2% Just Won't Do
Jobs: The economy grew at a 2% rate in the third quarter, bringing a sigh of relief from those who feared a worse performance. Sorry, but with unemployment at 9.6%, GDP growth of 2% just doesn't cut it.
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% 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. That's the real engine of our economy.
The fact is, for us to climb out of our economic hole, the U.S. must grow 3% or more for a number of years. We didn't make that number up; it represents the nation's long-term growth potential - defined as work force growth (about 1%) plus productivity growth (a bit over 2%).
So growth below our 3% potential means America's army of unemployed - now 15 million - will grow. That's not a recovery; it's a growth recession. Today our $13.26 trillion gross domestic product is nearly $1 trillion smaller than its potential. If we can't close that gap, future generations will be that much poorer.
There's a way to end this stagnation. Germany is booming, with its jobless rate falling to the lowest level in decades, and Britain just announced a "surprise" jump of 3.2% in GDP at an annual rate.
Why? Both have slashed government spending and are reaping the benefits in private-sector growth.
The U.S. is taking a different tack, jacking up spending by 21% in just two years - a trend that will continue if the current Congress gets its way. We simply have failed to face up to the economic consequences of a bloated government and failed Keynesian policies.
If we don't change course soon, we may trade places with once-stagnant Europe- and our economy will underperform for years.