For a few days, ever since the supposedly amazing GDP report from quarter four 2023, we’ve been blasted by the media about how great the economy is doing. It’s exasperating because these claims do not fit with human experience. Last we heard from the Census Bureau, real income is down, and no one doubts it. Everyone has felt strong downgrades in living standards over these last four years.
And yet, no recession has been declared. This is for technical reasons. A recession is supposed to show up in the technical reading of the GDP plus unemployment. We’ve known for years that the unemployment data is broken. It does not account for labor dropouts or adjust for multiple job holders or otherwise reveal anything about labor participation or remuneration. Unemployment is technically low but so what?
As for GDP, it is not a measure of the standard of living or even economic growth. It is a measure of output—stuff going on as measured in dollar terms, whether necessary, productive, society serving, efficient, or not at all. The aggregate was concocted at a time when economists believed that spending was itself productive, whether it flowed from a sustainable capital base or government itself. Anything moving and churning was regarded as good.
When the latest report came out and everyone cheered, I dug around the data a bit but figured I would wait for my favorite analysts to weigh in. Sure enough, Peter St Onge writes it up and it is a doozy. “Fresh GDP numbers came in and it was a blowout. The kind of blowout that only a $2.7 trillion government deficit can buy while the private economy crumbles around it. Another couple blowout GDP reports like this and Americans will be living under an overpass.”
The essential ruse comes down to unfathomable amounts of government spending that is being recorded as productivity and output, and interpreted by media as growth. “In the past 12 months the federal deficit increased by $1.3 trillion. Yet we only got half that in GDP—about $600 billion. In other words, everything else shrank. It’s even worse for that brave and stunning Q4—there we got just $300 billion in extra GDP for—wait for it—$834 billion of new federal debt.”
