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Wednesday, May 02, 2012

On Those First Quarter GDP Numbers

It’s hard to be an entrepreneur and at the same time be a pessimist. Entrepreneurship really requires optimism. Of course, that optimism must be rooted in reality.
It’s been tough, therefore, to be an entrepreneur in recent years, not to mention an economist for a small business group. After all, you long to be optimist on the economy, but policymaking has made robust optimism simply not realistic.
We were reminded of this unfortunate fact when the U.S. Bureau of Economic Analysis released its initial estimates on first quarter GDP last week. After one of the worst recessions in the post-World War II era ended in mid-2009, the subsequent recovery has been grossly under-performing.
During periods of economic recovery/growth, based on data over the past six-plus decades, we should be experiencing real growth averaging at least in the 4.0 percent to 4.5 percent range.
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, it continues to be one of the worst economic recoveries on record.
But, again, 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 by 12 percent, and software and equipment only inching forward by 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 a Europe-like sluggishness.
Of course, things do not have to be that way. Our nation can 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 rooted in policy reality.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.  

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