Fewer and fewer Americans believe Obama when he declares that “the recession is over” – with stubbornly high unemployment, record home foreclosures, and soaring food and energy prices, the public readily sees that objective reality is at odds with the Obama Administration’s claims.
But this apparent disconnect is a result of what many economists consider a flaw in how we define “recession” in the first place. Just as the “official” unemployment rate does not accurately reflect the true number of unemployed, the method for measuring the economy is also deceptive.
Currently, a recession is defined as “two successive quarters of declining GDP” – and Gross Domestic Product is the sum total of Business Investment, Consumer Spending, and Government Spending. In a healthy economy, Business Investment and Consumer Spending should both be roughly equal, around 45% each, while Government Spending should be about 10%, and never more than 20%.
But there are two major problems with this approach. First, GDP is measured in dollars, which means that a simple rise in prices (due to inflation, for instance) would show an increase in GDP, even though people bought fewer goods and services. This is most easily seen in the recent jumps in food and gasoline prices, which caused an increase in the total dollars spent, in spite of a decrease in the amount of food and gasoline that people consumed. In other words, if we corrected for the inflated prices of just these two commodities, we actually are in a recession, as the average person on the street has already recognized.
Second, by including Government Spending in the GDP, a real recession (a decline in Business Investment, Consumer Spending, or both) can be hidden by simply passing a massive increase in Government Spending. This is precisely what Obama and the Democrats did with the now-failed “stimulus” bill – it allows them to claim that “GDP is increasing” even though the private economy is contracting.
But the bigger problem is that all money spent by government is either first taken from the private sector (which reduces the capital available for investment or consumer spending) or it is simply printed by the Treasury, which ignites inflation. Flooding the country with paper currency reduces the buying power of the dollars in everyone’s wallet.
A more realistic measure of the nation’s economic health would be to take the sum of Business Investment and Consumer Spending and then subtract Government Spending. This not only give a much clearer and more accurate picture of the state of the economy, it would also help to prevent the kind of numbers chicanery that we are now experiencing.
John Caile – HAVEGUNWILLVOTE