The GDP figures released yesterday, indicating a surprising 3.5% growth in the third quarter, are largely a combination of (1) adroit sleight of hand, and (2) non-free-market economic manipulation.
The American economy is primarily being fueled by enormous government deficit spending, which by nature cannot be sustained. It’s all part of an all-too-familiar pattern. When the left takes over an economy, growth usually moves in unnatural spurts as the government spends money it doesn't have. Then comes the hangover. It may take a while to set in, but once it does, it’s fierce.
In 1971, the first full year after Allende was elected in Chile, the Chilean GDP grew by nearly eight percent. Then the house of cards began teetering and the country slid into chaos, ultimately resulting in a military coup.
I'm not saying America is in for anything even remotely similar, but the important lesson to be learned from Chile’s myopia is that initial GDP figures following a dramatic leftward swing in leadership don't prove that socialism works. There is no avoiding the dark destination that will result from spending what we don’t have and funneling those funds into non-free-market ventures. That particular road is well-traveled, well-marked and littered with bodies. We will never return to anything even remotely resembling genuine prosperity as long as we abandon free market principles and focus instead on a well-oiled printing press intent on providing handouts to a long line of special interests.
Take a look at the current categorizations of unemployment:
U1: Percentage of labor force unemployed 15 weeks or longer.
U2: Percentage of labor force who lost jobs or completed temporary work.
U3: Official unemployment rate per ILO definition.
U4: U3 + ‘discouraged workers’, or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
U5: U4 + other ‘marginally attached workers’, or ‘loosely attached workers’, or those who ‘would like’ and are able to work, but have not looked for work recently.
U6: U5 + Part time workers who want to work full time.
The recently released figures show that unemployment continues its march -- yet another 520,000 Americans got pink slips last week. The government accountants are conveniently using the U3 numbers and ignoring all others.
Because of this unrealistic procedure, they are conveniently able to keep the unemployment rate at 9.8%, even though every week we have another half million new filers. If we include those who have dropped off the rolls, or who have taken part-time work (i.e., if we use the U6 numbers), unemployment sits at 17+%. Hardly a sign of economic recovery by anyone’s rational measure.
In this latest GDP quarterly report, Cash for Clunkers caused a temporary spike, but what we are witnessing is a lagging indicator. The same is true of the $8,000 tax credit for first time home buyers.
If we want to examine a real leading indicator, how about considering the fact that GM is looking for yet another (count ‘em ... that would make three) government bailout. Hmmmm ... could that be because Cash for Clunkers provided merely a temporary artificial boost, and, going forward, more and more taxpayer-funded auto-maker crutches (green ones sporting the bearded faces of old American leaders) are in the offing?
Retail outlets are already starting Black Friday door-buster sales … in October. For retail to be attempting to attract money that people plan to spend on the holidays before Black Friday is virtually unprecedented. How’s that for a leading indicator?
State and local governments are out of cash.
The housing market, while receiving a temporary boost from the first-time-buyer tax credit, has continued its decline.
Commercial paper is in the process of collapse.
Workers who thought their traditionally-safe jobs would continue to be so are finding themselves furloughed and laid off, and their former employers are not refilling those positions.
The container shipping industry has fallen off a cliff. Packaging sales are down significantly. Unless I am unaware of some kind of new ‘packaging technology’, one still needs boxes to pack and ship stuff.
Transportation (primarily shipping, railroad and trucking) are all down as well. Unless companies are hiring mules or hefty carrier pigeons on the sly, it looks as though very little in the way of nuts and bolts are moving anywhere these days.
All of the current ‘robust’ GDP data simply proves one thing (irrelevant, unless you’re into number tricks): that future demand has been successfully pulled into present figures. However, the success of this revolutionary kind of accounting has effectively evaporated any real hope for a genuinely improving economy in the near term.