Kash noted that the third quarter advanced estimate for real GDP, which appears to be only 3.9% higher than it was in the third quarter of 2003. Real Federal government purchases rose by 4.8% continuing the recent trend of increasing faster than real GDP – also noted by Kash. But nondefense Federal purchases fell by 2% over the past year with the increase noted by Kash coming from an 8.3% increase in defense purchases. In fact, both nondefense Federal purchases and state purchases as shares of GDP have returned to 2000 levels. So wouldn’t a progrowth believer of fiscal restraint be happy with such fiscal conservatism? Perhaps, but I agree with the Alice Rivlin notion of spending smarter rather than more.
However, national savings is still far below where it was in 2000. Investment did grow by 12.5% over the past year but its 17.15% share of GDP is still below the 17.7% share in 2000. Exports rose by 9.2% increasing its share of GDP to 10.4%, which is below its 11.2% share in 2000. The increase in exports, however, was offset by a 11.9% increase in imports so that net exports are now negative 4.5% of GDP. For now, most of the crowding-out has been in net exports rather than investment due to an expansionary monetary policy, which could quickly change if we ever got back to full employment.
Finally, note consumption rose by only 3.5% over the past year. While over the long-run having consumption growing by less than real GDP means more national savings, I share Kash’s concern that we do not have enough Keynesian fuel to get us back to full employment. Politically speaking, my #2 reason for voting for Senator Kerry next Tuesday is my hope that Rubinomics can return to the White House.