America’s Tepid “Recovery”: Based on Consumption…?

During the first quarter of 2013, US GDP rose to $16 trillion after growing at an annual rate of 2.5%, up from 0.4% over the last quarter of 2012.

But consumer spending accounted for nearly 90% of the GDP growth over the first 3 months of 2013 with business spending on plant & machinery adding only 2.1%. Since business spending is a strong predictor of future hiring and wage increases, this is bad news for workers.

It turns out that consumption can never be the basis of sustainable economic growth since prosperity is based on the production of more goods rather than on consumption, per se. What is going on is that all this new consumption is enabled by monetary pumping from the FEDs “unconventional” monetary policies.

And monetary inflation has also provided excess liquidity that has been driven into assets that boost the net worth of the super-rich, thereby exacerbating inequalities in income and wealth. Those that anguish so much about disparities in income or wealth must understand that the blame falls squarely on central bankers rather than the market.

The US economy supposedly left its recessionary bottom in June 2009. Over the 15 quarters since, annualized GDP growth rate has averaged 2.1%, less than half the 4.4% average rate of the past nine recoveries.

With the current expansion generating subpar growth rates, unemployment remains high and real median household income is about $3,000 less than the end of the recession.

These dismal results are registered despite the best efforts of policy makers to “inflate” the US economy. Their response…?

More of the same!!!

And so, the federal government continues to run massive fiscal deficits that adds inexorably to public-sector debt. Of course, all this is facilitated & encouraged by the FED holding interest rates close to zero as well as acting as “buyer of first resort” of Treasuries.

Unfortunately, the basis of this ill-fated logic is the belief that consumption is the main driver of economic growth; this myth guides the manner in which GDP is measured & reported.

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About christopher

Content of "Natural Order" attempts to reflect the commitment of Universidad Francisco Marroquin to support the development of a society of free & responsible individuals. The principal commentator for this blog is Christopher Lingle.

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