First Quarter GDP Up, But Fails To Meet Expectations

The economy grew in the first quarter of 2013, but the numbers were far from impressive.

Economy Heartbeat

According to the Commerce Department’s just-released Gross National Product report, economic growth was stronger at the beginning of 2013 than it had been at the end of 2012, but the numbers released did not live up to what analysts had been expecting:

The American economy sped up in the first quarter of this year, with output expanding at an annual pace of 2.5 percent, according to a Commerce Department report released Friday. The number was lower than the 3 percent forecasters had been expecting.

While faster growth of any kind is welcome, much of the acceleration in gross domestic product was probably a result of unusually slow growth at the end of 2012, when the economy grew at an annual pace of just 0.4 percent. Growth in the fourth quarter had been dragged down by reduced restocking of businesses’ inventories, for example, and in the first quarter businesses made up for this by adding much more to their shelves.

Consumer spending was up too, despite fears that the lapse of the temporary payroll tax holiday at the start of the year would hold back how much consumers were willing to spend. It’s unclear whether consumers will continue to spend as freely in the months ahead, once they start to feel the pinch of this effective tax hike, particularly if wages continue to stagnate.

Exports, residential investment (housing, essentially) and business spending on equipment and software also rose.

Economists have expressed concern that the pace of growth may have started out strong in 2013 but slowed by the end of the first quarter, given recent disappointing reports about economic indicators in March. Employment slowed dramatically in March, for example, and orders for durable goods like aircrafts fell more than analysts had expected.

Additionally, across-the-board federal spending cuts, enacted as part of Congress’s so-called sequester, are likely to weigh on growth going forward. In the first quarter of this year, government spending fell at an annual rate of 8.4 percent, after a decrease of 14.8 percent in the fourth quarter of 2012.

From the report:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.5 percent in the first quarter of 2013 that is, from the fourth quarter to the first quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.


The acceleration in real GDP in the first quarter primarily reflected an upturn in private inventory investment, an acceleration in PCE, an upturn in exports, and a smaller decrease in federal government spending that were partly offset by an upturn in imports and a deceleration in nonresidential fixed investment.

Motor vehicle output added 0.24 percentage point to the first-quarter change in real GDP after adding 0.18 percentage point to the fourth-quarter change. Final sales of computers subtracted 0.01 percentage point from the first-quarter change in real GDP after adding 0.10 percentage point to the fourth-quarter change.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.1 percent in the first quarter, compared with an increase of 1.6 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 1.3 percent in the first quarter, compared with an increase of 1.2 percent in the fourth.

Real personal consumption expenditures increased 3.2 percent in the first quarter, compared with an increase 1.8 percent in the fourth. Durable goods increased 8.1 percent, compared with an increase of 13.6 percent. Nondurable goods increased 1.0 percent, compared with an increase of 0.1 percent. Services increased 3.1 percent, compared with an increase of 0.6 percent.

Real nonresidential fixed investment increased 2.1 percent in the first quarter, compared with an increase of 13.2 percent in the fourth. Nonresidential structures decreased 0.3 percent, in contrast to an increase of 16.7 percent. Equipment and software increased 3.0 percent, compared with an increase of 11.8 percent. Real residential fixed investment increased 12.6 percent, compared with an increase of 17.6 percent.

Real exports of goods and services increased 2.9 percent in the first quarter, in contrast to a decrease of 2.8 percent in the fourth. Real imports of goods and services increased 5.4 percent, in contrast to a decrease of 4.2 percent.

Real federal government consumption expenditures and gross investment decreased 8.4 percent in the first quarter, compared with a decrease of 14.8 percent in the fourth. National defense decreased 11.5 percent, compared with a decrease of 22.1 percent. Nondefense decreased 2.0 percent, in contrast to an increase of 1.7 percent. Real state and local government consumption expenditures and gross investment decreased 1.2 percent, compared with a decrease of 1.5 percent.

Jared Bernstein explains:

Only slightly beneath the surface, the report showed continuing weaknesses in the US economy and, consistent with the unexpectedly weak March jobs report, hints at another softening of demand in recent months.  Expectations were for growth above 3% but disposable income, a critical driver of growth in our 70% consumption economy, fell sharply, down 5% in real terms, partly due the loss of the payroll tax break.

The two main factors propelling the economy forward last quarter were firms restocking their shelves (inventory build-up adds to GDP growth) and strong spending by the stalwart American consumer, drawing not on their income but on their savings.  Since the inventory component is both highly volatile and less indicative of current demand, it’s useful to look at final demand, essentially GDP without the inventory build-up.  This measure grew 1.5% in real terms in the first quarter, down from 1.9% in the last quarter.  Again, this less volatile measure tracks demand more closely than the headline number.

Given the slowdown in disposable income, accelerating consumer spending was partly financed by spending out of savings, as the savings rate fell two percentage points, to 2.6%, the lowest savings rate since 2007q4, the quarter in which the recession began.  With diminished savings and the fading of stimulus measures like the payroll tax break, future consumer spending will depend more on income growth from jobs and wages, a potentially risky linkage, given recent slowing in the job market.

Housing continues to be a bright spot as residential investment was up almost 13% on an annual basis.  Housing has now been a positive contributor to growth for two-years running, adding 0.3% to the 2.5% growth rate for the first quarter.

But the government sector more than offset housing’s contribution, shaving 0.8% off of the growth rate, with across the board declines in defense, non-defense, and state and local public spending.  Since 2010q1, the public sector has, on average, taken half-a-percent from real GDP growth per quarter.

As opposed to the annualized quarterly numbers cited thus far, it’s useful to look at year-over-year measures of real GDP growth to get a flavor for the underlying trend in the data.  As the figure below reveals, growth by this measure is down a bit over the last six months, with the economy growing slightly below its trend growth rate of around 2%.  If this underlying pace of growth persists, it will be very difficult to generate the jobs needed to “legitimately” bring down unemployment rate (meaning through job growth, not through people leaving the labor force).

In other words, what we’re looking at here is a continuation of the same pattern we’ve been locked in virtually sine the recession ended in 2009. The economy is growing, but  it isn’t growing at a fast enough pace to create real economic growth. At best, we’re treading water here, not falling into recession (although we came pretty darn close in the final months of 2012), but not exactly doing a spectacular job either. This can best be seen in the monthly unemployment reports, where job growth has been far below even the level needed to absorb the natural growth in population for months now and the Unemployment Rate is falling only because the Labor Force Participation rate continues to fall to historically low levels. Until we’re able to break out of that cycle, we’re going to continue living in the kind of economy we have now where things are, well, okay, but far from good and, for a lot of people, not very good at all.

There are, of course, two revisions coming to these numbers, the first at the end of May and the second at the end of June. It’s possible we’ll see the growth numbers tick up a tenth of a point or two but, given the fact that we’ve seen retail sales and business orders of big ticket goods falling off, it seems just as likely that we’ll actually see downward revisions, and that the second quarter will be less than ideal as well. Like I said, we’re doing okay, but okay isn’t really good enough.

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Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. john personna says:

    Too funny Doug. You should write for Colbert. I mean, first you set expectations on OTB for a year or more that the economy is going into the shitter, and then when other people report this a loss relative to [their] expectations of 3% growth [you are “surprised”]. I mean if we had believed you we’d be in solid negative territory right now, and this would be a “surprise” to the upside.

    The disingenuous drum-beat continues.

    Related: Economic debates rarely end with a T.K.O. But ..

  2. Rob in CT says:

    Contractionary policy has contractionary effects. Those headwinds mean lower GDP growth than would otherwise be the case.

    Now it may be this is the appropriate trade off (instead of, say, growing government the way it was grown in the Reagan era, and then having even more governmental debt to deal with later). But anyone arguing for deficit reduction now has to make that case. It can’t just be handwaving and screetching about Greece, I tell you, Greece.

    Like I said, we’re doing okay, but okay isn’t really good enough

    I have a question for you, Doug. What, to you, is “good enough” ? I can guess (enough growth to reduce unemployment back down to happier numbers over a reasonable timespan, but that’s kinda vauge) and how do you think we can possibly do that without expansionary fiscal policy?

    I’ve never been a fan of debt and, therefore, I’m not thrilled with adding to it (as a % of GDP. I’m not talking about absolute numbers). The key question is whether it makes more sense to add less to it now and accept sluggish GDP growth or to boost GDP via borrow & spend, hoping the better growth justifies the borrowing (this basically means you expect a multiplier greater than 1). There is also the argument about the long-term effects of persistently high unemployment.

    If I were to come up with a stimulus proposal (something temporary and thus not a reform effort intended to fix everything), I’d do two things: 1) cut FICA taxes (both sides) by, say, 2% each and 2) increase borrowing and spend it on infrastructure repair, refurbishing/refitting governmental facilities to be more energy efficient (mostly this would be about insulation and updating heating/cooling systems, but in the right spots it could also be about installing solar panels). I’d also like to see an effective debt writeoff/cramdown program to help households deleverage. The previous effort, HAMP, sucked.

    While this would be temporary, it should not be all about now now now (as the original stimulus was, to avert a death spiral). Forget “shovel ready.” Spend it over the course of years. That might be better anyway.

    This obviously raises federal debt, in part via direct borrowing and in part by reducing the revenue stream for Social Security and Medicare. One can either say, eh, we’ll make that up in growth or one can be more cautious and do chained CPI, more means testing, or both.

    There are other reforms we could potentially make that might help growth, of course. Any such thing is welcome, provided: a) it actually might work; and b) isn’t clearly going to screw folks who are already hurting.

  3. stonetools says:

    Maybe II should just cut-paste my responses from all the other near identical columns Doug has posted on this :-).
    The problem is that the conservative-Austerian position on the economy-That we should focus on budget cuts and not provide furthur stimilus-has been as totally discredited as an economic program can be and has failed everywhere it has been tried-including here in the USA.
    Unfortunately, Doug’s fellow travellers, the Republicans, are still in charge in the House and can block positive action in the Senate, so we will continue down the wrong road, until maybe a Europzone crisis pushes us back into recession.

    Henry Blodget put it this way:

    The Economic Argument Is Over — Paul Krugman Has Won

    Read more:

    Money quote:

    Over the course of this debate, evidence has gradually piled up that, however well-intentioned they might be, the “Austerians” were wrong. Japan, for example, has continued to increase its debt-to-GDP ratio well beyond the supposed collapse threshold, and its interest rates have remained stubbornly low. More notably, in Europe, countries that embraced (or were forced to adopt) austerity, like the U.K. and Greece, have endured multiple recessions (and, in the case of Greece, a depression). Moreover, because smaller economies produced less tax revenue, the countries’ deficits also remained strikingly high.

    So the empirical evidence increasingly favored the Nobel-prize winning Paul Krugman and the other economists and politicians arguing that governments could continue to spend aggressively until economic health was restored.
    And then, last week, a startling discovery obliterated one of the key premises upon which the whole austerity movement was based.

    An academic paper that found that a ratio of 90%-debt-to-GDP was a threshold above which countries experienced slow or no economic growth was found to contain an arithmetic calculation error.

    Read more:

    Unfortunately, the Republicans care more about rich donors and idealogy than math and reality, so we are going to continue bumping along.

  4. dennis says:

    Expectations, by virtue of their unrealistic nature, are always disappointing.

  5. Ben Wolf says:

    The pqce of growth has been strong every first quarter for three years now, with economic performance declining throughout the following three quarters. What isn’t discussed is corporate profits are declining this time around because the government’s negative balance has fallen from 12% in 2009 to a projected 4% of GDP this year. No one in a position to do anything is thinking about this in terms of balance sheets, and what happens to them when government outflows to the private sector fall below private sector outflows to the foreign sector via trade deficits.

    Here’s a hint: when private sector income goes negative, it is forced to take on debt.

  6. Nikki says:

    An academic paper that found that a ratio of 90%-debt-to-GDP was a threshold above which countries experienced slow or no economic growth was found to contain an arithmetic calculation error.

    I’ve been searching and searching and waiting and waiting for OTB to comment on the Reinhart-Rogoff debacle, particularly in light of it being Paul Ryan, Angela Merkel, George Osborne and the other austerians’ justification for screwing over the poor.

    Still got nothing to say about, Doug?

  7. john personna says:


    I think, in the words of Monty Python, “run away!”

  8. stonetools says:


    The reason, of course, is that his boys were mathematically proven wrong.

    Also too, liberals trump conservatives in predictions:

    Even when the students eliminated political predictions and looked only at predictions for the economy and social issues, they found that liberals still do better than conservatives at prediction. After Krugman, the most accurate pundits were Maureen Dowd of The New York Times, former Pennsylvania Governor Ed Rendell, U.S. Senator Chuck Schumer (D-NY), and former House Speaker Nancy Pelosi – all Democrats and/or liberals. Also landing in the “Good” category, however, were conservative columnists Kathleen Parker and David Brooks, along with Bush Administration Treasury Secretary Hank Paulson. Left-leaning columnist Eugene Robinson of The Washington Post rounded out the “good” list.

    Krugman was 14 out of 15 in prediction prowess, crushing his conservative opponents. In a rational world, he would be economy czar for life!

  9. anjin-san says:

    “run away!”

    Like the wind…

  10. Dave Schuler says:

    I have a question for you, Doug. What, to you, is “good enough” ? I can guess (enough growth to reduce unemployment back down to happier numbers over a reasonable timespan, but that’s kinda vauge) and how do you think we can possibly do that without expansionary fiscal policy?

    I can’t answer for Doug but I can for myself. Real growth in excess of two points above trend. Trend is 2% so 4% or better, sustained over the course of a year. That should be enough to put some people back to work.

    As to the second part of your question, I agree that it’s difficult to do without expansionary fiscal policy. I’ve offered Paul Samuelson’s suggestion before: Keynesianism on the margins. Reduce subsidies on things that don’t produce much employment or growth (e.g. education and healthcare) and spend the money on things that do produce employment or growth.

    I’ve been suggesting direct government employment programs for the last five years but nobody seems interested. Other possibilities would be mass engineering/space program-type programs.

    I’m not particularly sanguine about infrastructure programs (“infrastructure” defined as roads and bridges). In general, those projects are let to existing companies with existing crews who use equipment they’ve already purchased to execute them. In other words, there’s really not much of a multiplier there. You’re just putting more on the bottom lines of the Bechtels of the world.

  11. C. Clavin says:

    Shrink Government…the economy doesn’t grow so fast.
    Who’da thunk it?

  12. C. Clavin says:

    @ Nikki…
    I’ve been waiting for the same thing.
    It is counter to the OTB non-ideological ideology.
    Kinda suprised SLT didn’t bring it up though…

  13. Red Barchetta says:

    Let’s see, 5 years into the administration, with MASSIVE monetary and fiscal stimulus, we have jack squat for growth and employment. The claim is “deleveraging.” Yet when we look at the consumer, they are not deleveraging.

    And at OTB, the usual morons claim victory. I will remind those morons that under GWB a 5.5% unemployment rate was castigated.

    As Don Imus says…”you can’t make this shit up.”

  14. Crusty Dem says:

    @Red Barchetta:

    Let’s see, 5 years into the administration, with MASSIVE monetary and fiscal stimulus.

    -1 for detachment from reality, when was the last MASSIVE stimulus? I’m pretty sure there were a whole lot of people who didn’t think it was large enough.

    As Don Imus says…”you can’t make this shit up.”

    -10000 for quoting Don Imus. -10000 more for it being something not worth quoting. As Abraham Lincoln said, “Have a good day”.

  15. Nikki says:

    @Red Barchetta: Get over yourself. You pretend that there wasn’t a global economy crash 5 years ago and that, since then, the GOP members of Congress haven’t been performing like the assholes they are.

  16. john personna says:

    @Red Barchetta:

    To be fair stimulus was massive – the question now is just what it should have been more massive.

  17. Moosebreath says:

    @john personna:

    “the question now is just what it should have been more massive”

    And whether it should have been counteracted by fiscal contraction at the state and local levels.

  18. C. Clavin says:

    @ Red…
    Bush43 was castigated for good reason…he grew unemployment from 4.2% to 7.6%…an 80% increase.
    For Obama to match that performance UE would have to hit 13.6%.
    If you check the facts UE maxed out at what…10%? That’s about 30%…and declining steadily. Consider also that Obama was handed an economy shedding 650,000 jobs a month by Bush43.
    Now Red…which is worse…and 80% increase in UE,or a 30% increase in UE?

  19. stonetools says:

    I’m not surprised that :

    1.Only one conservative shows up on this thread
    2. That conservative was factually dead wrong about the stimulus.

    The stimulus (which we all know now was too small) ended back in 2010. Since then, the conservatives in the House have blocked all attempts at government job-creation programs and have instituted de facto austerity. According to conservatives , businesses should have regained “confidence” at all this spending restraint and should be investing and hiring like mad. But they aren’t.
    Conservatives have been dead wrong about how austerity was going to revive the economy and the smart ones know it. Which, of course, leaves the dumb ones like Barchetta to spout nonsense. It’s all they’ve got.

  20. C. Clavin says:

    Is Imus still married to his daughter?

  21. john personna says:


    We keep splitting differences. First we did half a Krugman stimulus, and then we did half a European austerity.

    We could have done much better. As Rob says we need not fear debt to such a degee, and as Dave says we could have been more selective in spending

  22. Scot says:


    I’ve been searching and searching and waiting and waiting for OTB to comment on the Reinhart-Rogoff debacle, particularly in light of it being Paul Ryan, Angela Merkel, George Osborne and the other austerians’ justification for screwing over the poor.

    Their corrected numbers show the same trend as do their critics. A drop in growth when debt is greater than 90% of GDP. Their results show 1.3%. Their critics results show 1%. The argument is over how this should affect policy. Am I wrong?

  23. anjin-san says:

    @ Red Barchetta

    5 years into the administration, with MASSIVE monetary and fiscal stimulus, we have jack squat for growth and employment

    Ah, so if you could wave a magic wand and go back to the day before Obama took office and screwed everything up, with 500K a month job losses under Bush, along with a stock marked in free fall and being on the brink of a cascade failure of the banking system (in other words, a depression) would you? That’s a yes/no question.

  24. john personna says:


    The argument that they used selective data is (or should not be) waived away.

    More importantly though R&R are now more forthcoming about reverse causality – that is that slow growth causes debt, and not just that debt causes slow growth.

    All and all 90 percent as a scary wall is breaking down.

  25. Scot says:

    @john personna: I agree a poor economy drives debt (makes the problem worse). I also agree there is nothing magical about 90%. The question becomes how do we get out of this mess and what level should we strive for once we do. My goal would be for a balanced budget like Clinton brought us. I think stimulus focused on infrastructure would help the economy. Stimulus for social programs (while it might be the right thing to do) is not going to improve economy as nearly as much.

  26. Dave Schuler says:

    Nobody has asked me what should have been done back in 2009 but I’ll volunteer my opinion anyway.

    There were only a couple of practical alternatives and which one you selected depends on whether you think that fiscal stimulus was the optimal strategy or not. If you think that fiscal stimulus was the optimal strategy the only practical approach was to

    a) commit the amount that was actually committed—the whole $800 billion
    b) spend all of it in 2009
    c) do that by suspending both sides of FICA (the payroll tax)

    If you needed more to sustain the recovery, do that later. Spreading the amount over three years was loony. If you think that fiscal stimulus was the optimal strategy.

    If you think we were in a balance sheet recession, some of the $800 billion should have been used to extend unemployment benefits and the balance (most of the total amount) used to write down consumer debt.

    If you think that the problem was a structural one, structural changes were needed. That can’t be done solely by spending.

  27. john personna says:

    @Dave Schuler:

    I think the game in 2009 was accepting the imperfect, or nothing.

    You are asking us to bend our heads quite a bit, to consider two parties in Congress debating the *best* stimulus, rather than what we had.

    Remember, Rick Santelli’s rant came on February 19, 2009.

  28. Dave Schuler says:

    @john personna:

    Republicans were irrelevant to the ARRA as it passed. Are you asserting that the price of Democrats voting for the ARRA was the bill we got and that no Republicans would have voted for a bill that was all tax cuts?

  29. john personna says:

    @Dave Schuler:

    As I remember the arguments, and the spirit of the times, Republicans made it a hard road to any stimulus, and for that reason, the Democrats had to cobble together a bill that would pass.

    That included, what .. green golf carts? Icebreakers? Clean coal?

  30. john personna says:

    Seriously, the alternative was that crap or nothing.

  31. john personna says:

    (And absurdly, while Republicans played “hands off any stimulus” they complained “look at the crap spending you had to put together!” Well … maybe they should have gotten their hands dirty.)

  32. Dave says:

    @Dave Schuler: I very much disagree that the investment in education and healthcare don’t produce that much back into the economy. If I may for one of the few times in my life praise Saint Ron, his emphasis in science and math education helped us create better weapons than the Russians, but also likely helped the advancement in computers that led to the internet boom. If you want to talk about subsidies that don’t create jobs look no further than NASCAR fuel subsides, how about oil company subsidies. If we didn’t pay for them to explore new ways to make billions of dollars off of us they would go bankrupt. How about we start talking about the billions we lose in untaxed revenue for churches and superpacs which contribute very little to the economy. Education at least lays the groundwork for innovation, oil companies, nascar, superpacs and churches add nothing to the economy but fail to raise revenue, while not adding to the economy.

  33. Pharoah Narim says:

    @Scot: You might want to find a pipe to stick the 90% Debt to GDP talking point in… ijs

  34. Pharoah Narim says:

    Oh and no one has mentioned that a huge amount of the stimulus was handed to State governors who used it to finance tax cuts. How in the heck is that “stimulus” if people are in save and sock away mode and don’t spend the increased money from the reduced tax burden? You can’t adequately evaluate a prescription if you didn’t use the medicine according to the instructions. Stimulus means people at the low ends of the income spectrum get the expanded money supply FIRST or SECOND. By the time they get to participate in the expanded money supply under the trickle down model–inflation has already kicked in meaning increased income only helps them keep treading water.

  35. stonetools says:

    @john personna:

    I remain convinced that the single biggest blunder of the Obama Presidency was not to go all in stimulus, and get a stimulus program in line with what his chief economic adviser Christine Romer laid out. The undersized stimulus failed to stanch the surge in unemployment,and that surge in unemployment led directly to the debacle of November 2010. Obama seemed genuinely shocked that the American people cared more about the unemployment rate than Iraq or foreign policy or HCR or anything else he did and that they also didn’t intuitively grasp the good the stimulus did ( he never bothered to explain it to them).

    Why in God’s name didn’t he wrap himself in the ghost of FDR, explain the stimulus in simple terms, and damn the Republicans for trying to block him from saving the country from Great Depression 2? In end, Obama’s political instincts failed him here. Obama’s big problem here is that he is an intellectual’s idea of what a liberal politician should be-long on rational argument and short on a feel for what inspires the common man.

  36. michael reynolds says:

    @Dave Schuler:

    So you believe that a population scared to death of a financial meltdown and rising unemployment and listening every day to apocalyptic scare stories would have taken their FICA dollars and spent them all? Would they have gone out and bought new cars? Homes?

    That may work on paper but I don’t think you’re seeing the human emotion of the times. I agree the stimulus should have been pushed out much faster, but a direct government jobs project might have worked better. I know your feelings on unnecessary road-building but we have a lot of abandoned buildings that could have used a simple coat of paint, or parks that could have been cleaned up — grunt work that would not have required massive planning or training but would have quickly put hundreds of thousands of people to work. Unemployment would have dropped, a sense of confidence might have been instilled, and quality of life would have been marginally improved.

    But if you think any of that was an option, you don’t know Republicans. We don’t have best. Best is off the table in this country, which is why we have half-assed stimulus and half-assed health reform and half-assed financial reform and no gun control. We have these creatures called Republicans who — and I don’t think you get this — do not give a good god-damn about what’s best for the country or the 99% care solely for their own re-election in their gerrymandered districts, live in mortal fear of Rush Limbaugh, and set as their goal the destruction of Obama’s administration.

    We finally got rid of our Republicans in California and guess what? We’re moving to a more balanced budget and our bond rating is improving.

  37. Dave Schuler says:

    @michael reynolds:

    You’re just saying there could not possibly have been a Keynesian multiplier. That’s exactly the opposite of what all of the White House economists were saying.

    Additionally, if any money that was spent would just be saved, that means the ARRA was futile since under the circumstances you’ve described it’s impossible to boost aggregate demand.

  38. michael reynolds says:

    I’m saying that if you give a frightened man money he will stick it under his mattress not spend it. If you give a frightened man a job, and a sense that his government is looking out for him, and that he has that job for a year or until things get better, he may well trade his old beater in for a newer car. What we needed was a Rooseveltian response and what we got was some accommodation between a bloodless intellectual on the one hand, and a bunch of aszhole ideologues on the other side.

  39. michael reynolds says:

    This is way off topic but I recall that you have an uncle IIRC who was at Chosin. I happen to be listening to an audio book that has an account of that battle. Jesus Fwcking Christ. If he’s still alive buy the man a drink from me. I don’t see how war can get much worse than that.

  40. Dave Schuler says:

    @michael reynolds:

    That’s another way of saying that aggregate demand cannot be increased. The premise of the ARRA was increasing aggregate demand. Note the caveat in my comment: “If you think that fiscal stimulus was the optimal strategy”. You’re saying that you don’t.

    Your analysis is not borne out by the facts. Personal consumption expenditures did not continue to decline which would have been the case if people were just putting money in their mattresses. PCE is now significantly higher than it was before the Great Recession. So are government spending and exports. Imports are higher, too, although not dramatically so. What hasn’t recovered is domestic business investment.

  41. john personna says:

    The 2009 stimulus bill is all water under the bridge. I do put more blame on Republicans, but it’s not like Democrats could put together a majority around *any* single economic theme. We had a stimulus that was part tax cut and part clean coal as a result of that.

    The most interesting thing will be, as R&R goes down in flames, what emerges. More on the flames part here:

    Carmen Reinhart and Ken Rogoff, used their second NYT column in a week, to complain about how they are being treated. Their complaint deserves tears from crocodiles everywhere. They try to present themselves as ivory tower economists who cannot possibly be blamed for the ways in which their work has been used to justify public policy, specifically as a rationale to cut government programs and raise taxes, measures that lead to unemployment in a downturn.

    What emerges? I’d expect some debt fear to recede, and I’d hope that we’d see incremental review and improvement to all federal programs. Let’s start a “good governance” initiative.

  42. anjin-san says:

    @ michael reynolds

    My uncle is still alive, and has been known to enjoy a glass of wine or two. He did not start talking about his experiences in combat during the Korean war until recently. Years ago his “Frozen Chosen” chapter had a banquet at a restaurant I was working at and I got to meet quite a few veterans of one of the most horrific batter in the history of the US Armed Forces. Quite a privilege.

  43. Scot says:

    @Pharoah Narim: Thanks for the link. No need for insults. I didn’t think I said any thing contradictory.

  44. michael reynolds says:

    @Dave Schuler:

    You and I come to this question almost with two different languages. I don’t speak economics. I speak psychology. So let me use terms and realities that I understand.

    I’ve been poor. I’m in the UK at the moment, which, given the English reticence about money makes me even more aware of my own fixation on same. Money is obviously an economic fact, but it it is every bit as much psychological. I make a very nice living now, but I have residual fears of poverty that are very potent.

    Prior to 2009 many Americans had a certain breezy confidence about money. They didn’t have memories of the Great Depression, and most had no personal experience of serious economic hardship. But now many more do have that visceral insecurity. Once you’ve had the fear it’s hard to shake. It becomes very real to you. So, I’m touring the UK being fawned over and cosseted and gazed upon with admiring looks, but it all has the perverse effect of one of those perhaps apocryphal stories of slaves who whispered in the triumphant Roman general’s ear, Hominem te esse memento. Memento mori. Which for me, personally, translates as, Remember, you’re just a guy who cleaned toilets.

    If you’re a working man with a friend who just lost his job, and another who just lost his house, and another who is in danger of both, you don’t spend money. Give that guy an extra 200 bucks and he holds onto it. If you’re that same guy but the unemployed friend just got a WPA job, and the other friend got some help on his mortgage, and the third guy is feeling like he might just squeak through, then maybe if you get an extra 200 bucks you buy your wife a dress and stimulate the economy.

    Could Obama have gotten anything like a WPA approach past the GOP? Not a chance in hell. Zero chance. It may have been the right move, but it was impossible. So he did what he could, because politics is the art of the possible.

    What I think is becoming more and more clear is that conservative economics is b.s. As you know, I suspect most economics is b.s., but sure as hell the austerity, small government approach is (as people here would say) bollocks.

    Did I know this in 2009? No. I only reluctantly pay attention to economics. (Which probably explains why I’m still scared of poverty.)

    But at least half the country has been convinced that “government is the problem” and debt is to be avoided at all cost. (I intuitively agree with that second thing, incidentally.) Our Puritan DNA rebels at the idea of debt as a good thing. Austerity has about it the ring of truth. And in the face of that quasi-religious faith there’s not much that Obama could have done to move to a more socialist solution. But it sure looks like that would have been the better answer.

    I think what we needed was someone to tell us that the only thing we had to fear was fear itself. And then we needed government as an employer of last resort. People needed to feel that safety net below them. They needed to feel that government would rescue them. The Democrats (generically) intuitively gravitate to that position, while the Republicans hold to their anti-government faith. I think the Democrats were more right, but as a practical matter there wasn’t a chance of passing a purely Democratic approach.

    I may be the rare example of a person moving further left with advancing age.

  45. michael reynolds says:

    I don’t imagine you said much in that company. That’s a time to sit and listen.

  46. Ben Wolf says:

    @Dave Schuler: Actually, Michael is referencing monetary velocity, or the number of times a dollar is spent before it is lost to leakages such as saving (hence the reference to putting money under a mattress), taxation and the foreign sector. He’s correct that fiscal stimulus is more effective if consumers are confident they’ll have a job next month and next year, and if businesses are confident they’ll have customers. In such a situation monetary velocity increases as dollars are spent rather than saved and the fiscal multiplier becomes more effective.

    A simple one-time stimulus is not sufficient to address consumer and business uncertainty, because they know it will come to an end and may not be replaced by anything.

  47. Scot says:

    @michael reynolds: Forget the GOP. Do you think the majority of people would support a WPA?

  48. michael reynolds says:


    Yeah, I think they would have, given a decent sales pitch. Look at it this way, you can either have people on endlessly extended unemployment benefits — benefits that obviously can no longer be considered “insurance” — or you can have people, say, knocking down vacant properties in Detroit and clearing choked streams and clearing trails in national forests and acting as police auxiliaries in Chicago. It actually meshes rather well with the Protestant work ethic. The taxpayer would get something tangible for his money.

  49. Ben Wolf says:

    @Scot: Corporate America and our oligarchs would hate and oppose a Jobs Guarantee with everything they have at their disposal. Americans as a whole would love it.

  50. Scot says:

    @michael reynolds: I suspect your right in concept, but once it came to the details the debate would quickly devolve to a partisan mess. I haven’t heard many calls for this from progressives or conservatives. I wonder why this is not done more at the state a local level.

  51. Scot says:

    @Ben Wolf: I could see unions opposing it as well.

  52. Ben Wolf says:

    @Scot: Of course. Union bosses would find their positions not so secure when workers don’t need them so much.

  53. Rob in CT says:

    Dave, Michael, Ben… I, for one, would have liked to see some sort of WPA 2.0 (though I’m honestly not sure what we would have the workers do).

    Speaking with one of my more conservative-leaning friends (granted, this is CT, so he’s still not a Republican) recently, he who likes to spout things like “I hate the government,” I brought up a WPA-style grovernment hiring response to the 2009 crash. He said he was in favor, which surprised me a bit, since he’d just been ranting about a highway construction project and his taxes going to unworthy people.

    So maybe the public would’ve been pro-WPA. For a day or two, perhaps. Then the GOP would have easily defined it as outright socialism (and, granted, it’s more socialistic than any other approach that’s been discussed) and demonized the hell out of it. At which point, with zero GOP support and centrist Dems pissing their pants in fear, it would have died in Congress. Game over, man, game over. [note that this is very close to how the healthcare reform effort went. But healthcare reform squeaked through, whereas I think WPA 2.0. wouldn’t have come close to the needed 60 votes]