Looking at today's GDP number, thru the lens of Kevin Phillips' book...

[RichM]

Today, the Commerce Department reported a surprisingly happy number for 2Q GDP. It rose at a 2.4% annual rate, rather than the 1.5% that was expected.

To be brutally & unforgiveably brief in summarizing the mass of statistical data presented by Kevin Phillips' "Wealth and Democracy": since the late 1970's, almost all of the gains in US national income have gone to the top few percent of the population. NONE of it has gone to the bottom 80% of the population. A few miserable crumbs have gone to percentiles 80 thru 90. And of the lucky top 10%, the lion's share has gone to the top one percent.

Let's add on 2 more facts, then draw the logical conclusion:
1) The main force driving today's GDP number was a startling 44% increase in military spending. This reflects an arbitrary government decision, not broad "market demand."
2) Pentagon contracts are known to be phenomenally graft-ridden. They are generally awarded on a no-bid cost-plus basis, which is why you get $750 hammers and $1200 toilet seats. The contracts go to well-connected companies, which means, to Bush's cronies or Rumsfeld's college roommates. There is no cost control or monitoring that can't be fudged or lied about.

So what does this all mean? On the surface, the "good" GDP number SOUNDS like the great elixir "economic growth." Everyone's boat rises when the economy grows, right?

Wrong. All it actually means is that the US government decided to blow a hell of a lot of money on the Pentagon. The money all went, no doubt, to companies who contribute faithfully to the GOP. There are no cost controls, so a lot of the contracts were for the kin & cousins of $1200 toilet seats. (After all, why not? The Bush administration doesn't care if it overpays, because it's not their money. It's OUR money. In fact, the precise point of the whole exercise is to overpay, to make the contractors happy.)

If they pay $2400 per toilet seat instead of "only" $1200, it makes the GDP number proportionately higher. (The size of the "contract" is bigger.) But, now recalling the point from Phillips' book, this does NO ONE any good, except for the top few percent of the population. And needless to say, the military gear itself has no social value whatever, because the goddamn military already has enough toys to last it for 5 doomsdays.

Putting the whole picture together: we achieve higher profits for Northrop-Grumman, and more impressive "growth" figures, by a corrupt process of awarding contracts to cronies, to waste society's resources on stuff the world doesn't need. Bush's friends come out ahead. No one else does.

This is the magic of crony capitalism at work. :puke:

[TheBigGuy]

1. I want you to substantiate this "fact"

Let's add on 2 more facts, then draw the logical conclusion:
1) The main force driving today's GDP number was a startling 44% increase in military spending. This reflects an arbitrary government decision, not broad "market demand."

I want you (or anyone else here) to provide a link or refer to a source that substantiates that the reason for the 2.4% GDP growth rate in the second quarter was increased military spending.

And that source has to be somewhat objective, not The Progressive or Z or some other lefty souce.

[RUMMYisFROSTED]

2. One of many sources:

That growth rate was mostly due to a 44.1 percent annualized pace of defense spending growth, the fastest pace since a 110 percent rate in the third quarter of 1951.
http://money.cnn.com/2003/07/31/news/economy/gdp/

[TheBigGuy]

6. OK..thanx..

this is what I was looking for...

[Davis_X_Machina]

3. Not _the_ reason...

...but clearly a major reason. For details see CNN, which should pass muster as not a 'lefty source'.

For a discussion, see Brad DeLong's blog.

[TheBigGuy]

8. after reading the CNN web page:

Most of the second-quarter increase in GDP was due to a 3.3 percent pace in the growth of consumer spending, which makes up more than two-thirds of the total economy.

Also supporting GDP growth was a 25.1 percent annualized pace in the growth of federal government spending, the fastest rate since 30.3 percent in the first quarter of 1967. That growth rate was mostly due to a 44.1 percent annualized pace of defense spending growth, the fastest pace since a 110 percent rate in the third quarter of 1951.


So the driver for the growth was really consumer spending. Defense spending was just the icing.

Based on the defense spending as a % of GDP (which is relativly low) I didn't expect it to have such a big impact on the economy, and my hunch is apparently correct, per CNN.

[sweetheart]

10. low interest rates... BEWARE!

The fed has set rates very low as the economy is stalling... and this allows people to remortgage and borrow even more cheaply to finance consumer spending... just that those rates must eventually rise, and then that mountain of debt will act like further deadweight on top of what is already a HUGE HUGE MOUNTAIN of american private, corporate and government debt....

The artificial appearance of growth is criminal economics at best... only a by-quintile study shows the real story.... Average GDP has been declining for most americans since the 70's... we are a nation of poverty, and even in the greatest appearance of wealth are the poorest souls of all.

[whoYaCallinAlib]

14. Hey TheBigGuy. Nice catch.

It is very important that we check each other and pressure test "facts" before they get repeated here hundreds of times. It helps to keep our forum as accurate and informative as we can make it.

[fishnfla]

5. It was sourced in another thread from the WSJ

1.5% of the growth is blood money. Thats why the market soared to +160 today, then fell, once they sourced the growth to the death merchants.

[RichM]

7. Here's a quote from Reuters -

Defense Spending Driving U.S. Economy
Thu Jul 31,10:23 AM ET

By Glenn Somerville

WASHINGTON (Reuters) - The biggest surge in defense spending since the Korean War era helped drive U.S. economic growth ahead at a surprisingly brisk 2.4 percent annual clip in the second quarter, the Commerce Department (news - web sites) said on Thursday. ...

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030731/bs_nm/economy_dc_2

====================
I saw others, too, along these lines.

[ProfessorGAC]

26. You Can Also Look At SAUS

The Statistical Abstract of the United States always provides GDP numbers, and gov't spending values, broken out by departmental expenditures.

The most recent year wouldn't be published yet, but the website would have YTD numbers. The SAUS website, however, is a subscriber service. But, a good reference would be to get last year's SAUS at the library and look at the rate of change in defense spending vs. the change in GDP.

You will find that the same thing is happening now as happened in the Reagan era. The GDP "growth" is being financed by borrowed money that is being spent on defense. Any sound fiscal analysis of these data from 1982 - 1992 will show that 88% of all growth of GDP (above natural growth rate due to population increases) was fueled by borrowed money. Since over 70% of the borrowed money was spent on defense spending increases over that time, 61.6% of the total growth of GDP was due to this factor.

If one projects the growth of real GDP (above natural) based upon the prior 30 years before the Reagan era, you would find the estimated growth of real GDP to be almost identical, (the differences are statistically insignificant). IOW, all the Reaganomics nonsense accomlished NOTHING economically, except to drown the country in red ink.

Since the economic "principles" being employed today are the same as those used in that era, there is no reason to expect a different result.
The Professor

[RUMMYisFROSTED]

4. Can you say

[ilpostino]

9. DU at its best

This is why I've become so addicted to DU...a terrific insightful look from someone who doesn't just read and react to propaganda...someone else who comes along and challenges the insight...then someone else comes along and counters the challenge...Liberalsim at its most liberating. Thanks all.

[RUMMYisFROSTED]

12. I agree...and...

Sorry my earlier post offered none of the things that you find most compelling about DU.

[swag]

11. i beg to differ on a couple of points

I am on your side, but must disagree on a couple of items in your eloquent post:

You typed "The main force driving today's GDP number was a startling 44% increase in military spending."

This statement isn't correct. The increase in defense spending was not "the main force" behind today's GDP number. The increase in defense spending meant very roughly .04% added to GDP Growth, so without milspend increase, GDP growth would have been in the hood of 2.35%, still a much better number than had been expected and a definite improvement over Q1 (the unnoficial pre-war Dubya-dip).

It is important to note that the initial estimate of a GDP number can be way off, as can a revised number. 2.4% will be revised downward or upward in the coming months.

I am absolutely with you on the analysis of the crony-cap takeover of our government. It is disgusting. Even if it weren't for the sleaziness of the political/military industry, our nation's level of expenditure for what is euphemistically known as "defense" would be disgusting and destructive on many levels, and we have decades of that destruction to pay for, both financially and karmically, if you will.

But it is not true that defense scumbags were the only ones who made headway in Q2.

The GDP number was the econo headline today, but there were other good numbers: initial claims for unemployment number hinted that last week's low claims number was not a fluke, and that the economy might well be creating some jobs soon, if not now. Chicago PMI index surged well into expansionary territory today, and the help-wanted index showed good increases overall and in some previously damaged regions. Tomorrow's econo numbers will also be important leading and lagging indicators. (By the way, the unemployment number, as you probably know, is distorted downward by a few major factors. In actuality, the unemployment rate is probably equal to or greater than that at the peak of the 1982 Reagan National Recession.)

I've suggested in another forum that it will be very difficult to defeat Bunnypants if the economy continues into 2004 as it is currently trending. Certainly Bunnypants deserves zero credit for short-term improvements, and his policies will prove disastrous over the long run, but voters tend not to think about whether or not a pres deserves credit s/he gets for the economy (Carter did not deserve the blame he got, for example, and it is doubtful that Clinton deserved all the credit he got for the good times).

If we cannot free ourselves of the wretched Bush administration, we have to win on many other fronts. Pick good battles and win them.

yours,

swag

[RichM]

13. Good points, all. However: different media have ascribed the increase

in differing ways as to how much was military, & how much was consumer spending. Several posts above demonstrate this. Here, for example, is the top paragraph of the NYT version:

"The nation's economy showed some promising signs of reinvigoration in the second quarter, according to preliminary figures the government released today. But the improvement was somewhat skewed by Washington itself, as military spending posted its biggest three-month increase since the Korean War....

http://www.nytimes.com/2003/07/31/business/31CND-ECON.html?hp

This article doesn't even mention the contribution made by consumer spending until the bottom half of the article.

How did you come up with the 0.04% number for the contribution of military spending to overall GNP growth? I didn't see that one anywhere else. Of course, no one can possibly see ALL the articles, and apparently all of them offer somewhat different accounts.

[swag]

16. Guess what? I was full of shit.

I can't really disagree with RichM at all. I misread table 2 in the Commerce department's GDP release (you can get it from the commerce.gov site). Sorry.

Milspend increase actually accounted for ABOUT 70% of the GDP increase.

I would explain my error, but it's too boring to go into.

Anyway sorry I got my figures so wrong. It's a good lesson to me to respect those who question me. And to always check my numbers. And to make sure that the 1.7% i'm looking at should really mean (.017 X .024) rather than (.017/.024). Look at the table, and you'll see where I screwed up.

Thanks, and apologies to RichM for suggesting he was mistaken when he was not.

yours,

swag

[newyawker99]

18. Hi swag!!

Welcome to DU!! :toast:

[TahitiNut]

20. Not true.

You say ...

This statement isn't correct. The increase in defense spending was not "the main force" behind today's GDP number. The increase in defense spending meant very roughly .04% added to GDP Growth, so without milspend increase, GDP growth would have been in the hood of 2.35%, still a much better number than had been expected and a definite improvement over Q1 (the unnoficial pre-war Dubya-dip).

This isn't true. Accompanying the quarterly GDP announcement by the BEA are various analyses, including "Table 2.--Contributions to Percent Change in Real Gross Domestic Product." When we examine this, we find that Federal National defense expenditures contributed 1.69% to the GDP in 2Q2003 and the net of all government spending comprised 1.40% of the 2.40%. (The net quarterly change of $39.2 billion in defense is a sizable share of the $56.1 billion GDP change in chained 1996 dollars.)

Clearly, this is a huge part of the 'increased' GDP. Possibly just as interesting is the drain of dollars in foreign trade, with Imports exceeding Exports by even greater amounts. What do those foreign US dollars buy? Debt instruments, particularly T-Bills.

(See http://www.bea.gov/bea/dn1.htm)


On edit: Oops ... I failed to read and comprehend your subsequent retraction. Sorry. We're on the same page, it seems.

[salin]

22. ? Are you talking about the trade deficit?

and t-bill would be considered a part of that number? Never realized that.

This would mean that we are increasing our trade deficit, in order to have the tools to deal with our national debt (interest payments). Ironic.

[TahitiNut]

24. I'm talking about ...

... imports and exports of goods and services. Exports of goods and services serve to increase the GDP (i.e. it's what we produce), while imports serve to decrease the GDP (i.e. it's what we consume but others produce). When we import goods and services, we're "exporting" dollars. When those dollars are used to buy our goods and service, they're shown under exports. Thus, an incresing negative difference between imports and exports indicate that dollars in foreign accounts are being used, not to buy goods and services (which shows in the GDP) but in buying equity and debt instruments (which don't show in the GDP).

Did that help or merely increase the confusion?

[JCMach1]

25. note 2.4% is not the final number... the Bush administration has been

notoriously high on initial estimates. It could still be 1.5%

[sweetheart]

15. Also, therez foreign currency equivalents

The GDP discussion is microeconomic (within one economy), yet if we took a trade-weighted foreign-currency valued US economy, i wonder if we have not actually seen the US economy contract?

The dollar is down by over 10% against the euro. That drop is real for 380 million people and to those 380 million, the us economy contracted in value.

I'm sure this is too "global" to critisize a domestic economic study, but i'm curious....

[Composed Thinker]

17. How will this affect the campaign?

This won't help the economy in the long run, specifically when the campaign is in full swing?

[DemocratSinceBirth]

19. Why Didn't Anyone Mention In This Thread

that 2.4% GDP growth is anemic by historical standards. Economists agree that the GDP must be growing in excess of 3% for unemployment to go down.

Also, we'll see if this growth can be sustained since the government has already made a big increase in defense spending. Also, interest rates are backing up. This will slow the housing and refinance markets.

All said, if the economy improves substantially it will be difficult for the Democrats to recapture the White House.

[Az]

21. When a person gets cancer the GDP goes up

When a forest falls the GDP goes up.

When a war breaks out the GDP goes up.

When oil is spilled the GDP goes up.

This is no way to measure the quality of life.

[TahitiNut]

23. The detail, however, can be enlightening.

For example, the $1,213 billion we're all spending on 'Medical Care' is higher than either the $1,111 billion we're spending on Housing or the $1,075 we're spending on Food.

As another example, when we see decreases in spending on "Nondurable Goods" like food and clothing along with increases in spending on "Durable Goods" like cars and furniture, it strongly suggests that the gap between the "have's" and the "have not's" is increasing. Clearly, increased spending on "Durable Goods" isn't trickling down to domestic labor.