What a shock. U.S. GDP is not growing at 3.5% per year, as originally reported, and celebrated with much fanfare from President Obama about how the stimulus program was working. It is not even growing at the revised 2.8% annualized rate reported a couple of weeks later. The latest re-revised figure is 2.2%.
Nearly the entire 2.2% annualized growth, or 3rd quarter growth of 0.55%, is driven by the cash for clunkers program, the government spending program (also called the stimulus program, but I have a big problem with that particular name), and the extended tax credit for first time home buyers. Which means that this increase in GDP is not only entirely temporary and fleeting, but will cause lower GDP later. The cash for clunkers program did not create more overall demand for cars; it simply pulled some of the future demand for a new car into today, all the while wasting millions of tax dollars on administering the program, and putting some dealerships out of business in the process. The spending program simply shifted profits from businesses to support other segments of society, all of which is temporary and destroys the productive capacity of the economy for many periods to come. The extended tax credit to first-time home buyers is a real head-scratcher. A curious time to redistribute funds from the producers in the economy to finance a program which lowers the cost to those home buyers who would not have the funds to buy a home in the first place....second wave of home mortgage foreclosures, anyone?