WEST PALM BEACH, Fla. (AP) — Commerce Secretary Howard Lutnick announced on Sunday that government spending might be separated from gross domestic product (GDP) reports. This comes in response to concerns that spending cuts advocated by Elon Musk’s Department of Government Efficiency (DOGE) could lead to an economic downturn. “Historically, governments have manipulated GDP by counting government spending as part of it,” Lutnick stated on Fox News Channel’s “Sunday Morning Futures.” He plans to make a clear distinction between the two for transparency.
This move could complicate or distort a key measure of the U.S. economy’s health. Traditionally, government spending is included in GDP calculations because fiscal policies can influence overall economic growth. Current GDP reports already provide detailed insights into government spending, offering transparency for economists.
Musk’s initiative to downsize federal agencies might lead to significant layoffs, reducing consumer spending and impacting the broader economy. Lutnick’s comments align with Musk’s recent assertion on X that government spending doesn’t add economic value. Musk argued that excluding government spending from GDP would prevent artificial inflation of the metric through inefficient expenditures.
Trump administration officials seem to downplay the economic benefits of Social Security, infrastructure projects, and scientific research. Lutnick illustrated this by contrasting the purchase of a tank, which counts towards GDP, with paying people to merely consider buying one, which he views as wasteful.
The Commerce Department’s Bureau of Economic Analysis released its latest GDP report on Thursday, indicating a 2.3% annual growth rate in the last quarter of the previous year. The report highlighted that increased consumer spending and revised federal defense spending drove this growth. For 2024, government spending constituted 2.6% of GDP, slightly below the overall economic growth rate of 2.8%.
Government spending represents nearly one-fifth of personal income, amounting to over $24.6 trillion last year, including Social Security, veterans’ benefits, and healthcare programs. However, the government can also detract from GDP, as seen in 2022 when pandemic-related aid ended.
Lutnick emphasized that balancing the federal budget through spending cuts would boost economic growth and lower consumer interest rates. “Balancing the U.S. budget will cause interest rates to plummet,” he claimed. “This will be the best economy ever witnessed, and doubting it would be unwise.”
— news from The Associated Press