posted on June 30, 2010 01:24
It is a confusing economic landscape for U.S. residents. On the one hand, they witness improving GDP numbers. The government tells them this constantly through mouthpieces like Christina Romer or other White House spokespersons. On the other hand the fortunes of Main Street are just as troubled as ever. Heck, even a 14-month stock market rally seems to have fizzled.
One thing that is NOT confusing is what GDP measures. GDP measures spending which is NOT necessarily economic growth. Here is an example of how spending is not growth. Last week, the government's Labor Department reported that non-farm payrolls grew by 431,000 jobs in the month of May. The President and his team glowed. On the surface, it seems the labor figure is something of which the Obama administration should be proud. The reality was that only 41,000 of those positions were created in the private sector while the Census Bureau alone accounted for 411,000 new jobs. Census Bureau positions are temporary engagements.
The latest employment statistics are not indicative of a recovery. Nobody, of course, wants to use the "D" word (depression) to describe our economy. Superficially, the "D" word may not accurately describe the economy. Increased government spending, financed by unprecedented borrowing assuaged the impact of the great economic contraction. It is also difficult for policymakers to accept the "D" word since the most recent episode of this was 80 years ago.
An increase in the size of government payrolls is not a prescription for economic growth. Government, at its basic level, produces nothing. When someone is added to a government payroll the private sector must provide the tax base to fund the addition. For all the criticism of Greece and their bloated public sector, the U.S. need only look internally to see a similar condition. A story in Businessinsider.com highlights 10 states where 16% or more of the population work for government. You would be surprised by some of the states on the list (Hint: California despite its troubles is not one of them).
Troubles abroad, particularly in the Eurozone, have temporarily shifted focus away from some of the mammoth fiscal problems in the United States. Let's buckle our seat belts when the monster turns back towards us.
Jim Mosquera publishes The Sentinel Economic and Financial Newsletter.