Stunted growth

Stunted growth

Predictions that the economy will pick up have not been matched by reality.

Everyone realizes the economy is limping along, but the federal government's report this week of negative growth in the fourth quarter of 2012 comes as decidedly bad news.

The good news about the bad news is that it may not actually be as bad as it could be. The research firm Capitol Economics called the news "the best-looking contraction in U.S. GDP (gross domestic product) that you'll ever see."

The government reported that GDP — the measure of goods and services generated by economic activity — fell at a rate of 0.1 percent in the fourth quarter. That's halfway to an official recession, which is defined as two consecutive quarters of negative growth.

There's no way to spin this as anything other than a setback for optimists who keep expecting the economy take off, putting people back to work and generating the tax revenues that local, state and federal governments desperately need.

The decline was attributed to a drop in government spending, falling exports and reduced business inventories. Other areas of the economy, like housing, consumer spending and business infrastructure investment, were on the positive side, to the point that economists are estimating the economy will grow at a 2 percent rate in 2013.

Two percent is not good — but it's a lot better than negative growth. It's higher than it was in 2011, when GDP was up 1.9 percent, and lower than it was in 2010, when GDP was 2.4 percent.

Unfortunately, the estimated 2 percent growth rate is lower than what it is needed to produce enough jobs to match the number of new workers entering the labor market and is far less than the 3.5 percent to 4.5 percent growth rates the Federal Reserve predicted in 2010.

What Americans are witnessing is a monumental dual-policy failure. The massive government stimulus spending of 2009 and 2010 and a continued policy of "quantitative easing" and near-zero interest rates have not had their predicted positive effect on economic activity.

Despite the predictions of economic growth in 2013, there is no guarantee this country won't slip back into a dreaded recession. The recent 2-percentage-point increase in Social Security taxes on all workers, higher federal taxes on upper-income earners, tax increases associated with Obamacare and higher personal costs for things like health insurance and fuel will suck vast sums of money out of people's pockets, money they won't have to spend elsewhere.

The negative growth announced this week may prove ultimately to be the "best-looking contraction" ever. But bear in mind that there's no such thing as an attractive contraction, even under the best of circumstances.

Sections (2):Editorials, Opinion
Categories (2):Editorials, Opinions

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Sid Saltfork wrote on February 02, 2013 at 10:02 am

Well, let's go back to the Good Old Days that got us into this mess.  Trickle Down Economics, no banking oversight, deregulation, and wars must be the answer.  We need another GOP president like George the Second to get us back to financial stability.

Seriously, we are slowly moving forward.  There is no magic solution to the problem.  The most positive thing that citizens can do is to continue to build optimism with the slow growth. The doom and gloom criticism avoids the reality of the time, and hinders the growth.  It divides the citizens.  It is a failing defense for failed policies, and a failed party.  America cannot continue with the Rich getting richer, and the Poor getting poorer.  The middle class has slid into the working poor.  We will slowly get out of this mess; but not with the policies that got us into this mess.