A Dam Has Burst. More People Admit That Public Sector Cuts Are Holding Back The Recovery

Earlier we pointed to an article in the WSJ which made the correct observation that it’s public sector spending declines that are really holding back economic growth.

This is an idea we’ve been hammering for a while. Back in early June, we defended Obama’s ‘doing fine’ comment, noting how private sector growth was much more robust than that of the public sector.

But now the idea really seems to be going viral.

In a blog post over at conservative think tank AEI (!) professor Mark Perry has a post titled: Maybe private sector is doing fine? Growth in post-recession “private GDP” (3%) is above average.

First Trust Portfolios (Brian Wesbury et al.) is the only organisation I know that calculates and reports “private real GDP” on a regular basis, here’s their most recent commentary: “We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year.”

In the second quarter of 2012, “public sector GDP” decreased -1.44%, and that was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.  Most of the decline in government spending over the last few years has come from cuts in defence spending at the federal level, and ongoing cuts in government spending by local and state governments.

Unlike some conservative economists, who have spent the past few years purely focusing on the economy’s shortcomings (of which there are many) Professor Perry has a track record of being a straight shooter who calls it like he sees it, pointing out strengths and weaknesses where they are.

Still, this is a remarkable think to see at a site like AEIs, and it really shows how this idea is spreading… something that seems to have been catalyzed by last Friday’s GDP report.

(Via @USA_progressive)

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