The Commerce Department reported Thursday the economy grew a puny 0.5 percent in the first quarter of 2016, following the nearly as bad 1.4 percent of 2015’s fourth quarter. The cover of this week’s Economist magazine reads, “Could She Fix It?” – the “she” being Hillary Clinton and the “it” being the economy. It’s an apt question.
It is true that it won’t be long before we know the Democratic and Republican candidates for the White House, but regardless the names the “it” – the economy – needs fixing. As the anemic recovery reinforced by the slowdown from anemia underscores, the magazine is surely correct.
Many have remarked, from President Barack Obama on down, as to how the economy’s growth has been disappointing, lackluster, anemic, the weakest on record, and related synonyms. While employment continues to rise at a moderate clip, almost nothing else about the economy is faring even this well. Not the manufacturing sector. Not the energy sector. Not workers’ wages. Not American families’ savings. Finishing the seventh year since the recession, the economy remains so weak the Federal Reserve has had to delay normalizing monetary policy, possibly indefinitely, a process that should had the economy performed normally been concluded years ago.
Clearly, the economy needs something amounting to a “fixing,” but why? True, the global recession and global financial crisis at the end of the last decade was exceptionally traumatic, but has it left such deep scar tissue on the body economic as to delay resurgence so long? Not at all. Take housing, for example. Except in a few isolated markets where the damage was especially severe because the bubble had been especially supersized, housing prices have fully recovered. In fact, the housing sector has recovered quite smartly, to the point one of the biggest drags on housing sales is the dearth of for sale inventory.
What about the financial sector? Through a combination of factors, including aggressive action from the Federal Reserve, the U.S. financial sector recovered remarkably quickly, well able to support whatever a robust recovery demanded.
Not only did the sectors hardest hit respond fairly quickly, but the U.S. economy received a miraculous boost first by the boom in fracking-based energy exploration, and then by the ensuring explosion in domestic energy production. In short, if anything, conditions were highly propitious for strong and rapid growth. Unfortunately, no such recovery materialized.
Why, then, did the U.S. economy log such a poor performance in recent years? Seeking to escape the obvious answers, some analysts have sought refuge is novel esoterica. One such explanation is the suggestion that somehow rising “economic concentration” is at fault. Noting the paucity of new business formation in the U.S. economy, they suggest the increasing role of “big business” as a proportion of the nation’s output is to blame. The relative shortage of new business formation is a real concern, one worthy of serious study. But tying a slow economy to a hint of an increase in the concentration of economic activity is an exercise in excuses.
The U.S. economy’s poor performance is properly charged to the economic policies of the current administration. One need look no further than the attempt at radically reforming America’s health care system, to tax policies designed to redistribute income rather than increase income, to threatened regulatory policies weighing business activity down with uncertainty and implemented regulatory policies weighing business activity down with red tape and higher costs. In short, one need look no further than the current administration’s enduring antipathy to the free-market economy to explain the poor performance of the free-market economy.
Whether any of the presidential candidates can “fix” the U.S. economy is a worthy debate, though the proposals of some suggest they have no better idea than the current administration while the proposals of others would damage it much further. The evidence is plain, however, as the Economist’s cover story question implies, the U.S. economy needs substantial repair, and the evidence is equally plain to explain why.
Dr. J.D. Foster is deputy chief economist at the U.S. Chamber of Commerce. He works with Dr. Martin A. Regalia, the Chamber’s chief economist exploring and explaining developments in the U.S. and global economies.