IF LESS GOVERNMENT SPENDING LED TO SLOWER GROWTH…. Because the economic report was so widely expected, few seemed especially fazed by yesterday’s news that the economy grew by only 1.8% in the first quarter. But the explanations for the discouraging data are worth considering in more detail.
There’s near unanimity to explain why January through March was so much weaker than most of 2010: “Severe winter weather, a dip in defense spending and higher energy prices all slowed the growth of gross domestic product…. The good news is that economists consider all those factors to be temporary events that don’t pose a long-term threat.”
It’s the dip in defense spending that’s of particular interest.
A top economic aide to President Obama blamed reductions in government spending for a slowdown in U.S. economic growth in the first quarter.
Austan Goolsbee, the chairman of the Council of Economic Advisers, said that a slowdown in government spending was mostly responsible for the 1.8 percent growth in gross domestic product (GDP) between January and March, down from 3.1 in the fourth quarter of 2010.
“It was an expected slowdown,” Goolsbee said in an interview on Bloomberg television. “The biggest driver was a reduction in government spending at the federal level, a big negative from defense spending.”
As it turns out, that’s not just partisan spin from the White House — a reduction in government spending, most notably in defense, really did account for much of the slowdown in the first quarter.
Economist Karl Smith, who concluded that the GDP report isn’t as bad as the top line might suggest, noted that the reduction in public sector spending “knocked over 1 point off GDP.” In other words, 1.8% growth would have been over 2.8% growth were it not for less government spending. (Smith concluded, “The fundamentals still seem like they are shifting towards stronger growth.”)
I mention this, not only to provide some additional context, but also to
bang my head against my desk emphasize a point that seems relevant under the circumstances. If stronger economic growth is the goal, and less government spending led to weaker growth, then shouldn’t we prioritize public investment? You know, like, now?
It continues to astound me. We know the economy isn’t growing quickly enough. We also know that less government spending is directly responsible for weaker growth. And we also know that more spending, at least in the short term, would lead to stronger growth.
And yet, this isn’t even on the table. Indeed, Americans elected a House of Representatives that’s desperate to do nothing but take more money out of the economy, on purpose.