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Now, sing along . . . “Happy Days Are Here Again”

05/21/2013

It is a small secret that I find economics endlessly fascinating.  One would expect I would be a member of the American Economic Society, but I found those are the nerdy, academic type of economists who value mathematical purity more than usefulness.  Instead, I have been a long-time member of the National Association of Business Economics (NABE).

Yesterday, NABE released their latest Outlook, predicting that the GDP growth of 1.7% last year, will increase to 2.4% this year, and 3.0% in 2014.  That is very strong, compared to the last few years.

In February, they predicted the decreased government spending was a 1% drag on our GDP growth.  Since sequestration actually happened, they have increased that drag to 2.3%.  Now, putting politics aside, that means our GDP growth rate for this year would be a whopping 4.7%, which sounds like the “good ole days.”  We haven’t seen that much growth in many years.  This tells me the underlying economy is doing better than people realize.  Unemployment will remain high, and we’ll hear a great deal of political chatter about the “jobless recovery.”

With respect to the largest spending component of GDP, consumer spending rose 1.9% last year.  NABE expects consumer spending will rise another 2.3% this year and another 2.6% next year.  Again, this is very strong and also sounds like the “good ole days.”

In addition, my favorite professor from my Wharton days was (and still is) Jeremy Siegel.  He is arguing this bullish stock market is not a mere reflection of quantitative easing but a reflection of the growing strength of the underlying economy.  (Of course, he does not explain what quantitative easing is actually doing, if not pumping up the stock market to make consumers feel good enough to increase their spending.)

Now, assuming both NABE and Dr. Siegel are correct, what are the political implications?

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