Barry Reitholtz needs more data

D.C. Is Dragging Down the Economy

The past two days have seen two positive surprises in economic data. Yesterday, the gross domestic product came in at 2.8 percent growth, significantly better than consensus expectations of 2 percent. This morning, payrolls jumped by 204,000 workers, against median estimates of 163,000.

Barry, we had a one time turn around on New Years and growth expectations and revisions have upward ever since. Moddy's Analytcs is getting their ass kicked for underestimating the power of austerity. It seems that you and Moody's do not understand the concept of multipliers less than one. Barry quotes an anlysist who claims:

Instead, he notes, “In three of the subsequent four years following FY 2009, total federal outlays contracted, by -1.7%, -1.8% and -2.3% in FY years 2010, 2012 and 2013, respectively.” The last time we saw anything remotely like this sort of Federal spending contraction was a 0.25 percent decrease in 1965.

So, clicking thru what is the analysts summary?

The word on the street is that Washington has a federal debt problem. The facts do support the notion that growth in the federal debt is relatively high by historical standards. But the facts also show that the relatively high rate of growth in the federal debt in the past five years is due to the historically low rate of growth in total federal receipts. In the five years ended FY 2013, the compound annualized rate of growth in total federal receipts was 1.9%, 520 basis points below the five-year annualized median growth over the past 60 years.

Ah ha, a clue. One of the reasons we cannot have more deficit spending is because the deficit will be needed to cover interest expense as our 17 trillion in debt gets refied. But golly gee whiz, under any reasonable growth the interest expense rapidly shoots upward in the budget, and Congress needs to keep some deficit spening in reserve to cover cost from its history of deficit spending.

Why do we have 17 trillion in debt? Because Congress invests in money losers, things that never pay off. These money losers are called multipliers less than one because the total GDP is less after the spending starts. And that is why austerity surprises upward, because economic sectors are not separable and additive.  Investment advisers whould know that.