers program the government spent $24,000 to generate each sale of a new car this summer. For comparison, the average price for a new vehicle in August 2009 was $26,915, minus an average cash rebate of $1,667. The group concluded that most people who bought cars through the program would have bought them regardless. This is the basis of our third-quarter growth in large part: Cars people would have bought anyway, paid for by all of us — well, or the Chinese.
Thus far, the $787-billion stimulus has saved or created a blood-tingling total of 25,000 jobs (President Barack Obama promises that total will become 3.5 million by the end of 2010).
So, rack them up, all the third quarter numbers: Business investment fell at 2.5 percent pace, investment in nonresidential structures dropped 9 percent, consumer confidence dropped a thrilling 5.7 points to 47.7 (about half the score indicative of a strong economy), disposable income fell 3.4 percent, unemployment continues to flirt with 10 percent. The economy, like Vanderbilt football, continues to be objectively bad.
Perhaps, however, this is the abyss, the true bottoming out of the economy, and it can get better from here. Maybe we can Batcable out of the whole thing and all have jobs in May. One thing’s clear, however, this is Obama’s economy and his choice: short-term cotton candy growth or the real thing.
—Katherine Miller is a senior in the College of Arts and Science. She can be reached at katherine.m.miller@vanderbilt.edu.
