Friday, April 20, 2012

Slowdown Ahead?

Some regions and sectors of the US economy are moving right along.  In the aggregate, though, the economy may be slowing and slipping back into recession.  It is not just housing.

The current prosperity has limits.  Economic expansion depends upon aggressive entrepreneurial activity and, except in technology, we're not seeing much on the entrepreneurial front.  Why?

Some roadblocks to prosperity are "hard" obstacles and some are "soft" obstacles.  The "hard" obstacles are excessive government regulation, the government-imposed cost of labor, and sharply rising energy costs.  Most of these "hard" obstacles are self-imposed problems for the US economy.  We have put these restrictions on our economy and they are now a serious impediment to an economic recovery.

The "soft" obstacles are the almost daily attacks by the White House and its supporters on the business community.  These attacks have created a gloomy background that clouds and dampens the American entrepreneurial spirit.  Business folks are discouraged.  They feel that they are being singled out for political reasons by the current administration.   The White House seems to believe that American society is an "unfair" society dominated by greedy and rapacious businesses and the White House trumpets the "unfairness" theme at every opportunity.

These things matter.  Both the "hard" and "soft" obstacles are weighing heavily on the economic recovery and dampening the prospects for Americans in the bottom half of the wealth and income pool.  The comfortable and the wealthy, who by and large support the policies that have created these obstacles, are largely unaffected and can preoccupy themselves with "fairness" discussions and other irrelevant topics.

What could kick the American economy into a more sustained downturn is the fear of the future.  There has been no progress on reducing the fiscal footprint of the various levels of American government.  This means that a chaotic fiscal future is becoming inevitable.  Politicians have quit discussing the level of government debt in the US, which suggests they have become resigned to this chaotic future.  Debt problems in the US are far, far more significant than those currently plaguing the Eurozone and we all watch daily how the Eurozone countries are faring.

The Eurozone is now in recession and things are getting worse.  America may not be far behind.  If the "Affordable Care Act" is sustained by the courts, which I suspect is more likely than not, and if nothing is done regarding the tax increases due to automatically take place next January, then the US economy will likely fall back into recession in the second half of 2012.

There are bits and pieces of evidence that are beginning to accumulate to suggest that the probability of a second half economic slide in the US is increasingly much more likely.  There is almost no shot that real economic prosperity is on the way.  With current economic policies, the 3 percent growth days of America's past are a fading memory.  The best that we can hope for, and it is growing increasing unlikely, is that the economy can limp through the balance of 2012 at a 2 percent real GDP growth pace.  It is a sad state of affairs that 2 percent economic growth is now an "optimistic" scenario.

No comments: