The third revision of first quarter 2014 U.S. Gross Domestic Product (GDP) came in yesterday at a shocking negative 2.9%.

Gross domestic product fell at a 2.9 percent annualized rate, more than forecast and the worst reading since the same three months in 2009, after a previously reported 1 percent drop, the Commerce Department said today in Washington. It marked the biggest downward revision from the agency’s second GDP estimate since records began in 1976. The revision reflected a slowdown in health care spending.

However, when the initial estimate projected minimal growth in the economy,the Obama Administration claimed it was the Affordable Care Act that prevented a contraction in GDP.

After digesting the initial report Wednesday morning, a serious discussion has begun suggesting that it was the Obamacare law itself that created the Q1 2014 economic drag.

Basically, consumption was much weaker than it first appeared. Personal consumption growth was revised down to just 1% in the just-released numbers, from 3.1% previously.

Why? The US Bureau of Economic Analysis had assumed that the rollout of the Affordable Care Act—known colloquially as Obamacare—would prompt a big boost in usage of medical services, and they baked that assumption into the previous GDP estimates. But recently released quarterly survey data showed that those estimates were too optimistic. (The previous BEA estimate pegged consumption of medical care growth at 9.1%. Today’s number put it at -1.4%.)

It is too bad that no one saw this coming — except someone did: Casey Mulligan, an economics professor at the University of Chicago.

A new wave of redistribution will arrive in America on Jan. 1, primarily thanks to the Affordable Care Act. The president’s health-insurance plan forces those who hire, work and produce to pay full price for health care, while creating generous discounts for practically everyone else.

This second redistributionist wave of the Obama era will follow a first wave of tax hikes, additional unemployment benefits, food-stamp expansions, waived work requirements for welfare benefits, etc. These measures were supposed to be temporary, intended to help people cope with the recession. The recession officially ended in mid-2009, but many of the administration’s measures continue.

Regardless of whether redistribution is achieved by collecting more taxes from families with high incomes, levying employment taxes on businesses, providing more subsidies to families with low incomes, or all of the above, an essential consequence is the same: a reduction in the reward for working.

Mulligan ended his October 2013 column with what turns out to be an accurate warning about the impact of the Obamacare implementation — an economic contraction.

America absolutely must have taxes and safety-net programs, even though they reduce the reward for working. But advocates for the recent program expansions have failed to acknowledge that redistribution necessarily increases marginal tax rates and contracts the labor market.

Don’t be surprised if the second redistribution wave coincides with a recessionary double-dip.

With Q1 2014 on the negative side, Q2 2014 GDP will be the key to know how much of a soothsayer Professor Mulligan really is.


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