Economic growth vs. Economic GROWTH

What has happened since October 9, 2007? Oh, not that much… Photo: Associated Press

WASHINGTON, April 16, 2013 — We need to significantly reduce the regulatory burden on the private sector. The Obama administration is doing the opposite. They’re loading on more and more regulation on the private without respect to how the economy functions. - Dick Cheney

What has happened since October 9, 2007? Let’s see:

The stock market absorbed a 57 percent decline; the U.S. elected then re-elected Barack Obama; political hyperpartisanship has become the norm; Obamacare became reality; Dodd-Frank was passed and slowly enacted; the U.S. has seen its credit rating downgraded; the Fed has launched three waves of quantitative easing; unemployment peaked above 10 percent and now sits at 7.7 percent; the markets have experienced a four-year bull market since bottoming out, rebounding to record highs; the economy has experienced four years of tepid economic expansion.

A lot has happened.

Historically, the economic bounce-back from severe recessions has been strong. This recovery has oscillated through periods of regression and improvement. Much of its relative weakness has been the result of ill-conceived policies that have blunted the economy.

The financial crisis was devastating and hard to recover from; it rocked banks, businesses and the general public to the core. It made us question how we do things in the U.S. Yet memory is short-lived, and most of us got back on our feet relatively quickly. Then Washington did everything it could to limit expectations and cause new volatility.


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This has manifested itself presently in the form of weak 2013 GDP growth projections that range anywhere from 1.7 to 2.3 percent. This begs the question, “Where could U.S. growth be without Washington’s wrangling and regulations?”

Dodd-Frank was an initial knee-jerk reaction to the financial crisis. Intentions aside, the program of financial reforms has been estimated to cut nearly 2.7 percent from U.S. GDP.

The Fiscal Cliff “fix” produced both payroll taxes increases and higher income tax on the highest wage earners; it was another ill-timed farce. Although seemingly small in impact, the increase has a consensus negative impact of nearly 1 percent of GDP.

The March 1 automatic spending cuts (sequestration) were never meant to be a viable deficit-cutting option, but that is a discussion for another column altogether. What Congress, with a lack of leadership from the President, has managed to do is shave another .5-1 percent off 2013 GDP.


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Then there is the elephant in the room, Obamacare. This well-intentioned, poorly devised and almost totally unvetted healthcare reform law has economic ramifications that are only now becoming apparent. It was only on January 1 that we started to get a clear idea of what would emerge from Obamacare, and it most likely will take the remainder of the year to understand what type of ceiling it places on the economy.

It is important to look at the impact of government policies on GDP, because these policies affect us all. The more growth, the more money for support services for the poor, the more money for our families, the more money to start new businesses and innovate — the more opportunity in the United States.

All things considered, the economy has been expanding and will continue to do so, thanks to the strength of the private sector. Washington did a terrific job stunting what could have been a more efficient, meaningful and widely felt expansion. Through poorly developed policies, they have shaved 4.2-4.7 percent off of GDP. That difference is the difference between real economic growth and the stymied growth that has many still feeling beleaguered, depressed and idle. It is time for Washington to become a real partner with the private sector as opposed to a selfish counterweight. It is for the good of America!

 

ABOUT THE AUTHOR: Erol Senel has been plying his trade in the world of finance and personal investing. Through this real world experience, he has found his true professional passion in economics and financial history.

Contact: erol.senelATgmail.com   

Twitter: @senelslant

 


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