The GDP data for 2011 is out. It is bad news for the American people. And it is scathing evidence that Obama’s and the Democrats’ big-government spending policies, including the ARRA “Stimulus bill”, have been a complete disaster and a reckless waste of money.
Year-to-year growth, from 2010 to 2011, was a minuscule 1.7 percent, adjusted for inflation. This number alone shows that the enormous deficit-driven government spending since 2009 has done absolutely nothing to put the economy back on track. The private sector is in as big a mess as it could be. Business investments, which according to established theory and historic evidence should be recovering by now, are almost in a state of depression.
The echoes of the stimulus bill are bouncing off the walls of empty office buildings and closed-down factories across America.
A closer look at the variables behind the GDP figure reveals more details about the deplorable track record of the Obama administration’s fiscal policy.
Private consumption, the main indicator of household prosperity, increased by 2.2 percent. This is well below the long-term average of 3.1 percent per year and shows that Americans have not re-gained confidence, or income, enough to grow their standard of living. This is supported by the fact that what drives consumption even at this modest growth level is purchases of durable goods. These are one-time purchases, often on credit, which go up in recessions and then flatten out in better times. In 2011 our purchases of cars, appliances, home electronics, furniture, etc., increased by 8.1 percent, which is almost the same number as in 2002, in the midst of the Millennium recession. At the top of a growth period – in good economic times – our consumption shifts more toward services.
If the consumption pattern tells us that we are still in a recession, the numbers on gross private (business) investments scream of bad times. Investments fluctuate and they tend to be procyclical, meaning that a downturn in investments is a harbinger of a recession. By the same token, a strong recovery in investments hints of better times. This is not the case this time. Even though American businesses increased their investments by 17.9 percent in 2010, they scaled back dramatically in 2011, producing an increase of only 4.7 percent.
To put this in perspective, there has been a very dramatic decline in business investments in America over the past 7-8 years. In inflation-adjusted dollars, American businesses spent as much on investments in 2011 as they did in 2002! In other words, this recession has added insult to injury: it came on top of years of business-hostile policies coming out of Congress and the White House.
There is yet more evidence in this GDP data of the bad business climate. So called fixed investment is up 6.6 percent in the last year, but that is only and exclusively because businesses have increased their spending on equipment and software by 10.3 percent, or 26 percent in two years. Investments in structures – such as offices, manufacturing facilities and warehouses – is down 12.4 percent since 2009. The comparison to ’09 is relevant since that was the year when the recession was supposed to be officially over. The fact that structural investments are not recovering faster is face evidence that businesses are still pessimistic about the future of the American economy, and about the overall business climate in America.
Equipment and software can easily be packed up and shipped overseas. An office building or a manufacturing plant will stay where you built it.
In fact, the business climate is so depressing in America today that investments are now down to 13.1 percent of GDP. In 2006, when the economy was in relatively good shape, business investments accounted for 17.2 percent of GDP. We are talking close to half-a-trillion dollars less being spent on business investments today compared to five years ago – and those are inflation-adjusted dollars.
But we are not done yet with investments. Residential construction, which classifies as private business investment, was down 1.4 percent in 2011. This is the sixth year in a row with falling home construction. We spent $326 billion on building homes last year, half of what was spent in 2003 when we were just recovering from the last recession.
And now, let’s put the final touch on Obama’s macroeconomic track record. In 2010 the economy grew by three percent, which compared to 2011 was a pretty good year. But the main driving force behind that growth number was – you guessed it – government spending. In 2010 federal non-defense spending increased by a staggering 7.2 percent. That topped the 2009 figure of 6.5 percent. This is of course the visual GDP effect of the Obama administration’s ARRA “Stimulus bill”, which was supposed to boost the economy and bring it out of its recession. But if that was the case – if the stimulus bill actually had worked – then we would have begun to see a strong recovery in the private sector already last year. And we would definitely have witnessed a confident upturn in 2011.
That did not happen. For 2011 federal non-defense spending fell by 1.2 percent, with overall government spending (defense, state and local added) down 2.1 percent. At the same time, there is no discernible private economic activity there to pick up the slack. Businesses invest lopsidedly in easy-to-move equipment and shy away from long-term commitments; consumers make occasional durable-goods purchases on credit; and no one seems to have the confidence or money to buy a new home.
Obama and his statist buddies in Congress have now had the opportunity to use America as a full-scale macroeconomic laboratory to test their big-government spending theories. Evidence is glaringly obvious: it did… not… work. Let’s make a note of that, once and for all, in our history books, so we never have to go through this mess again.