Austerity contracts economies? Who knew!
I wouldn't even call this a contraction. Three-fourth's of the GDP calcualtion: private industry, inventories, and net imports rose. It only fell a miniscule 0.1% because we slashed defense spending for the quarter at higher rate than the increase.
It's one of the big flaws of the GDP model. This should be good news but the calculation makes it look worse than it is. We're contracting the size of the government and the private sector is not reacting by contracting itself. That's what we hope for.
Government spending should only be increasing when the other three are falling, as to relieve the pain, but should be decreasing whenever the other three are increasing as to avoid crowding out. That's the great balancing act.
The good thing is that big business at least knows this. Markets aren't moving at all on this news.
