Today the Wall Street Journal reports that the slowdown in economic growth is becoming a worry.
Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.
"It's very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer," said Nigel Gault, an economist at IHS Global Insight. He expects an annualized, inflation-adjusted growth rate of less than 3% in coming quarters—better than the first-quarter's 1.8% rate, but too slow to make a meaningful dent in unemployment.
Maybe the economists are all wet about what drives a recovery. Housing isn't going to rebound soon. Consumer spending is in the tank until consumers have less reason to worry about their jobs. There will be no consumer or housing driven recovery this time.
The Reagan and Bush II recoveries were initiated by tax cuts and regulatory relief. Granted, there is a limit to what you can do with tax cuts, since there is a limit to how far you can cut taxes. But our president has already promised us tax hikes -- in the interest of fairness, of course.
That leaves regulatory relief as pretty much the only thing left to try. An article on the subject by Stephen L. Carter, a professor of law at Yale University, tells why.
The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward.
Demand for his product is up. But he still won't hire.
"Why not?"
"Because I don't know how much it will cost," he explains. "How can I hire new workers today when I don't know how much they will cost me tomorrow?"
He's referring not to wages, but to regulation: He has no way of telling what new rules will go into effect, or when. His business, although it covers several states, operates on low margins.
He can't afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he's hiring nobody until he has some certainty about cost.
As long as we have a president who doesn't understand that the economy is driven by individual initiative, not government initiative, our recovery is on hold. No amount of social or economic engineering is going to pull us out. Investors have to believe there is reason to invest in US businesses, and businesses have to believe their profits will not be eaten away by regulation and taxes. Then we'll have a recovery. It will be a supply side recovery.