And now we know why “The Stimulus Failed”

“Recession” Economy lost $400 billion more than first thought in 2007-2009

By JC

Here’s the takeaway, it’s quiet simple: Revised figures from the Bureau of Economic Analysis were released today, showing that the amount of economic contraction (recession) as reflected by a lowering Gross Domestic Product (GDP) was far greater than had been known at the time and during the last three years’ efforts to ameliorate the “Great Recession”.

Recession is basically measured by an economy’s contraction in GDP over a period of quarters. The BEA revisions released today reflected that GDP contraction from 4th quarter 2007 to 2nd quarter 2009 (right after Obama took office) was a cumulative (negative) 5.1%, not 4.1%. In other words the economy lost about $400 billion more in GDP than was previously realized.

To put that in perspective, the “stimulus” only included about $350 billion in direct spending (the rest was tax breaks and aid to local and state governments).

So there you have it: the stimulus spending was less than the margin of error (as shown by its revisions) of BEA. How could the stimulus have worked? It was far inadequate to meet the task of taking up the slack in the $14 trillion/year economy, which was its “purpose”.

Here’s a graph of the revised GDP figures on which I’ve overlaid the 3 year average loss in productivity, and revised cumulative recession figures.

BEA excerpts after the jump.

From the Bureau of Economic Analysis:

Annual revision

Today’s GDP news release presents results from the regular annual revision of the national income and product accounts… The revision incorporates source data that are more complete and reliable than those previously available…

For 2007–2010, real GDP decreased at an average annual rate of 0.3 percent; in the previously published estimates, real GDP had increased at an average annual rate of less than 0.1 percent. The largest contributors to the downward revision to GDP for 2007–2010 were downward revisions to personal consumption expenditures (PCE) and to nonresidential fixed investment:

* Real PCE decreased at an average annual rate of 0.2 percent for 2007–2010, compared with the previously published increase of 0.1 percent. Spending for both goods and services were revised down. The revision to goods reflected newly available data from Census Bureau’s annual retail trade survey for 2009, and the revision to services reflected data from several sources including new and revised data from the Census Bureau’s service annual survey for 2008– 2010.

* Real nonresidential fixed investment decreased at an average annual rate of 5.2 percent, compared with the previously published decrease of 4.2 percent. The revisions reflected new and revised data from the Census Bureau’s annual survey of manufactures for 2008–2009 and data from several other sources.

The revised estimates show a sharper cyclical contraction in GDP during 2008 and the first half of 2009 than in the previously published estimates. From the fourth quarter of 2007 to the second quarter of 2009, real GDP decreased at an average annual rate of 3.5 percent; in the previously published estimates, it had decreased at an average annual rate of 2.8 percent. Over the six quarters of contraction, the cumulative decrease in real GDP (not at an annual rate) was 5.1 percent, compared to the previous estimate of 4.1 percent. Over the expansion from the second quarter of 2009 through the second quarter of 2011, the cumulative increase in real GDP was 5.0 percent.

Revision to GDP for 2011:QI

For the first quarter of 2011, real GDP increased 0.4 percent (annual rate), which was 1.5 percentage points less than last month’s estimate. The downward revision to first quarter real GDP primarily reflected a downward revision to inventory investment and an upward revision to imports.

————–
How much longer do we have to wait before people start recognizing we are living in the midst of the “Lesser Depression” and all Congress and Washington D.C. is doing right now is shooting themselves in the foot?

And of course, austerian economics in the face of an even bleaker economic look back is only going to amplify the problems.


  1. Carfreestupidity

    People buying less shot doesn’t seem like such a bad thing.

    • carfreestupidity

      shit… buy less shit

    • JC

      I don’t have a problem with people buying less shit. Hell, I’ve bought a lot less shit in the last three, four years than I have in a long time.

      But people buying less shit and austerian economics are two separate issues. I’m merely trying to show how a minor recasting of GDP numbers by the BEA eats up every cent that was spent on stimulus. There’s no value judgement in there.

      Fwiw, I think that this graph show our economy in a steady state, yet, our politics and policies are unable to comprehend that and adjust accordingly.

      What if the new norm is a steady state economy? People need to think about living in what would become a permanent state of depression by the old standards.

      And on what do prognosticators predict that some day our and the global economy will just perk up and head on up that never-ending GDP growth slope?

      We live in a world of finite resources. A some point global GDP must and will level off, maybe to decline precipitously. Are we in that era?

      Only the characters in the Wizard of Oz really know… them and a few time travelers.

      • carfreestupidity

        Nice turn at the end…

        No, i was commenting on the fact that the report showed that personal consumption was down more than expected.

        As for austerity… the war on “good governance” that is happening in Washington is scarring businesses and people away from investing in this country at the moment. When a law gets passed that has the potential to significantly reshape how healthcare is administered and then a major campaign begins immediately trying to repeal it, of course businesses are going to hold back until they know what their financial obligations are.

        Same with FAA employees being furloughed, same with the debt issue. How many of trillions of dollars to people and corporations hold that people are now unsure of what will happen to the value of those assets? That is a lot of inactivity, and when money sits still, its not being productive.

        • JC

          I think that the confidence fairies will remain just that: fairies.

          There is scant evidence that are unemployment is due to structural causes–that investment in new industries (like the high tech boom of the 90’s) will begin to reshape the landscape of the new economy.

          So with consumer spending way down–mostly due to their paying down debt, and that will take many more years to make significant inroads–how is any major investment by well-heeled businesses going to create a new economy? Our politicians are trying to resurrect the economy of old. And that just isn’t going to accomplish anything, as the last 3-4 years have born out.

          Look at Apple.They’ve got more cash on hand than the U.S.Treasury right now. And they’re sitting on it, just like they have for the last decade. They invest in what meets their strategic goals, not in what some pie-eyed economist believes is the “new economy.”

          Companies aren’t waiting for the confidence fairies to bless them before they invest. They’re waiting for either the old economy to come back to invest in that, or for enough time to pass that their shareholders begin to demand that they share their hoard.

          One last question: if you (or anyone else out there) believe in the confidence fairies, in just what form is this recession/depression killing investment going to take?

          Final question: what about WWIII? Would that shake up the world economy enough to right its sinking economic ship?

          • Carfreestupidity

            I think I was trying to blame the Republicans for the turn in the economy over the last year. Republican stopped the stimulus from being anything that could make an impact, Republicans are trying to block important reforms that have already passed, and Republicans have are the ones getting in the way of the Federal government from paying it’s bills.

            I’m not saying that this is the only reason, but it is a factor in what has happened in the last year. I’m also not saying that I wish for the large corporations to come save us. Just that their investment patterns have seen a significant shift away from the sorts of things that used to build and grow this country and people are still generally in a daze about the reality that has created. Politicians would love to entice them back, but that isn’t going to happen.

            That lack of activity is reshaping this country, but most people can’t imagine what the future now holds and would rather do everthing they can to sustain the lifestyle America has enjoyed for the last half century. And American corporations are already making large investments in their future, it just happens that all of that activity is overseas.

            The large corporations of this country are not our friends, but at what point do they wake up and realize that by forsaking Americans that Americans will eventually abandon them as well.

            Smaller firms, especially tech, are going gang-busters and reshaping how people interact with the economy… think location based services. And of course it is becoming easier for local economies to once again compete against large multinationals. Local food movements, farmers markets, coops, craiglist, Etsy, EBay, etc are helping to advantage the small over the large, and for people who want to see their money going into the pockets of people who help build community and not into the pockets of execs, lawyers, advertisers, etc… That shift is empowering.

  2. Escapee

    I fear that efforts to cut spending, especially spending that translates into demand for goods and services that they are talking about, will only make this problem worse. But the parties seem determined to do that. Brace yourself, honey.

  3. Ingemar Johansson

    Stimulus failed because employers are scared of O’s impending health care.

    2009 2nd Qtr:…..-.7%
    2009 3rd Qtr:…..1.7%
    2009 4th Qtr:…..3.8%
    2010 1st Qtr:…..3.9% (Obamacare passed March 2010)
    2010 2nd Qtr:…..3.8%
    2010 3rd Qtr:…..2.5%
    2010 4th Qtr:…..2.3%
    2011 1st Qtr:…..0.4%
    2011 2nd Qtr:…..1.3%

    The conventional wisdom is that it takes at least 2.5% GDP growth to lower unemployment numbers.

    For comparison, here are annual numbers from the Carter years
    1977….4.6
    1978….5.6
    1979….3.1
    1980…-0.3

    Limbaugh mentioned a couple of weeks ago that if you tracked unemployment against the Democrats taking office in November 2006 you’d see that business starting shedding jobs all the way back then, and then kicked it into overdrive when Obama was elected in 2008. They didn’t wait for him to get into office, they started cutting back before he got in because they knew he was going to be economic poison.

    • JC

      Oh, if Limbaugh said it, then it must be true.

      Presence of uppity “liberal” black man in the “White” House causes panic and destroys world economy.

      Can the conspiracy get any deeper. And what does any of this have to do with my BEA report? Which basically just says the recession was worse than originally reported. And the amount that it was worse was greater than the stimulus spending that occurred.

      The stimulus was destined to fail because it was an inadequate drop in the bucket compared to the magnitude of the problem it was supposed to address.

      • Ingemar Johansson

        Wouldn’t matter what color he was. If he was as liberal as Carter employers are going to cover their ass.

        Business owners tend to be conservative and smart with their investments. If there’s a economic storm coming they’ll shed dead weight and batten down the hatches.

        Owners also tend to be older and remember the Carter years. Actually old Jimmy’s legacy did them a favor.

        Sit on your cash and wait for it to blow over.

        • JC

          “If there’s a economic storm coming they’ll shed dead weight and batten down the hatches.”

          So that’s what they did under Bush, eh?

          “President Bush has presided over the weakest eight-year span for the U.S. economy in decades, according to an analysis of key data, and economists across the ideological spectrum increasingly view his two terms as a time of little progress on the nation’s thorniest fiscal challenges.

          The number of jobs in the nation increased by about 2 percent during Bush’s tenure, the most tepid growth over any eight-year span since data collection began seven decades ago. Gross domestic product, a broad measure of economic output, grew at the slowest pace for a period of that length since the Truman administration. And Americans’ incomes grew more slowly than in any presidency since the 1960s, other than that of Bush’s father.”

          • Ingemar Johansson

            “Weakest span in decades”? Carter’s short rein was decades ago. But since we seem to be able to blame past presidents for economic ills, why stop at W?

            1) 1990’s: Freddy/Fannie and intertwined mortgage bank failures originate with Welfare-to-Housing BUBBLE created and institutionalized by Clinton Administration

            2) 1990’s: Posterior massive deregulation of mortgage banking industry leads most banks into institutionalized mortgage banking trap, speculation and BUBBLE: initiated by Clinton Administration

            3) 1990’s: Not taking out Ossama Bin Laden by the Clinton Administration in 1990’s led DIRECTLY to OBL’s leadership & the logistical organization of the American 9/11 tragedy.

            4) 1990’s: Presidential soiling White House ethics institutionalized by Bill Clinton. Presidential lies to American People regarding Monica Lewinsky teen intern scandal and Impeachment; hand-slap suspension of Bill Clinton’s attorney license. American image abroad forever suffers an outrage in Oval Office Ethics and an inside view of Clinton marriage, value and ethics.

            5) Dot.com BUBBLE of 1999/2000/2001: Clinton Administration




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