There was a ray of good economic news, suggesting that doing nothing may be good for the economy. The Post reports: “The nation’s gross domestic product increased at a 2.5 percent annual rate during the second quarter, according to the Bureau of Economic Analysis, a significant step up from the initial estimate of 1.7 percent. The report offered an optimistic offset to recent data showing a slowdown in the housing market. But economists warned that the factors driving the better performance were unlikely to be repeated later this year.”
This should bolster the argument that the sequester is not adversely affecting the economy. And, to be blunt, this suggests Congress shouldn’t bother with another round of grand-bargain deadlock. Another round of tax hikes doesn’t justify whatever minimal entitlement reforms the White House might cough up, even if a deal could be made. Slowly decreasing government spending and forgoing most (but not all) tax hikes has kept the economy chugging along.
Matt McDonald, a former Bush official and now a consultant, agrees that “the drag from government spending cuts that we saw last quarter has largely disappeared. Whatever impact the sequester may have had, it doesn’t appear to have been a significant drag on GDP vs. private-sector growth in the second quarter.” It is also telling that the increase in GDP was largely because of an uptick in exports, more evidence that we should be pursuing additional trade agreements in our hemisphere and elsewhere.
However, the economy has not seen the boost in employment and household income that we’ve seen in other recoveries. That could be cured and the GDP could be given a sustained and dramatic upward lift if burdensome regulations (specifically Obamacare), an uncompetitive tax code and a broken immigration system were replaced by sensible regulation, an internationally competitive tax code and an immigration system that could bring in workers. Moreover, fully exploiting our domestic energy would be a boon to workers and provide a range of businesses with cheaper energy.
If you listened to the president yesterday you would have thought the problem was that rich Americans are making more poor Americans, a complete misunderstanding of what spurs and hinders economic growth and upward mobility. Jim Pethokoukis of the American Enterprise Institute argues, “Instead of fretting so much about income inequality at the high end, Obama should focus on expanding economic mobility. Primarily, this means policies to boost GDP growth, polices including education, tax, and regulation reform.” He also suggests: “it’s wise to implement micropolicy ideas such as relocation vouchers for the long-term unemployed in high-unemployment areas and rolling back regulations that limit urban density.” Now there is something that might help urban America.