Dan Calabrese

Growth is good. It certainly doesn’t mean every economic problem is solved, but growth is good, and the government reported today that the gross domestic product grew 3.6 percent in the third quarter.

Long ways to go.

That’s the first time the economy has grown since the third quarter of 2008 – a fact that will confuse people who read the nonsense in the Associated Press about the recession starting in December 2007.

There’s a necessary reality check when you consider the difference between the growth rate and the actual value of the GDP itself.

According to the Bureau of Economic Analysis, in 3Q 2008, the total value of the GDP was $14.54 trillion. It’s been declining ever since, so even with the growth in 3Q 2009, it’s only $14.30 trillion. That’s lower than the GDP in 4Q 2008, when everyone viewed the economy as in a freefall.

This is one of the maddening things about the way the mainstream media, especially the AP’s astoundingly incompetent Jeannine Aversa, covers economics. They’ll tell you if the GDP is growing or contracting, but they won’t tell you what it actually is. I’ve used this analogy before, but imagine if you were watching a baseball game and a player came to bat, prompting the announcer to tell you, “His average is up 3 points,” but not telling you what his average actually is.

You’d have no way of knowing if he’s hitting .300 or .200, which is kind of an important detail. The way Aversa and most other economics writers report on the GDP is much the same, which makes it largely useless.

At any rate, no one should scoff at growth. It at least puts us in a better position the overcome the problems that remain – and the problems are many.

For starters, unemployment is now 9.9 percent, and it looks like it’s headed as high as 10.5 percent at some point next year. In addition, the gargantuan deficit of $1.4 trillion – as currently projected – not only increases the nation’s debt load, but has an immediate effect on federal spending because it boosts the amount we need to spend paying interest on the debt.

I’m watching CNN as I write this, and their analyst is offering the usual spin that this is all because of government action – even crediting Cash for Clunkers for bringing about the growth. (If that’s true, which it almost certainly isn’t, the economy is in trouble in the fourth quarter because all Cash for Clunkers did was move up purchases people would have made anyway, while nearly bankrupting a lot of car dealerships.)

Even more alarmingly, banks are still carrying many of the toxic assets that the TARP fund was designed to clear out, because TARP quickly turned into an all-purpose bailout fund, as the Wall Street Journal noted on Monday.

And of course, with unemployment so high, consumers are going to have less discretionary cash to spend, which puts the prospects for sustained recovery on a very shaky footing. Besides, with consumer debt so high, it’s probably not the most rational decision for many consumers to go hog-wild with spending, no matter how much the government may want them to so the GDP numbers will continue rebounding.

To some degree, activity has to snap back just because that’s the natural order of things. All those houses that are sitting around have to sell at some point. Companies who have been holding back on factory orders are going to need some goods, or else they won’t be able to operate anymore. That’s why the economy never freefalls as far or as long as people sometimes think it will.

But we still have huge structural problems in the economy, especially those related to both public and private debt – not to mention long-term, unfunded entitlement obligations – and a one-quarter rebound, while good news, is a pretty tiny step toward the kind of sustained, robust growth that will be necessary to support all these obligations.

Become Dan’s friend on Facebook.

Become a fan of The North Star National on Facebook.

To book Dan as a speaker, contact Lourdes Swarts at Speakers Access.

14 Responses to “Economy grew 3.5 percent in third quarter, but GDP is still less than 4Q 2008”