Economic Growth Freezes, Goes the Other Way
After many months of recovery, data shows that economic growth came to a halt in the last quarter of 2012. In fact, there was actually a 0.1 percent decline, forcing economists who have championed the official end of the recession to rethink their assessment. Although growth was never substantial, it was at least steady, and this reversal was widely unexpected. It also raises questions about the future economic stability in the market.
Some experts are attributing the dip to automatic spending cuts that took place at the end of the year. Less government spending means less economic stimulation. The 22.5 percent drop in military spending alone was a big enough hit to do significant damage to the overall GDP. However, this is a procedure that a majority of Americans were in favor of. In an era where the debt is reaching record highs, politicians on both sides have cried out for less government spending in various departments. If this is truly the catalyst, then America is in for a rough ride, as more spending cuts are scheduled to take effect in March.
This is actually only a fragment of the real issue though. It’s true that economic growth was stunted by a reduction in the already sluggish GDP. Relying on military spending as a platform to fuel the economy is not a long term solution; it’s a step in the wrong direction. Gross domestic product is nurtured through a country’s ability to competitively produce and manufacture goods. When domestic businesses are selling their goods both at home and overseas, the economy thrives.
But the United States has not only witnessed many years of diminished exports; we have nearly abandoned manufacturing altogether. Many of the largest and most prominent companies of the last half-century have relocated their manufacturing to cheaper locations overseas. Why not? Labor is less expensive in Mexico and China, and the U.S. has openly embraced the concept of “free” trade, meaning shipping goods back here doesn‘t cost a penny. The upside to “free” trade is supposed to be the ability of domestic companies to reach new markets overseas. The only problem is that there are a lot fewer American producers these days. This amounts to fewer exports, more imports, and a reduction in GDP.
Spending cuts may very well have played a large part in the recent decline in growth. But they aren’t the overall hindrance to the American economy. Growth was slow to begin with, and even as economists believe it will return next quarter, it only figures to be around 1.5 percent, which is still dreadful. The roadblock to real economic growth lies within a flawed trade policy and a lack of commitment to American manufacturing. Attributing a lack of growth to spending cuts is a sordid approach to economics. If the U.S. continues to look at government spending as the key to long term recovery, we will simply continue to tread just enough water to drown another day.