You couldn’t have timed that better. The Donald managed to hold on to a “2” in Friday’s GDP report, but it was entirely due to a boom in government spending.
We’d call it a kind of stick save that came, ironically, the very day Trump is planning to sign a $1.7 trillion budget abomination. The deal negotiated with Pelosi and Chuckles Schumer, and voted against by a large majority of House Republicans, shit-cans the decade-old discretionary spending caps and permits unlimited Federal borrowing through June 2021.
So who needs Hillary? Or even Barry!
As it happened, the 2.035% seasonally adjusted annualized growth rate for Q2 made it over the hump by a smidgen on the strength of an aberrant 0.85% contribution to GDP growth from the government sector (federal, state and local).
The latter figure compares to a 0.24% average contribution from the government sector during the Donald’s first nine quarters in office. So if you merely adjust for the excess contribution (0.61%) from government, you would have had an even more punkish 1.43% headline GDP growth rate this AM.
Then again, it is only through the miracle of Keynesian GDP accounting that economic waste on defense and domestic pork barrels or extractions from taxpayers to fund bureaucrats’ wages and other purchases count as “growth”. Self-evidently, when the state becomes corpulent like at present, it undermines prosperity and the rudiments of real wealth gains.
And that gets us to where the Donald is really leading the nation – and it surely is not MAGA. Better to just recycle those red baseball caps and slap on the letters for MABA. Today’s GDP report is just one more reminder that Make America Broke Again is the actual path ahead.
The truth is, the Donald, who is fiscally and economically ignorant, and his advisors who are stupid (Mnuchin) or charlatans (Kudlow and Hassett), are perpetuating a cruel hoax. Namely, that “growth” at this late stage of the business cycle can forestall fiscal disaster.
But when you are in debt to the tune of $22 trillion nominally, and actually $42 trillion when you consider what is already hardwired into the budget over the next decade, even 1960s style growth (4% + real GDP gains) couldn’t move the needle much.
Needless to say, the Q2 GDP report put the kibosh on even that delusion. If you look at real final sales in order to remove the short-run inventory noise (destocking actually reduced headline growth this quarter), it is damn evident that the sugar high is over.
The 1.8% gain over the 12 months ending in June, in fact, is the lowest rate of gain since Q2 2014. And as the chart makes clear, there’s simply no basis for the claim that the Trump-O-Nomics has caused a sustained acceleration of growth.
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