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Brian Maher


“The U.S. economy grew at [a] blistering 3.3% pace in Q4 while inflation pulled back.”

CNBC cites the latest economic data, issuing this morning from the Department of Commerce.

Continues CNBC:

The economy grew at a much more rapid pace than expected while inflation eased in the final three months of 2023, as the U.S. easily skirted a recession that many forecasters had thought was inevitable, the Commerce Department reported Thursday.

Gross domestic product, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023, according to data adjusted seasonally and for inflation.

That compared with the Wall Street consensus estimate for a gain of 2% in the final three months of the year. The third quarter grew at a 4.9% pace.

Just so. We nonetheless remain skeptical of today’s economic news.

We remind you that numbers can conceal more than they reveal. They often spin wondrous tales… and tell fantastic lies.

Like a Hollywood movie set… a false set of teeth… or a toupee… the numbers are not often as they appear.

Let us then expose the numbers to sunlight. Let us haul them up for interrogation.

The Sources of Q4 Growth

What are the sources of fourth-quarter economic volcanism?

What are the Mount Venuviezes of the fourth-quarter gross domestic product?

The answers — we are informed — are the consumer and the government.

In the first instance, fourth-quarter personal consumption expenditures expanded 2.8%.

Atop the list of fourth-quarter personal consumption expenditures were health care expenditures.

Yet do increased health care expenditures indicate a hale and hearty economy?

We are not half so convinced.

Breaking Your Leg Is Good for GDP

A bricklayer falls from a ladder. He fractures his leg at 69 points.

He pays a doctor to reconstruct his poor excuse of a leg. Or his insurance company — assuming he has one — pays a doctor to reconstruct his poor excuse of a leg.

The orthopedist gets his money. He proceeds to spend it on this, he proceeds to spend it on that.

This spending fans an expanding vortex of economic activity.

The butcher, the baker, the candlestick maker each fall within this economic vortex. Each benefits from the orthopedist’s windfall.

Hence the bricklayer’s health care expenditures represent a contribution to the gross domestic product.

This is what the government counter of beans will show you.

Yet what about our poor bricklayer?

It’s for the Greater Good

His shattered leg has him down for months and months. It may even have him down for good.

Thus the economy has lost a productive asset, and perhaps forever.

This is after all a man of skill. And his successor may be less efficient at bricklaying than he.

Inefficiency costs money.

Meantime, this fellow’s income is vastly reduced. Worker’s compensation will only see him through so far.

He cannot spend as luxuriantly as before — a blow to the gross domestic product!

He depletes his savings to keep food on table and body and soul together.

If he is fortunate, he may acquire fresh employment. Yet it will not likely compensate him as bricklaying compensated him.

Has this man’s health care expenditures enhanced his well-being? They have not.

Yet in the official telling, they have expanded the gross domestic product.

Less Production, More GDP

Or imagine a farmer down with a savage bout of gout. He is confined to a sickbed, in writhes of inflammatory agony.

Struggling mightily, his wife wheels him into a doctor’s office. He is prescribed medicine and packed off to the pharmacy to fetch it.

This “consumer” pays the doctor and the pharmacy. This money takes the customary route… and works its miracles upon the gross domestic product.

Again, the economy’s gain is the sufferer’s loss.

His expenditures are not the voluntary expenditures of a flush consumer eager to spend money.

They are the necessary expenditures of a poor soul eager to end his suffering.

Yet to government data-manglers, it is all one. It all sorts into “consumer spending.”

Return briefly to our theoretical farmer. What about his lost productivity as he languished in bed?

And what about the consumers who were denied his products? How have they benefited from his health care expenditures?

The Modernized “Broken Window Fallacy”

Old Freddy Bastiat’s “broken window fallacy” springs immediately to mind.

If a hooligan heaves a rock through a merchant’s window, the affronted merchant must pay a glazier for a new one.

The glazier proceeds to spend the money into the local economy in the manner described.

Have you here an economic flowering? According to a certain breed of economist, the answer is yes.

But that is because this breed cannot discern the hidden cost. They fail to consider the vandalized merchant whose income suffers because he must fix a window.

They neglect to consider the money the original shopkeeper cannot spend on the cobbler, the baker and the butcher.

He has gained not a thing. Yet they believe — evidently — that the heartiest economy is an economy of shattered windows.

Shall we label the modern incarnation of the broken window fallacy… the broken leg fallacy?

Gov’t Spending and GDP

Next we come to government contributions to the gross domestic product. CNBC:

State and local government spending also contributed, up 3.7%, as did a 2.5% increase in federal government expenditures.

Is this a genuine contribution to the gross domestic product of the United States?

We remind you that government commands no resources of its own. It cannot ladle out the merest penny without plucking it from the taxpayer’s pocket.

What would this taxpayer have done with this penny if the tax man let him be?

He may have spent it. He may have saved it. He may have invested it.

In each instance it is based upon a man’s rational economic calculation.

And each option constitutes an authentic contribution to the gross domestic product in one way or other.

Lies, Damned Lies and Statistics

The spending aspect is obvious enough. But a saved penny and an invested penny represent future contributions to the gross domestic product.

Yet the government seizes the penny, spends it and claims it is expanding the gross domestic product.

A pickpocket might as well claim his craftwork represents an addition to the gross domestic product.

The pickpocketed penny is the very penny its original owner would have spent, invested or saved.

Where is the gain, the overall gain? And why should the government spend it rather than its rightful owner?

Yet economists credit government spending — local, state and federal — for fourth-quarter economic outperformance.

There are lies, damn lies and statistics, as runs the common expression.

We request that government merely confine itself to lies and to damned lies.

These we can abide.

It’s the statistical lies we cannot abide…




Brian Maher is the Daily Reckoning’s Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master’s degree in Defense & Strategic Studies.

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