Nov

12

"Disappointing sales and profit forecasts from Cisco Systems Inc. show cutbacks in government spending that pose risks for companies that rely on the sector for growth." "State government orders fell 48 percent in the last quarter"

It is interesting to see how the times of the dot.com bubble are behind us. Now that the precipitous pace of growth is over they have to rely on increasingly indebted governments to keep their business going…Who is John Galt?

Gary Rogan writes:

If you superimpose the growth in the US GDP vs. growth in public debt since a little after 2000 you will realize that the entire US economy has been relying on the increasingly indebted government to keep the GDP growing, and that process went into hyperdrive since 2008. The entire growth for the last decade has been just a glorified game of check kiting.

Rocky Humbert responds: 

GDP 3/31/01 = 10.3 Trillion
GDP 9/30/10 = 14.73 Trillion

US total Public Debt Outstanding 3/31/01: 2.10 Trillion
US total Public Debt Outstanding 9/30/10: 4.65 Trillion

Nominal GDP growth = 4.43 Trillion (43%)
Nominal US total public debt growth = 2.55 (121%)

Unless Mr. Rogan has become a Keynesian, one would have expected him to argue that had the US total public debt growth (and government spending in general) been smaller, the Nominal GDP growth would actually have been larger. It's peculiar that he's arguing the opposite.

Gary Rogan responds:

Rocky, take a look at the chart at the top of this article (a few months ago, but still) and you will realize that there is more than one definition of "US public debt" and some come closer than others to matching my statement.

I did not argue one way or another about what would happen had the overall government borrowing not been so large. I will argue, or rather state, now that in order for the free market forces to act to restart the non-subsidized GDP growth we would have had to experience a rather severe, non-government-corrected recession to clean out all the malinvestment of the last 15+ years. I will also state that not only had there not been any Keynesian multiplier on the government spending in a "greater than 1" sense for a while, but lately that multiplier has collapsed to a rather small fracton. Nevertheless, even now if you borrow and spend you will raise the GDP by more than if you don't borrow and spend. Nothing particularly Keynesian there.


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