Why is growth so slow
May 2nd, 2010 by David Anderson
The recession is over, Thank GOD. The problem is the recovery is anemic. A typical recovery has over 5% growth, we are not there. The real question is why not?
First the good news. The economy grew at an estimated annualized 3.2% rate last quarter. The bad news is that was a drop from last quarter. The good news is that the basis for the growth was private sector business and consumer spending unlike the December quarter. Government spending increased only 1.7% for the feds and fell 3.8% for the states. That signals a strong durable base for continued growth.
My concern is what will pending tax hikes and continued high borrowing levels from the federal goverment do to the private economy. One reason unemployment will likely continue and be a drag on growth is that the federal government is absorbing the risk capital from the private economy. Blindly repealing the Bush tax cuts could very well hurt the one sector which has been leading the way out of the recession, business spending. It is half of the growth. Business spending on computers, software, and equipment is up 13.4%. Hike taxes on top schedule c and sub chapter s corp in America and see if that continues. The uncertainty is likely contributing to a slow improvement in employment.
If we took the best ideas of the Republican stimulus, we would have less debt, higher growth, and a better economy. The Democrat economic plan both prolonged the recession and now is depressing growth.
Ironicly the best part of the stimulus were the tax cuts and economic incentives to the private sector added in negotiations to get the 3 Republican votes. It was a shame that Democrats refused the more bipartisan approach which would have not only benefited the nation, but their party. By not working with Republicans, Democrats were able to shell out a wish list of spending, but it may be their last opportunity to do so for a while. Democrats were apparently counting on the natural recovery to kick in and claim credit. Unfortunately, their ill conceived policies are still hindering growth. They have focused on anything and everything but the economy. The voters now know that they care more about remaking America than reviving America’s main street economy. By shoving the Republicans aside into the opposition, they may have laid the groundwork for losing their majorities. It couldn’t happen to a nicer crew.
‘Growth’ is slow because nobody who hires people has any idea what elso BO and the Socialist-Democrats are going to tax, or how much it will cost them; this is known as uncertainty. Business owners who face the specter of new taxes aren’t usually in a hiring mood.
Reading your post I couldn’t help it, but the words double dip kept ringing in my mind. Then it got even worse and some old song lyrics came dancing in as well. But believe it or not they actually kind of explain why things are going to dip again. Here are some of the words first from the chorus then from one of the lines.
“I put my hand up on your hip
when i dip you dip we dip
you put your hand up on my hip
when you dip i dip we dip”
“Pop it push it rock it roll it
Can’t control it? I can hold it
It’s all in fun so take a chance
Just get on the floor and do that dance y’all
I know you like it so don’t try to hide it.”
The fact is that we are doing something that we still haven’t controlled and honestly we don’t even know how we are going to control it, because we like it. Even though the guy calling out the dance moves says he can hold it, the fact is we are out of control and he can’t hold it. Spending is not in control and until it is we are guaranteed to see the dips keep on coming just as deep or deeper.