An Associated Press article out today could be titled, "Everything Republicans say About Economics Proven Wrong." Instead, we get the less entertaining but just as accurate, "
US economy shrinks 0.1 pct., 1st time in 3 1/2 years." If that doesn't sound like good news, that's because it is not. Even a minor contraction in an already deflated economy is enough to cause real worry, like a creaking support beam deep inside a coal mine. But one tenth of one percent isn't exactly a plunge into the danger zone and -- good news! -- we know exactly what caused it. Which means, we also know exactly what to do to fix it.
The U.S. economy unexpectedly shrank from October through December for the first time since 2009, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.
Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a total of 2.6 percentage points from GDP.
The Reader's Digest Condensed version: austerity sucks. Government spending is the dreaded s-word (i.e., "stimulus") to the US economy. If you cut federal spending, you cut demand, and the economy suffers. Duh...[
CLICK TO READ FULL POST]
