The Economy is Growing. Right. And I Don't Have a French Accent.

We should be happy. The Bureau of Labor Statistics announced a 3.5 percent growth in this year 3rd quarter. Yet, most of us aren’t. At least I know I am not. Why? Because I have no faith in the numbers.

First, the Gross Domestic Product (GDP) numbers include government spending. So, when the government pumps thousands of billions of dollars into the economy it will look as if GDP is growing.

What’s more, the way the GDP accounts for government spending is totally biased: It assumes that if the government is spending $200,000 on a contractor to repave a road in the middle of nowhere that it will create $200,000 of genuine economic value. By contrast, GDP measures are tougher on private-sector spending. As my George Mason university colleague Garett Jones explained to me recently “So if Exxon Mobil pays an engineer $200,000 per year, that only shows up in GDP if the engineer finds an extra $200,000 of oil to sell, or builds a new machine that sells for $200,000, something like that. So our GDP measures of “government spending” are awful–and when the government is in a race to spend money as quickly as possible, these measures are going to be even worse than usual.”

This is an very important point. Especially when we think of this particular data. First, the current dollar GDP increased $150.3 billion in the third quarter. In the same time period, the government injected about $174 billion dollars into the economy in the form of personal tax cuts, unemployment assistance, student aid and nutritional assistance, and grants. In other words, the amount of cash the government injected in the economy exceeds the current GDP increase.

Another point: the GDP doesn’t capture any changes in personal stock benefits. This is key because high ranking executive are getting the majority of their compensation from that. That’s got to be looking pretty bad right now. But the GDP doesn’t capture that.

GDP also doesn’t capture Research and Development spending. The cuts in this area were large and unaccounted for. Also not included in the GDP figure: Pension benefits and the flow of funds accounts of the United States Balance sheet information from the Federal Reserve Board.

This is some of what’s wrong with the numbers. And that’s why I would rather find a bar to drown my sorrows than to celebrate right now.