Bad policymaking at fault for dismal economic news

Raymond Keating
Raymond Keating

It’s hard to be both an entrepreneur and pessimist. Entrepreneurship really requires optimism. Of course, that optimism must be rooted in reality.

Consequently, it’s been tough to be an entrepreneur in recent years, not to mention an economist for a small business advocacy group. After all, you long to remain optimistic about the economy, but policymaking has made robust optimism unrealistic.

We were reminded of this unfortunate fact when the Bureau of Economic Analysis released its initial estimates on growth in gross domestic product during the first quarter of 2012.

After one of the worst recessions in the post-World War II era ended in mid-2009, the subsequent recovery has been grossly underperforming.

Based on data for periods of economic recovery and growth over the past six-plus decades, we should experience real GDP growth averaging at least in the 4 percent to 4.5 percent range.

According to the latest estimates, however, real GDP growth in the first quarter came in at a mere 2.2 percent. And during this recovery, growth has averaged only 2.4 percent, without growth in even one quarter touching 4 percent.

Quite simply, one of the worst economic recoveries on record continued to grossly underperform in the first quarter.

Given the egregiously anti-growth tax, regulatory and spending policies; largely nonexistent U.S. trade policy; and misguided monetary policy that have dominated for more than four years now, no one should be surprised by this dismal economic record.

Particularly troubling in the first quarter GDP data was the fact that private nonresidential investment was so poor, with investment in structures falling

12 percent and software and equipment only inching forward 1.7 percent.

That’s troublesome now and for the future.

Looking ahead, if such policymaking persists, no one should be surprised if the U.S. meanders along in Europe-like sluggishness.

Of course, things don’t have to be that way.

Our nation could return to economic greatness and leadership if we choose to unleash the creative power of entrepreneurs, investors and businesses by getting government out of the way — that is, by permanently and deeply reducing tax rates, deregulating, reining in the size of government, advancing free trade and refocusing monetary policy on price stability.

That would be cause for entrepreneurial optimism firmly rooted in policy reality.