Michael Darda wants to do some Bush cheerleading and dips into the Kudlow file of nonsensical concepts:
The growth of consumption plus investment (core GDP) advanced at a torrid 6.2 percent annual rate during the first quarter in real terms while nominal core GDP galloped at a 9.5 percent annual rate, the best showing since the first quarter of 2000.
Even though Darda later worries about inflation – he decides to tout the growth in nominal “core GDP”. As far as his real core GDP, I have several questions. The first is how did he come up with 6.2% as when I sum consumption and investment (total including inventory accumulation), it seems to have grown by a 5.6% annual rate during 2006QI. More fundamentally, why would he and Kudlow want to exclude net exports from their calculations? I would also challenge the notion that government purchases should be excluded from these calculations, but notice something. Real government purchases rose by just under a 4% annual rate.
So what is really going on here? Darda writes:
Real exports of goods and services advanced at a 12.1 percent annual rate during the first three months of the year after a 5.1 percent increase during the fourth quarter. This was the fastest quarterly rate of increase since the last quarter of 2003.
Darda omits the fact that imports grew more than exports. So the real reason Darda and Kudlow omit net exports from core GDP is that they don’t want to admit to their readers that the current account deficit has grown.
The graph shows private spending (consumption + investment + net exports) as a share of GDP from 2000QI to 2006QI. The suggestion from Darda and Kudlow that private spending growth exceeded overall growth is both false and also contradictory to the claim of certain small government conservatives that Bush has somehow been a liberal. The decline in the private spending/GDP ratio from around 82.5% in 2000 to 81% today is simply the flip side of the increase in government purchases, which were running about 17.5% of GDP in 2000 and are now up to 19%. As Kudlow once tried to argue – Bush has not cut government spending “Reagan style”. Then again – neither did President Reagan. Of course in the 1980’s, some conservatives blamed the Reagan deficits on exploding government spending, while some conservatives today claim Reagan succeeded in small government conservatism. Of course, anyone would bothers to review the historical record realizes that government spending as a share of GDP neither rose nor fell appreciably in the 1980’s either.