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01 February 2013

Left Says GDP Contraction of 4th Quarter of 2012 Due to Government Austerity

We are being told that the reduction of the GDP by 0.14% in the Fourth Quarter of 2012 was due to a decrease in spending by the federal government.  What on earth are they talking about?

Here is current federal government spending by quarter at the annual rate with seasonal adjustment going back to the 4th Quarter of 2010 according to the St. Louis Federal Reserve Board:

2012 4th Quarter: $3,765.2 billion
2012 3rd Quarter: $3,760.6 billion
2012 2nd Quarter: $3,774.8 billion
2012 1st Quarter: $3,723.6 billion
2011 4th Quarter: $3,716.8 billion
2011 3rd Quarter: $3,743.3 billion
2011 2nd Quarter: $3,830.6 billion
2011 1st Quarter: $3,737.1 billion
2010 4th Quarter: $3,756.3 billion

Federal spending went up very slightly from the 3rd to the 4th Quarters of 2012, not down as we have generally and widely been misinformed.  What is more, going all the way back to the 4th Quarter of 2010, the rate of government spending has been relatively flat.

When government spending rates change, there are direct changes in the GDP because that figure includes all government spending.  But no change in government spending, or a very small increase as shown here, should have no effect on the quarter by quarter GDP, except that of an accumulating wearing down of the private sector growth by discouraging investment due to excessive extraction of wealth and income from the private sector.  That and the increasing effect of laws and regulations harmful to business and investment is surely what really caused the 4th Quarter contraction in 2012.

One really has to wonder at the remarkable dishonesty of the story we are being told by the left and the media outlets they control.

It makes more sense to monitor the Disposable Personal Income (DPI) as a measure of the economy's health, since that does not include the money spent and largely wasted by government.  According to the Bureau of Economic Analysis, the DPI for the last quarter of 2012 increased by 1.3%.

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