GDP Growth Culprit :: Smartertimes.com

A front-page New York Times article reports on "disappointing data" showing "surprisingly weak numbers" for GDP growth in the United States for the fourth quarter of 2012.

This is one of those areas where the Times is willing not only to tell you what the news is — but how you are supposed to feel about it, surprised and disappointed. Presumably there are at least a few people out there who were not surprised by the GDP number. And maybe there are people out there who are invested countercyclically who are rooting for slow growth.

The opinion and framing slips into the article even beyond the adjectives and adverbs, however. The article begins, "The federal government helped bring the economic recovery to a virtual halt late last year as cuts in military spending and other factors overwhelmed the Federal Reserve's expanded campaign to stimulate growth."

That assumes that what the Federal Reserve has been doing has been expansionary. But that's an opinion, not a fact. There are economists out there who disagree, like David Malpass, a former Reagan administration Treasury official, who wrote earlier this week to Encima Global clients: "We think Fed policy is contractionary because the Fed is manipulating the price of credit, causing a departure from market-based capital allocation. The result is a credit rationing process that channels credit to the government and bigger corporations at the expense of small business job creators and the weak formation of new businesses."

John Taylor, a Stanford University economics professor and former Treasury official, had an op-ed piece in the Wall Street Journal this week making a somewhat similar argument. It ran under the headline "John Taylor: Fed Policy Is a Drag on the Economy."

I'm not saying Mr. Malpass and Mr. Taylor are necessarily correct. But it's a disputed issue, and the Times news article would give a more complete picture if it acknowledged the dispute rather than just ignoring it by taking the Fed's side.

In assessing the fiscal (as opposed to the monetary) sources of the negative growth, the Times article dwells on spending cuts and payroll tax increases. From the Times:

Disappointing data released Wednesday underscore how tighter fiscal policy may continue to weigh on growth in the future as government spending, which increased steadily in recent decades and expanded hugely during the recession, plays a diminished role in the United States economy.

Significant federal spending cuts are scheduled to take effect March 1, and most Americans are also now paying higher payroll taxes with the expiration of a temporary cut in early January.

…Alan Krueger, chairman of the president's Council of Economic Advisers, wrote in a blog post that "a likely explanation" for the plunge in military spending was concern among contractors about the automatic spending cuts, which were set to take effect on Jan. 1 but were rescheduled for March 1. The decline in federal spending follows an earlier drop in state and local spending, which fell by 3.4 percent in 2011 and 1.3 percent in 2012.

The compromise between President Obama and Congress earlier this month allowed a temporary cut in Social Security taxes to expire, which is also expected to crimp growth in the first quarter. The change will cost a worker earning $50,000 a year an extra $1,000 annually.

To read the Times, it's as if the only tax that went up was the payroll tax. Not a word about how the Fourth Quarter of 2012 saw the re-election of President Obama and the post-election announcement by the president that he wanted a $1.6 trillion tax increase on the incomes of Americans making more than $250,000 a year. In other words, American businesses and investors spent a lot of the Fourth Quarter of 2012 expecting a big marginal tax increase. Maybe that had something to do with the lack of growth?

Related Topics: Taxes