Lies, Damnable Lies, and the Growth of GDP

The 3.5 percent jump in the Gross Domestic Product (GDP) has many (particularly in government) declaring that "the recession is over!" Tell that to the 10 percent of the population that remains unemployed and to the thousands of small businesses limping along in an economy that is still flat, at best. There is an old saying, "any increase is significant when you are starting at zero." That is a fair summation of the "jump" in the GDP.

Many who are well versed on what is going on in the political and economic front are far more cautious than those in politics with an agenda and those in the media who are die hard fans of those with an agenda. Many economists are approaching this increase in the GDP with a healthy amount of cynicism, which may be why you are seeing little about their criticisms in the media. But there are many with serious business and economic credentials that are pleading for caution.

RDQ Economics states that "We need many quarters of GDP running at this pace (or faster) to make significant inroads into reducing unemployment." Great point, jumping to conclusions about the recession will have us making 10 percent unemployment a reasonable expectation for a healthy economy. I do not believe any of us are ready for that.

Stephen Stanley, RBS stated that consumption played a big role in getting the increase, but the "details look less promising. About 40% of the increase in consumer spending came from motor vehicles, reflecting the transitory boost from the cash-for-clunkers program. As auto sales recede in the fourth quarter, consumer spending is likely to grow much less rapidly. Similarly, state and local governments seem likely to face tougher cutbacks with no further boost from the fiscal stimulus while defense spending is likely to cool. Meanwhile, residential investment looks likely to keep growing but at a less vigorous pace while business investment spending growth looks unlikely to improve much more until a clearer picture on consumer demand emerges." The increase is caused by government, which can only be sustained by continued increases in spending, which will only further destabilize the long term economy. Our GDP is built on a house of cards and Stanley's suggestion that the fourth quarter will see another decline makes perfect sense.

Guy LeBas, Janney Montgomery Scott, note that "The final handful of dirt on the Great Recession's grave: today's data provides a needed psychological end to seven quarters of shrinking economic output. While there's a great deal of uncertainty as to conditions for the coming few quarters and years, at least we can say the last few months have been good ones for output. We remain very much concerned, however, that the pace of consumer activity will slow sharply now that government spending incentives are expiring." Bottom line is that there is a genuine concern that the increase is driven by government smoke and mirrors, and not in a real increase in consumer demand.

Paul Ashworth of Capital Economics stated that "Our concern, however, is that all those positive factors will fade badly in the second half of next year. If consumption growth remains unusually lackluster, then GDP growth would slow to a crawl again." Ashworth, like many economists, recognizes that this demand is artificial and driven by the government. When the government pressure subsides, the GDP will likely shrink.

Millan L. B. Mulraine of TD Securities suggests that "with the significant fiscal and monetary stimulus providing the main impetus for this sharp rebound, we expect GDP growth in the coming quarters to be less robust as their impact wanes..." Again, government created GDP.

Finally there is John Silvia of Wells Fargo who noted that "Big contributors were consumer spending on autos - cash for clunkers - federal government, inventories and housing - tax credit… Core issue: how much of this is sustainable without Fed programs?" What an excellent question, one I wish was asked by more people in politics and the media.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Obama's Cap and Trade and Other Regulations will make Environment Worse

When I think of Cap and Trade and government efforts towards a better environment, I think of an interesting encounter I had while conducting seminars on Free Market economics. When I traveled Eastern Europe and the former Soviet Union, I was horrified by the pollution levels. Poland was particularly bad. I remember escaping to a large park because of the trees there actually made it easier to breathe. Much of the time my eyes simply watered and I coughed. It was miserable. I had a meeting with an economist in the Polish government and he noticed my distress. "What's wrong?" I said politely, "well, it seems I have caught something in your country." "Yes, we call it pollution, what do you call it in your country?" and smiled. I said, "why is it so bad?" He said, "well, it isn't because of the laws, we have the toughest environmental laws of any country in the world." Sure enough, I did my homework, and that was true at the time. He went on to say "the problem was recognized long ago by Aristotle who said 'What is common to the greatest number gets the least amount of care. Men pay most attention to what is their own; they care less for what is common; or at any rate they care for it only to the extent to which each is individually concerned. Even when there is no other cause for inattention, men are more prone to neglect their duty when they think that another is attending to it.'" He went on to say that he hoped that the moves the country was making towards free markets would lead to more ownership and better care of the environment.

Later, in another meeting he said, "the answer to these environmental problems are found in technology, not regulation." I liked the sound of that, so I asked him to elaborate, "as we recover economically, have more ownership, we will enjoy greater capital formation, which will lead to better and more efficient technology. That, more than anything else will reduce pollution." I casually responded, "I have never seen a poor country that wasn't polluted" and he responded back, "neither have I."

I have done further research on other government efforts to reduce pollution and found more stories that point to private, and not government, solutions. For example, according to the National Center for Policy Analysis, 90 percent of all dollars spent on the Super Fund has actually gone to lawyers and not clean ups.

The Obama Administration's multi tiered policies of Cap and Trade, CAFE Standards, and "Cash for Clunkers" (which largely benefits foreign auto makers, rather than domestic) while taxing wealth and job creation (which will only lead to more poverty), will actually contribute to more pollution in the years to come. One may be able to argue that one could pursue the aggressive regulations he desires in a strong economy, but in our current situation he is begging for immediate economic ruin and long term environmental disaster.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.