I Don’t Mean to Nitpick, But…

You have no doubt read the news. The WSJ headline reads: Economy Snaps Long Slump, GDP’s 3.5% Rise May Mark End of Recession; Recovery Weak, Reliant on Stimulus. See here. I reproduce their figure at the right.

Evidently, consumer spending “led” third-quarter growth (note the implicit use of the theory that consumer spending “drives” growth — it is hard to get reporters to think outside the Econ 101 box). The 1% figure is, I think, rightly attributed in part to the “cash for clunkers” program.

My nitpick is the following observation. Almost all of these expenditure components (save exports) consists of spending on both domestically produced goods and imports. What fraction of this 1% is accounted for by spending on imported motor vehicles and parts?

It would be more informative, I think, if all these expenditure components had imports subtracted off individually; rather that summing them all up and then subtracting off total imports (the -2% figure in red).

Given the way the numbers are presented here, we have no idea to what extent the government subsidy stimulated domestic production (which is what goes into the calculation of GDP), as opposed to total expenditure. In short, did the “cash for clunkers” program simply encourage Americans to purchase foreign vehicles; and, if so, to what extent might one argue that this program encouraged the domestic production of vehicles (as opposed to foreign production)?

About David Andolfatto 91 Articles

Affiliation: Simon Fraser University and St. Louis Fed

David Andolfatto is a Vice President in the Research Division of the Federal Reserve Bank of St. Louis. He is also a professor of economics at Simon Fraser University.

Professor Andolfatto earned his Ph.D. in economics from the University of Western Ontario in 1994, M.A. and B.B.A. from Simon Fraser University. He was associate professor at the University of Waterloo before moving to Simon Fraser University in 2000.

His current research is focused on reconciling theories of money and banking. His past research has examined questions relating to the business cycle, contract design, bank-runs, unemployment insurance, monetary policy regimes, endogenous debt constraints, and technology diffusion.

Visit: MacroMania, David Andolfatto's Page

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