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Thursday, January 31, 2013

GDP Stumble and Defense Expenditures

The 0.1 percent decline in GDP in the last quarter of 2012 has aroused a good deal of comment, including the tracing of it to decline in government expenditures. More tellingly, decline in military expenditures. The Bureau of Economic Analysis provides a series that tracks such expenditures. It is called National Defense Consumption Expenditures & Gross Investment (FDEFX). I am here reproducing a graphic of such expenditures from the Federal Reserve Bank of St. Louis, more specifically its FRED data service:


So what are we to think? The decline from the 3Q 2012 to 4Q 2012 was $46.8 billion. I wouldn’t mind getting, say, a tenth of that. My financial worries would be over. But in the context of our economy, and in light of the Himalaya-sized increase in military expenditures since the war on terror started, that’s just a little jiggle. Our graphic, up there, barely shows it. Herewith a bit of an enlargement:

If such a relatively small decline in defense consumption can cause the GDP to dip a toe into negative territory, the meaning is that our GDP is barely growing. This dip, at the tail of 2012, is a bit surprising, actually. I would have expected it sooner—say with the end of our withdrawal from Iraq. But no. We’ve been busy elsewhere at expanding rates. Now the mindlessly hawkish right will make the most of this dip. The dip will serve as ammunition for holding defense expenditures steady at minimum—while improving targeting of seniors (SS, Medicare) and the poor (Obamacare), and the young (tuitions).

I thank Monique for alerting me to this development. She sent me a link to a Chart of the Day (link) where its publisher provides a graphic of changes to total expenditure since 2000. The graphic exaggerates the change by this choice of presentation. Let us, by all means, hide the big picture and stir up the emotions. Whom the gods would destroy…

1 comment:

  1. WOW! Stunning graphic and excellent post.

    I knew there was something... odd about that chart I sent you. Whenever I see a chart in which the y access does not extend to zero, I'm suspicious and I know I need to look deeper to get the real picture.

    Thanks for digging up the big picture! Yes, the big picture is always the way to put these things into perspective and in the case of defense spending, to see just how insanely crazy it has all become.

    Furthermore, IF the dip we saw in military expenditures during the last quarter of 2012 had a big impact on the GDP, then we are far, far too dependent on defense spending to fuel our economy in this country. It also bodes poorly for mustering the political will to actually get defense spending to a reasonable level again. Sobering thoughts.

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