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June 2012
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MALAISE Puny GDP growth reflects weight of Obama policies

Ayn Rand's novel "Atlas Shrugged" is the Book of Genesis for many a libertarian. In it American captains of industry respond to overbearing government interference by setting fire to their businesses and disappearing into a secret, illegal society that accepts only people who work and assume responsibility.

We're not apostles of Ayn Rand by any stretch, although we confess to some libertarian leanings. And we cannot help but note similarities between Rand's voluminous tome and the doings of government today, particularly since Barack Obama has been in office.

While we've not read of entrepreneurs burning their factories, it does seem that in more subtle ways business is reacting in the vein of "Atlas Shrugged" by scaling back its participation in the U.S. economy under the current set of rules.

There is evidence of that, we think, in Wednesday's Commerce Department report that the economy did far worse in the first quarter than expected; in fact almost stalled, with a Gross Domestic Product growth rate of only .1 percent.

It was an ugly report with worrisome underlying statistics. Notably, it showed business investment fell at a 2.1 percent annual rate with spending on equipment falling at a 5.5 percent annual rate. The report showed businesses also slowed restocking of their inventories, shaving .6 percent of growth off the GDP first quarter number. Residential housing construction fell at a 5.7 percent annual rate.

The administration predictably tried to blame the results on weather, but economists had been expecting GDP growth of around 1.5 percent even after factoring in weather. The administration also noted that many economists are predicting improved economic performance in the second quarter. We hope so, but the aforementioned statistics suggest the growth could again disappoint. Historically, reductions in business spending on equipment and inventory do not presage strength in the ensuing quarter. Usually it is quite the opposite.

The Wall Street Journal reported Thursday that the January-through-March GDP slowdown was the second-worst performance since the Great Recession theoretically ended in mid-2009. The newspaper said the number is "fresh evidence that the economic expansion that began almost five years ago remains the weakest in modern history."

Republicans seized on the data, with a spokesman for House Majority Leader John Boehner saying it is more evidence that a heavy regulatory hand and various business mandates attached to the Affordable Care Act are weighing down the economy.

We're inclined to agree with that. When businesses are routinely demonized by the party in power and taxed at the highest rates in the modern world it becomes a disincentive to invest and expand. They may not burn their factories but they sure as heck won't build new ones in that kind of political atmosphere. Throw in total lack of clarity as to what will be required of businesses under Obamacare and what corporate health insurance pricing will look like a year from now, and it should come as no surprise to anyone that American business has pulled in its horns.

It is really kind of an amazing, albeit ignominious accomplishment by the administration to hold the greatest economy on Earth down this far for this long through ham-handed, populist policies. It's catching up to the president in the polls, but the continuing unprecedented caution by businesses in what is supposed to be an economic recovery suggests businesses don't see the tiger changing his stripes.

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