This week the government changed the way it measures the size and growth of our economy. Its new figures deliver a clear message, one that reinforces President Obama’s recent emphasis on shifting away from deficit mania and focusing on jobs.
If you don’t want to review the data yourself, we’ll get you through it all in ten easy steps:
1. This is a better way to measure the economy.
These changes make sense. Previous measurements didn’t include investment in research and development or intellectual and artistic efforts, both of which have an essential role to play in our national destiny.
These new figures, from the Commerce Department’s Bureau of Economic Analysis (BEA), are a better way to measure the economy.
2. These changes have some interesting effects.
Adding the value of intellectual creations to the total size of our economy leads to some unexpected results. As the Financial Times reported, Seinfeld has earned $3.1 billion in syndicated reruns since the show ended its original broadcasts in 1998.
Those earnings will now be included in the nation’s GDP, in a category known as “artistic originals,” along with books, movies, music, other television programs, and other copyrighted materials. They’re calling it “the Seinfeld effect.”
The new methodology will also change the way pensions are included in the GDP. It’s technical, but they will use a technique called “accrual-based accounting” to calculate … yada yada yada …
What? Oh, I get it. You’re still thinking about “the Seinfeld effect.”
3. The economy’s bigger than we thought.
The value of this intangible capital adds roughly 3.6 percent to the total Gross Domestic Product (GDP).
4. Which means that government deficits are even less of a problem than we thought.
Washington’s deficit hysteria has been misplaced from the start. European obsession with austerity economics caused that continent massive economic harm (and actually increased European deficits.) The flaw in this thinking’s become even clearer as the national deficit has continued to fall, from over 10 percent of GDP in 2009 to a projected 4 percent for the current fiscal year.
If it ain’t broke, don’t fix it.
And those are the old numbers. With these new calculations, the GDP is understood to be larger – but Federal spending isn’t. So the Federal deficit as a percentage of GDP – a ratio that’s raised alarm in certain circles – is even smaller than we thought.
5. They’re saying the recession wasn’t as bad as originally thought …
A number of news reports about the new calculations led with the idea that the recession wasn’t as severe as we thought, and that the recovery’s been slightly better than we thought.
That’s true – on a macro level. But with growing wealth inequality, that doesn’t change the reality for the majority of Americans. A lot of people are hurting, and nothing in these calculations changes that.
6. … it was still enormous.
This was still a devastating downturn, the most severe in modern memory. A record number of people are seeking work, and the number of people living in poverty has skyrocketed.
This is still a national economic emergency for tens of millions of Americans.
7. We need more government spending.
Growth for the first quarter of 2013 was revised downward to a miserable 1.1 percent, driven in large part by reduced government spending. Initial figures for the second quarter, which were released today, were better than expected at 1.7 percent. That is, however, still an anemic figure.
One reason growth was better than expected is that government spending didn’t drop as quickly as projected. It did drop, however, and that hurt the economy.
(Non-residential and residential investments also helped on the growth side, as did rising inventories and slightly better-than-expected consumer spending.)
8. We need more demand.
Consumer confidence, which had been rising, declined this month. Consumers believe they’re cutting back, even though spending has actually increased, which suggests pent-up demand. And since rising home prices account for a large chunk of that increased spending, they’re probably right.
Consumer spending is a large part of the US GDP, compared to other developed nations or to earlier decades in this country. We need consumer confidence and consumer spending if our economy is to grow.
9. The weak link is Federal spending.
What will get us there? The first and second-quarter numbers tell the story: Federal spending is a key engine of the economy in times like these. Instead of cuts, we should invest – in good jobs. That will increase consumer spending and consumer confidence.
10. That means the President is right to be talking about jobs.
The President’s been emphasizing job creation over deficit reduction recently, and that’s the right way to go. In fact, it’s the only way to go.
The sequester’s still taking a sledgehammer to the economy. If Federal spending changes are taken out of the calculation, second quarter growth would have been 2.2 percent rather than 1.7 percent. We’re shooting ourselves in the foot with spending cuts, even though the deficit’s far smaller than we expected or believed.
And yet Republicans are still ignoring reality. They’re trying to extend and even double down on the sequester’s destructive spending cuts, despite the economic evidence – and despite our crumbling infrastructure. It’s time to invest in jobs, as well as roads, highways, bridges, and schools.
As Alan Krueger, Chairman of the President’s Council of Economic Advisors, wrote today on the White House blog:
“The fact that declining federal spending continues to be a drag on economic growth is another reminder that now is not the time for Washington to impose self-inflicted wounds on the economy.”
That message can’t be repeated enough in the days and weeks to come.