Fourth Quarter GDP Growth and More Kudlow Konfusion
Lawrence Kudlow must have gotten an advanced copy of BEA’s GROSS DOMESTIC PRODUCT: FOURTH QUARTER 2006 (ADVANCE) as he wrote this yesterday afternoon:
You know, for all this talk about recession, (with some pundits calling for a recession just about every year – Paul Krugman comes to mind), the reality is that economic growth has been steady and strong following the 2001-2002 recession. Think lower marginal tax rates, implemented in 2003 to strengthen work incentives, and significantly increase after-tax investment rewards. This is Goldilocks plus. It is called free market, Milton Friedman capitalism – with a strong dose of supply-side guru Art Laffer.
First of all, Paul Krugman does not “call for a recession” every year. Secondly, while Kudlow’s 3.5% overall real GDP growth claim was borne out this morning, he really should have waited for the details before he claimed investment demand would be strong. Overall, fixed investment demand seems to be falling at an 11% annualized rate. This is mainly due to declining residential investment but also due to a slip in business investment. So it was left to a growth in net exports, consumption growth being at a 4.4% clip, and government purchase growth being at a 3.7% clip. As far as Federal government purchases, it seems nondefense purchases fell while the DoD is spending growth is strong. So Larry can cheer about all those new defense expenditures as national savings continues to decline. Not exactly the free market that Milton Friedman envisioned.