Sunday, July 29, 2012
The Republicans have trumpeting the 1.5% GDP growth in the second quarter of 2012 as an example of a perceived failure of President Obama, but reality bites them in the end, as usual.
We all should know that the public sector is just as much part of the GDP as the private sector. Knowing this, we need to separate the two in order to see what is causing the slower than average GDP growth overall. It turns out that the private sector is doing alright, not fantastic, but alright.
In the first quarter of 2012, the private sector was growing at about 3.2% according to a report by Alliance Bernstein. The public sector on the other hand contracted 3.9% in this same quarter.
Over at the American Enterprise Institute, hardly a progressive or liberal think tank stated, “Maybe the private sector is doing fine”
“In the second quarter of 2012, “public sector GDP” decreased -1.44%, and that was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years.
In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.” according to AEI.
We also need to keep in mind the multiplier effect in regards to public portion of GDP and how it will increase private sector GDP. For example, a teacher making $50,000 a year spends 70% of his or her earnings in the private sector. When the teacher is no longer employed, her spending contracts which ultimately effects the local private sector where she lives.
Another aspect in government consumption. A local city that buys things, like cars, lights, desks, or even fencing for baseball fields purchase their stuff in the private sector. When this spending decreases, the GDP of the private sector decreases, which in turn reduces all GDP and hurts the economy.
So contrary to what the Republicans, Mitt Romney or your local conservative radio guy says, Obama’s private sector record is doing well. Obama has presided over an average of 3% INCREASE in private sector GDP every quarter since the recession ended.