Wednesday, August 12, 2009

Winner Of The Great Recession: Government

Left-liberal journalist Daniel Gross asks which companies or institutions have fared better than others during this "Great Recession". He names McDonald's as one big winner, something which can be explained by how McDonald's is in the non-cyclical business of food and how it is a low price alternative within the "Food away from home" category. Partially countering this is the fact that "Food away from home" (restaurants) is more cyclical than "food at home", but as the example of McDonald's illustrates, the two former factors are usually more important.

The big winner from "The Great Recession" however remains big government. In America, as well as in almost all other countries, government spending has increased dramatically relative to the private sector. Between Q3 2007 (the last quarter before the recession) and Q2 2009, the share of GDP going to government purchases rose from 19.0% and 20.7%, a 9% relative increase ((20.7-19.0)/(19.0)). If you also include transfer payments, the increase in government spending is even larger.

And generally, even though the policies of the government institution known as the Fed (as well as the Fed's fellow central bankers in other countries) was responsible for the crisis, the risk is that government interventionism will be the real winner from this crisis.


Anonymous Anonymous said...

I have brought the blatant aggrandizement of the FedGov in monetary terms to many people, who simply retort that the government agencies need that money to 'help people'. How increasing real taxation and eating up resources is going to help people in an economic recession is beyond me. I suppose it comes from the assumption that government 'obviously' is using it to help 'people who need it'.

4:32 AM  

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