With the stunning announcement that GDP (Gross Domestic Product) rose 7.2% in the third quarter, compared to 3.3% in the previous quarter, some are questioning whether this represents a long-term trend in the economy or a remarkable blip.
Although government economists had expected a big increase in third-quarter numbers, about 6%, the 7.2% figure came as a shock because it was the most rapid growth since the first quarter of 1984.
According to ATA, trucking-related business represents 5% of GDP. Therefore, an increase in GDP most likely includes an increase in truck revenues.
It appears that consumer spending is currently keeping the economy humming. This disposable income is the result, Bush Administration officials say, of the President's tax cuts, which put more money into consumers' hands. So far, Bush has cut taxes in every year of his presidency. There's no doubt these actions have propped up the economy in the short term, but what are the long-term implications of this and other Bush economic programs?
Democrats, who fear that a good economy will allow Bush another term, are quick to jump on Bush's economic program as a short-term fix that is unsustainable. “It's a little like going on a drunken binge,” said Sen. Kent Conrad (ND). “It feels good for a while but you all know the hangover is coming.”
Most opponents point to a continued weak job picture as a reason why the economy will stall despite recent good job news. Although October payrolls grew for the third straight month, it is still too early to tell if it's a trend or a blip.
While few disagree that Bush's aggressive tax cuts may have staved off a sharp economic downturn, the nation's deteriorating deficit situation has many long-term thinkers worried. In January 2001 the Congressional Budget Office estimated a cumulative surplus of $5.6 trillion. In August 2003 this changed to a deficit of $1.4 trillion over the next decade — a huge shift. The Bush Administration says the country can handle these deficits because they represent only 4.3% of GDP by 2012, its peak.
But the estimates run into trouble because they don't take into account a number of factors. First, to keep the stimulus going, tax cuts will have to continue past their mandated expiration, which could add another $1.9-trillion to the debt over the next ten years.
Second, entitlements like Medicare will have to increase another $400 billion over the next decade as baby boomers age. Third, the Alternative Minimum Tax currently affects only a small number of taxpayers — about 2.5 million in 2002. But with the continued tax cuts, more taxpayers, as much as 30 million by 2010, can take advantage of it. That could add more than $600 billion to the deficit within ten years.
Another wildcard is the cost of Bush's war on terror. Congress just passed an $87.5-billion supplemental request for Iraq and by all accounts the President's anti-terror program will continue to drain the American economy without the so-called ‘peace dividend’ that has characterized the end to previous U.S. conflicts.
Federal Reserve Chairman Alan Greenspan, a Republican and arguably the most learned economist in the world, has been warning about the country's rising deficits recently. In early November he told the Securities Industries Assn. that if the deficits are not brought under control by the time baby boomers start retiring, it could have “a notable, destabilizing effect” on the country's future growth prospects as it tries to handle increased payouts for Medicare, social security and interest on the national debt.
The man who warned us about the stock market bubble three years before it occurred said: “The relatively optimistic short-term outlook for the U.S. economy is playing out against a backdrop of growing longer-term concern in financial markets about our federal budget.”