Saturday, July 30, 2011

Stimulus and the GDP numbers

Yesterday's GDP numbers were simply dismal, checking in at 1.3% for Q2 and the previous quarter's numbers revised downwards to 0.4%. John Taylor supplies this chart comparing the new revised numbers with the old ones:

What we see is absolutely no surprise and exactly what this blog said would happen, arguing last June and in October 2009 that stimulus spending could produce nothing more than a temporary sugar rush-type boost to GDP growth. And frankly, that's a generous interpretation, as the chart demonstrates that GDP growth had begun its recovery -- since stalled -- in the 4th quarter of 2008 before the stimulus had even been passed (with actual funds being dispersed even later). At best the stimulus provided a temporary boost to GDP that has since worn off as the funding has decreased. At worst it provided it with even more debt and nothing to show for it. 

Scott Grannis sums matters up best:
Once again these developments underscore supply-siders' belief that growth can only come from hard work and risk-taking. Monetary policy can't create growth out of thin air, and neither can fiscal "stimulus" spending. The swimming pool analogy is very apt: fiscal spending "stimulus" is akin to taking water out of the deep end of a pool and pouring it into the shallow end—it achieves nothing and is simply a waste of effort. Real growth only occurs when people work more and/or someone figures out how to make the same amount of work produce more output.
If there is a silver lining to this gloomy GDP cloud, it is that fiscal and monetary policy "stimulus" have now been soundly discredited. Congress does not have the power to pull spending levers in order to speed up the economy, and the Fed can't speed up the economy by keeping interest rates at artificially low levels. In fact, fiscal and monetary policy errors of the sort we have lived with in recent years only serve to weaken the economy. 
Too much debt-financed spending only wastes the economy's scarce resources, while simultaneously boosting expected tax burdens. This in turn reduces the after-tax rewards to hard work and risk-taking, which explains why corporations have been so slow to invest their growing stockpiles of cash. Too much easy money only boosts speculative activity (which shows up as higher commodity and gold prices) while undermining the dollar and reducing investment.
Long-term sustainable growth is achieved by capitalists, not bureaucrats or the introduction of easy money. If the Obama administration is useful for anything, it is for once again demonstrating the folly of the left's economic agenda. 

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