Posted by: graemebird | June 4, 2008

GDP Up First Quarter/A Total Disaster/ Automatic Destabilisers

Here’s the bad news which will lead to perverse policy in a collapsing economy:

Australia GDP growth exceeds expectations – International Herald Tribune

SYDNEY: The Australian economy grew by more than expected last quarter, helped by spending on infrastructure and defense, while the consumer held up surprisingly well in the face of high interest rates and surging living costs.

The unexpected resilience suggested that the Reserve Bank of Australia might yet have to tighten further to truly cool demand, sending the Australian dollar higher and bonds down.

Gross domestic product, or the value of all goods and services produced in the economy, rose 0.6 percent in the first quarter from the fourth, when it grew 0.7 percent.

That was double the market forecast and a big surprise to many as the monthly data had been painting a much weaker picture. Growth for the year also slowed only moderately to a still robust 3.6 percent, well above the 2.8 percent pace expected.

“While private demand has slowed, the overall economy is proving more resilient than many assumed,” said Su-Lin Ong, a senior economist at RBC Capital Markets.”

“This will only reinforce the RBA’s tightening bias,” she added, referring to the central bank. “If rates are going anywhere this year, it’s up.”

>>>>>>>>>>>>

THIS IS SUCH A DISASTER. While GDP still grew in reality the economy was dying. Now I don’t have the business-to-business spending and do not know how to find it. Its would probably take a long time for me to get hold of all the figures that were released this very day. 

The GDP figure is not merely sub-optimal for quarter-to-quarter comparisons. It is OUTRIGHT PERVERSE.

This is GDP.

GDP equals Consumer-Spending plus NET!!!!!-investment plus Government Spending plus Exports minus Imports.

But for the economy to stay healthy its GROSS INVESTMENT that needs to keep growing slowly. Certainly in nominal terms. But to have a more and more powerful economy we also want GROSS PRIVATE INVESTMENT (aka Business-to-Business-Spending…. aka PRODUCTIVE EXPENDITURE) to be growing larger in terms of the total economy.

GDP=C+(NET)I+G+X-M 

whereas 

GROSS DOMESTIC REVENUE=C+(GROSS)I+G+X-M

Now supposing Gross Domestic Revenue is frozen. Supposing its frozen at about three trillion AUD. Well under that situation if Government spending increases it may well increase GDP. But if GDR is frozen at three trillion that extra Government spending will eat into GROSS INVESTMENT. Hence it in no way helps the health of the economy during a monetary crunch. In fact it hurts.

But thats not what the Reserve Bank will be thinking. The Reserve Bank will be thinking that the economy is still robust. And so that they will not be realizing that they ought to flush a huge amount of cash into the scenario.

Now the press is saying that this growth came out of higher than expected government spending. The article says it came out of extra defense spending and infrastructure. These are good forms of spending in context but they are hardly evidence that the Business-To-Business spending isn’t dying or about to die. We would have to say that they are an ARTIFICIAL boost to GDP if people assume that GDP is any sort of barometer.  But for quarter-to-quarter comparisons GDP is a totally perverse barometer.

>>>>>>>>>>>>>>>>>>>>>>>>>>>

AUTOMATIC DESTABILIZERS

Now I don’t know what the breakup is with all these stats. I don’t get the time to chase them up, and worst of all the Feds don’t even compile the figures THAT I WANT AND THEY NEED.

But if business-to-business spending is dying in the arse, as I am assuming, then it might be that some fairly sizeable amount of the government spending comes from “automatic stabilizers” which are in fact automatic DESTABILIZERS if we are relying on the recovery of PRODUCTIVE EXPENDITURE (business-to-business spending) to get us all out of this shit.

Supposing you have a hard-working new migrant with 5 young children working casual. And he’s typically pulling two shifts a day, for about 30 shifts in the month. But he’s already signed up with Centrelink for family support payments on account of the difficulties he had on arriving.

Now when business-to-business spending (PRODUCTIVE EXPENDITURE) dies in the arse he may be down to 10 shifts per month. And suddenly the family payments kick in.

This is a lifesaver for our hypothetical guy and his family. And I’m not begrudging him the money in the hard times we will be going through if he thinks of it as simply reconstituting the taxes he was forced to give up when he was running 30 shifts in the month. But its not an automatic stabilizer as conventional economics wrongly contends. Its a further drain on resources that might otherwise go to PRODUCTIVE EXPENDITURE (business-to-business spending) and if the economy is in trouble its only the recovery of THIS ONE SPENDING CATEGORY that can bail us out of it.

So I don’t know how much this perverse measure of GROSS DOMESTIC PRODUCT was boosted perversely by the economy starting to die… releasing these automatic destabilizers. And I don’t know how much of it came on the backs of needed defense and infrastructural spending. And I don’t know whether the Reserve Bank has done the right thing and pumped up the monetary base in the MONTH OF MAY.

But none of you ought to be thinking that this boost to GDP is a good omen for the health of the economy.

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Responses

  1. You gotta lot of poo-poo admirers cuz. something your not telling us about in case the cozzie bros cover their asses next time you come around?

  2. GDP is for Keynesians Mark. get that thru that STOOOPID head of yours.

  3. Its likely just some leftist. And he aint doing anything much more than the economists are doing. Trying to distract people without coming up with an argument for the subject at hand.

    Its a bit of an eye-opener as to how the stupid stuff still has legs. Its like conservatives allowing themselves to be herded like cows.

  4. whats Mark’s problem?

    and this fella has a PhD????

    its obvious business to business spending captures all of sustainable value in the economy. none of these keynesian animal spirits JIVE which is what GDP is

  5. GDP is a Keynesian construct shit-for-brains.
    Since it ignores the importance of CAPITAL and places all the explanation on the animal spirits of big spenders.

  6. No lying on this blog, Mark. This aint catallaxy


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