Bleak prospects a result of big government policies

For 45 months, nearly four years now, the United States has suffered under a troubled economy. Other nations around the globe have not fared much better — indeed, some worse.

Although it was not a surprise, gross domestic product data for the second quarter in the U.S. was revised downward, according to a news release from the Bureau of Economic Analysis.

The “advance” estimate for real GDP growth during the second quarter was a dismal 1.3 percent. The revision was even worse at 1 percent. Following on 0.4 percent real growth in the first quarter, this is about as close to recession as the economy can get. Over the past four quarters, real GDP growth has averaged a mere 1.6 percent.

Part of the first quarter revision came from lower figures for exports — reflecting slower growth among our trading partners. Indeed, the economic news from Europe, for example, has been unrelentingly grim. Keep in mind that in terms of total trade — exports plus imports — through the first six months of this year, the European Union as a single entity ranked as the largest U.S. trading partner, running ahead of Canada.

Interestingly, the same problems and risks weighing on Europe now weigh on the U.S.

Europe, led by Greece, has dug itself a mighty hole due to the vast size of the government sector. Of course, this has been a problem building for decades. Europe’s large government sector has had the effect of crowding out and restraining the private sector for decades now, which has translated into slow economic and job growth. But when the recent credit and economic mess hit, Europe’s public sector ills were more fully exposed.

At the same time, the response to the 2008 and 2009 recession and subsequent underperforming recovery has been a Keynesian effort of government trying to juice up aggregate demand. Predictably, that strategy has been an abysmal failure. For good measure, Keynesian government stimulus spending has substantially worsened the fiscal situation in the U.S.

Now, the U.S. imposes government spending levels that are without precedent in this nation’s history and brings us closer to a long-term, European-style governmental and economic mess. Given scheduled tax increases and the threat of added tax hikes tied to mounting federal spending and debt, government spending and taxing policies stand as clear obstacles to enhanced growth.

Regulations in Europe, and those mounting in the U.S. under the Barack Obama administration, send an even more negative message to entrepreneurs and business.

For good measure, additional troubles come from a lack of U.S. leadership on free trade and monetary policy wrongly focused on trying to gin up growth rather than maintain price stability.

There’s no secret as to what’s going on with our economy. The problem is activist government in terms of spending, taxes, regulation and monetary policy.

When looking at all of these costs, uncertainties and questions, it should surprise no one that the small business community has been worried and both unable and unwilling to expand and create jobs.

Until the U.S. policy agenda changes dramatically — to smaller government, substantive and permanent tax and regulatory relief, reduced trade barriers and monetary policy focused on fighting inflation — U.S. economic underperformance will persist.


Raymond Keating is chief economist for the Small Business & Entrepreneurship Council, an advocacy, research and training organization based in Washington, D.C. Reach Keating through the Internet Web site located at


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Posted by on Aug 31 2011. Filed under Contributors. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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