Two Percent Just Won't Do

November 2, 2010

The economy grew at a 2 percent rate in the third quarter, but with unemployment at 9.6 percent, gross domestic product (GDP) growth of 2 percent just doesn't cut it, says Investor's Business Daily (IBD).

Many new reports have detected "improvement" in the economy in the July-September period.  Indeed, the GDP number was a little better than the 1.7 percent posted for the second quarter.  A closer look, however, provides little comfort.

  • While real GDP grew by an annual rate of $66 billion, nearly two-thirds of that -- $47 billion -- came from businesses restocking depleted inventories.
  • And while it's true that consumer spending increased at the fastest rate since late 2006, all that demand was satisfied entirely with imports, adding little to U.S. output.
  • Worse, business investment, though improved, remains weak -- thanks to fear over the impact of ObamaCare, a disastrous finance overhaul law, a growing $1.75 trillion regulatory burden and the prospect of massive tax hikes on entrepreneurs and small businesses early next year.

The fact is, for us to climb out of our economic hole, the United States must grow 3 percent or more for a number of years.  Three percent represents the nation's long-term growth potential -- defined as work force growth (about 1 percent) plus productivity growth (a bit over 2 percent).

There's a way to end this stagnation, says IBD.  

  • Germany is booming, with its jobless rate falling to the lowest level in decades, and Britain just announced a "surprise" jump of 3.2 percent in GDP at an annual rate.
  • Why? Both have slashed government spending and are reaping the benefits in private-sector growth.
  • The United States is taking a different tack, jacking up government spending by 21 percent in just two years.

If we don't change course soon, we may trade places with once-stagnant Europe -- and our economy will underperform for years.

Source: "Two Percent Just Won't Do," Investor's Business Daily, October 29, 2010.

For text:

http://www.investors.com/NewsAndAnalysis/Article/552192/201010291911/2-Just-Wont-Do.htm

 

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