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US economy’s artificial growth

James Bianco has an interesting post over at The Big Picture, entitled, "How much economic growth is 'artificial'?" The answer: a lot.

Bianco highlights the findings from the recent Congressional Budget Office report, Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2010 Through March 2010. He concludes that, of the past seven quarters, only in the fourth quarter of 2009 would the US economy have shown positive growth without the benefit of stimulus spending. Reported GDP was positive in the third quarter of 2009, and the preliminary results for the first quarter of 2010 were positive, but in both cases the growth is entirely accounted for by government spending. Bianco writes:

Let’s be clear … real growth means standards of living are advancing.  Real growth means that economies are being more productive and real useful jobs are being created.  Government stimulus is an attempt to manipulate growth statistics via inefficient and wasteful government spending.  Stimulus does not advance standards of living.

I would qualify that statement. The stimulus has (and will) largely provide only a short-term boost, primarily to consumption. Government spending can have an impact on longer-term growth if it is spent on supporting productive industry, e.g., if spent on infrastructure and research. The problem with the Obama administration's approach was that two-thirds or more of the spending did not take a more productivity-enhancing form.

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