In his latest post analyzing fourth quarter gross domestic product data, White House chief economist Alan Krueger offers a chart that tells you most of what you need to know about the U.S. economy circa 2013.
Through 2008 and 2009, it shows, the private sector in the United States was contracting on a huge scale. Consumer spending, business investment and residential investment all were plummeting. At that time, government spending soared, both from the fiscal stimulus package enacted at the start of 2009 and automatic increases in social welfare programs that kick in when the economy is weak, like unemployment insurance benefits.
Since then, the private sector has been expanding. But the public sector has been simultaneously pulling back. That includes state and local governments slashing spending to balance their budgets, the expiration of federal stimulus, and starting in 2011 deficit-reduction policies arrived at as part of a deal to raise the federal debt ceiling.
The question now is which will be more powerful in 2013: The underlying strength of the private sector, or the contractionary effects of further fiscal austerity.