Friday, August 01, 2003

It took a few hours, but the wire services finally picked up on the General's observation that federal military spending is driving the 2003:II "recovery".
The strongest wave of federal defense spending since the Korean War helped fuel U.S. economic growth at a stronger-than-expected 2.4 percent annual rate in the second quarter, the Commerce Department said on Thursday. . . .

Spending on defense, much of it to support the war in Iraq, shot up at a 44.1 percent rate -- the strongest since 110 percent in the third quarter of 1951 -- after falling 3.3 percent in the first three months of the year. That accounted for much of the unexpected surge in GDP expansion.

"Without the voracious winds of government spending, the USS Economy might have been a rudderless dinghy," said Rich Yamarone, an economist at Argus Research Corp. in New York.
So let's return today to unpacking yesterday's GDP numbers.

In current dollars, net government spending and investment went up $33.6bn (all figures are in annualized terms). Federal spending went up a whopping $43.5bn while state and local government spending actually dropped $9.9bn. This was only the second time since 1976 that state and local government spending fell in nominal terms. The first time was 2001:III -- during the depths of the Bush recession. Looks like the George W. administration is a killer for state and local governments.

Of the extra net $43.5bn the feds spent or invested in 2003:II, all of it was in defense. Military spending rose $45.6bn while non-defense spending fell $2.2bn.

Let's come to the punch line.

The Bush administration spent an extra $45.6bn annualized in 2003:II on military spending. On a quarterly basis, that's $11.4bn.

In early July, Don Rumsfeld put a monthly price tag of $3.9bn on the occupation of Iraq. On a quarterly basis, that's $11.7bn, almost exactly the Iraq contribution to 2003:II GDP growth (amazingly, the war will likely prove cheaper than the peace!). We can look forward to many more military-driven "spikes" in US GDP in the quarters to come, I am sure.

Without empire, this economy would be virtually stagnant. Recall yesterday the General computed that without this imperial boost, the US economy would have grown an anemic 0.67% in 2003:II.

In 1895, the famous British imperialist Cecil Rhodes said, "The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists."

Words to ponder.


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