Democrats who are banking on a revived economy to save their political skins in the debacle that is President Obama’s second term should re-examine some data.
U.S. factories in May posted their worst month since the end of the recession, as weakness overseas overwhelmed a still-shaky manufacturing recovery at home.
The Institute for Supply Management on Monday said its broad index, in which any reading below 50 indicates contraction, fell to 49 from 50.7 in April—the first decline since November. The reading, based on a survey of corporate purchasing managers, is the lowest since the recession ended in June 2009. . . .
But Monday’s manufacturing report isn’t the first sign that the domestic economy isn’t yet strong enough to overcome weakness overseas. Consumer spending fell in April, the Commerce Department said Friday, and even the rebound in housing remains unsteady: Residential construction spending fell in April, the government said Monday. Auto makers on Monday reported strong sales gains in May, but some analysts saw signs that the market’s recovery has begun to level off.
Rather than a solid recovery, we are seeing a pronounced trough with anemic growth, unimpressive job creation and stagnant wages.
We can point to tax hikes, Obamacare, Dodd-Frank and the general anti-business tenor of the administration. But we also see, as Jim Pethokoukis points out:
a) In 1982, new companies made up roughly half of all US businesses, according to census data. By 2011, they accounted for just over a third; b) from 1982 through 2011, the share of the labor force working at new companies fell to 11% from more than 20%; c) Total venture capital invested in the US fell nearly 10% last year and is still below its prerecession peak, according to PricewaterhouseCoopers.
This is what happens when you laden businesses with regulations, put straightjackets on lenders and subsidize uber-expensive education, which may preclude risk taking in favor of steady income from a big company.
In an interesting coincidence, Sen. Rand Paul (R-Ky.) just back from California writes about the vise on innovative companies:
I believe we should be welcoming more immigrants, and especially entrepreneurs and innovators. We should work to attract science, technology, engineering and math graduates to come to the U.S. and remain here. We should welcome in particular the best and the brightest.
To create the right environment for innovators to be successful, we also need a tax system that incentivizes American companies to invest here at home. We should not penalize companies operating subsidiaries in overseas markets for our outdated, outmoded and nonsensical tax code.
Instead of vilifying job creators and tech revolutionaries like Apple for doing what every sensible business does — seeking to reduce tax liability within the boundaries of the law — we should be taxing money held offshore by American firms at a 5 percent rate if they bring it home. That could add a trillion dollars to the U.S. economy, help create jobs and be a boon to the technology sector.
Those ideas make sense, but so does maintaining a strong defense industry (with its high-paying jobs and technology applications for the private sector). It also seems reasonable to scrap the Obamacare medical device tax, among the dumbest parts of Obamacare. And most important, it means we need to stop wasting money on green energy cronyism and start to open up domestic energy production.
In other words, we have an industrial and entrepreneurial crisis in large part because of misguided government policies. Every policy, from immigration to education reform to health care to energy, should be assessed by asking: Does it create jobs? Does it spur wealth creation and opportunities?
An agenda built around those concepts — reindustrializing the United States, spurring innovation and business start-ups and giving low- and middle-class Americans a path to improve their situation — is waiting for a powerful advocate.
That doesn’t mean robotic adherence to spending cuts or to tax breaks for the rich and big companies. In fact some of the most successful governors (e.g. Bob McDonnell in Virginia, Mitch Daniels in Indiana, Jeb Bush in Florida) have deviated now and again from conservative orthodoxy in order to provide a robust infrastructure and a dynamic business environment. It means paying for meaningful education and necessary transportation. It means working with Democrats to prevent gridlock. And it means trying to explain to voters why conservative economic policies benefit them.
Ironically, the much maligned president George W. Bush had in mind a pretty good policy mix — education and immigration reform, tax reductions with significant savings for the non-rich and reduced capital gains taxes, modest regulation and strong support for private, charitable institutions.
The financial crash (in large part the doing of screwy federal housing policy, Clinton-era Glass-Steagall regulation and poor Fed economic watchdogging) is not a reason to avoid pro-growth policies. (That would be like saying we should not spend money on schools because we’ve had lousy results; school reform is essential.) It has, however, focused us on the need to have an agenda that strikes the proper balance between public and private sectors. And if the current spate of scandals teach us anything it is that government is not always (often?) benevolent, impartial or smart.