Sunday, October 28, 2018

Bill Mitchell — US growth robust but doubts remain

By way of falsehood, the WSJ said that:

It’s clear that the Republican policy mix of tax reform, deregulation and general encouragement for risk-taking rescued an expansion that was fading fast and almost fell into recession in the last six quarters of the Obama Administration. The nearby chart tells the story that Mr. Obama and his economists won’t admit. Soaring business and consumer confidence have been central to this rebound.
The ‘Chart’ in question was just the Quarterly percent change in GDP from Q3 in 2015 to Q3 this year (see below for my version of the graph).
As you will see below, the data does not support the claim that business has rebounded because of a “mix of tax reform, deregulation and general encouragement for risk-taking”.
Most of the growth came from household consumption expenditure with solid contributions from the government sector. While the contribution from private capital formation was strong, it was mostly due to unsold goods (inventories) with fixed investment and residential investment dragging down growth.
This is contrary to the narrative that the WSJ is trying to confect....

By way of truth, the WSJ said that:

All the more so because Mr. Trump may soon face an economic challenge from a Democratic House, if not Senate. A tax increase would be near the top of Speaker Nancy Pelosi’s policy list, and she might use the need to raise the federal debt limit in 2019 to force Mr. Trump’s hand.
The Democratic obsession with ‘sound finance’ and its continual railing against the fiscal deficit and public debt is a massive danger to US growth, especially when one considers the point I noted before that the growth is being driven by the rising debt in an environment of flat business investment.
Seriously, the Democrats need to really rethink their approach....

Bill Mitchell – billy blog
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

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