Thursday, August 28, 2003

The revised GDP figures for 2003:II came out today, and on the face of it, the US economy was clipping along quite nicely this spring.
Gross domestic product, or GDP, grew a revised 3.1 percent in the second three months of the year, the Commerce Department said -- a figure broadly in line with Wall Street expectations for a 3.0 percent gain. That was up from the 2.4 percent rise estimated a month ago and followed anemic 1.4 percent growth in each of the two prior quarters.

It was the fastest expansion since the third quarter of last year and is likely to bolster hopes for strong growth in the current quarter.
As many regular readers know, the General blogged on July 31,
Also, did somebody say "military Keynesianism"? The General reported today that the #1 contributor to the US GDP rise in 2003:II was federal defense spending. Let's pretend that the US had had no war in Iraq and defense spending had stayed steady. In 2003:I it was $409.7bn (in chained 1996 dollars), so let's plug in a nice round figure of $410bn of imaginary defense spending for 2003:II (for those of you keeping score at home, the real number was $448.9bn).

Lop off the $40bn difference and what do you get? A 0.67% growth rate in 2003:II!!
I revised my number crunching in light of the likelihood that some of these billions would have entered into the economy anyway, and thus on August 6 the General said
While probably not all the $45.6bn was generated out of 'thin air' (through foreign borrowing or printing money), a goodly proportion certainly was. If just half of it came into GDP this way -- say, $23bn -- that would mean GDP growth in 2003:II without the occupation would have been a mere 1.5%. Surely this is a conservative estimate as well.
With the revised numbers out today, things still look unbalanced.

In current dollars, US GDP rose $105.5bn in 2003:II. Of that, $47.5bn was in national defense. As a first (simplistic) cut, US GDP in the second quarter without the Iraq war/occupation would have risen not 3.1% but 1.38%. As a second (more sophisticated) cut, assuming only half of the defense contribution to GDP came from foreign borrowing and growth in the money supply -- a conservative estimate in the General's opinion -- second quarter GDP would have risen just 2.23%

Now I grant you, 2.2% is better than the 1.4% of 2002:IV and 2003:I. That being said, it's still a pretty anemic level of growth.


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