One of my favorit economic blog: Worthwhile Canadian Initiative published a comparison between Canadian and American GDP growth for the Q4/2009 period, comparing Canada's 5.0% GDP growth to America's 5.9%. Stephen published the table below which compared the source of growth in the two economies:
The third column of the graph has serious implications; underlining the different impact that government spending are having in both jurisdictions. Whereas the source of GDP growth in Canada was consumption, government spending and investments, in America GDP growth was caused by inventory, consumption and investments. It appears that the massive federal government capital injection into the American economy was completely negated by the cuts in expenses by state and local governments. The overall GDP growth contribution by all levels of government was negative -- the implication of the ending of federal stimulus will therefore become a serious drag on the economy. A fun fact is that unlike Canadian provinces, American states are constitutionally prohibited from running budget deficits (essentially the American system has installed a system that Europe should have adopted).
The stories one hear from states like Nevada -- where even if the state fired every single employee (we are talking everybody -- teachers, road crew, police, firemen etc) they would still register a budget deficit.
I'm not entirely clear why so few commentators discuss this aspect of GDP growth. I was surprised that this was not a talking point on FOX (no not really) -- imagine Fox news stating that government contributed negatively to GDP growth.
The third column of the graph has serious implications; underlining the different impact that government spending are having in both jurisdictions. Whereas the source of GDP growth in Canada was consumption, government spending and investments, in America GDP growth was caused by inventory, consumption and investments. It appears that the massive federal government capital injection into the American economy was completely negated by the cuts in expenses by state and local governments. The overall GDP growth contribution by all levels of government was negative -- the implication of the ending of federal stimulus will therefore become a serious drag on the economy. A fun fact is that unlike Canadian provinces, American states are constitutionally prohibited from running budget deficits (essentially the American system has installed a system that Europe should have adopted).
The stories one hear from states like Nevada -- where even if the state fired every single employee (we are talking everybody -- teachers, road crew, police, firemen etc) they would still register a budget deficit.
I'm not entirely clear why so few commentators discuss this aspect of GDP growth. I was surprised that this was not a talking point on FOX (no not really) -- imagine Fox news stating that government contributed negatively to GDP growth.
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