Saturday, July 28, 2012

Government spending aids economic growth

From, yes, The Wall Street Journal:
Even Rupert Murdoch's WSJ...
According to the government’s latest number-crunching exercise — they revised old economic data while taking their first crack at how the economy performed in the second quarter — the Great Recession of 2007-2009 wasn’t as Great as we thought. Sure, it was the worst economic calamity since World War II, but the abyss we sank into three years ago wasn’t as deep as we thought. The reason? Government spending provided a cushion.

Real gross domestic product shrank 4.7% between late 2007 and the middle of 2009 — not the 5.1% initially estimated, the Commerce Department says. In 2009, America’s economy contracted 3.1%, much less than the earlier estimate of 3.5%. (The government’s “positive” revisions to the first and second quarters of 2009 were the biggest ones they made.)

So, what happened? It wasn’t consumer spending or business investments; those estimates were pretty much left alone. Net exports of goods and services abroad were a little stronger than initially thought, but that also doesn’t account for the change. That leaves “government consumption expenditures and gross investment,” which jumped far more in 2009 than initially estimated.

Instead of rising 1.7% in 2009 from the previous year, government spending soared 3.7%. Instead of shrinking 0.9%, spending by state and local governments actually grew 2.2% in 2009 — probably a reflection of the Obama administration’s efforts to provide emergency cash to states during the depths of the recession.

This isn’t the only example of government policies fueling growth. In the fourth quarter of 2011, the economy grew 4.1% instead of the 3% initially estimated, the government says. Private-sector spending on “structures” — meaning, non-residential commercial property like office buildings — jumped 11.5% instead of declining 0.9%. One theory: Many American businesses may have waited and waited, and then finally pulled the trigger on decisions to spend on commercial buildings to take advantage of government tax credits set to expire in January 2012.

Whether or not government spending is the right prescription for America’s ailing economy is hotly contested among politicians...

When it comes to raw numbers, though, it’s just simple math...if the government spends, the economy will grow.

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