Economic Good News... Or Is It?
Headline story: the US economy posted tremendous third-quarter growth, 3.8 percent. To quote the New York Times article:
"This is actually fairly amazing..." Joshua Shapiro, chief United States economist for MFR Inc. said...
That 3.8 percent growth in GDP is, of course, due to higher spending. Personal consumption, in fact, was up by 3.9 percent. I wonder, could the higher spending possibly have anything to do with the rising fuel prices that--just by pure coincidence--helped oil companies post the highest quarterly profits ever?
And is that spending really a good thing? Consider two other little items from the very same article--the one that characterizes the "strong" growth in an economy that "picked up speed." Disposable income is down and the personal savings rate is now solidly below zero:
- "Adjusted for inflation, disposable income fell 0.9 percent... Some of the drop was attributable to lost rental and business income on the Gulf Coast after Hurricanes Katrina and Rita lashed the region."
- "The personal saving rate fell into negative territory, minus 1.1 percent, from 0.1 percent. That indicates that people were paying for their increased spending by borrowing more money."
I hate to harp on the bad news, but those recent nuggets of trouble (suitable, of course, only to color the headline story that GDP is rising) are just the tip of the iceberg...
- The national poverty rate has risen for 4 consecutive years so that now 1 in 8 Americans lives in poverty.
- The number of people without health insurance coverage is steadily on the rise--by 800,000 last year--so that today 45.8 million Americans have no health insurance.
- Adjusted for inflation, the national median income has either remained unchanged or actually declined in every year since 1999.
- In October, the US Consumer Confidence Index fell to its lowest point in 2 years.
So someone please tell me, in the face of so many countervailing indicators--the sort of indicators that people actually experience--why is GDP growth still reported as the single gauge of economic progress? Why does GDP's growth merit favorable subjective characterizations like "strong"? And why, in the media's eyes, is "GDP" semantically equivalent to "the economy"?
UPDATE 10/31/05: Want to hear more bad news about the economy? According to Oregon Hunger Relief Task Force, new late-October data from the USDA shows..
...the fifth consecutive annual increase in the number of food insecure Americans nationwide. The total number of people living in food insecure households -- meaning those households that experienced difficulty purchasing food due to a lack of financial resources -- increased to 38.2 million in 2004.
Read the full USDA report here.
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