The American Economic Shock Wave: Down 2.9%

The Broadest measure of economic growth or decline is Gross Domestic Product (GDP)  - the total value of goods and services produced across the economy.  Since the end of the great recession in 2009, GDP has grown every quarter except for a small dip in the first quarter of 2011.  Yesterday, a shocking statistic was released by the Commerce Department:  GDP fell by 2.9% in the first quarter of 2014 - the largest drop recorded for any quarter since World War 2 that wasn't part of a recession.  (A recession is a period of 6 months or more, where economic growth consistently falls.).  Many analysts see this as a short-term phenomenon due to a severe winter and weak global demand for American exports.  It certainly doesn't mark the start of a new recession.  Other analysts are a little more cautious.  J.P.  Morgan Chase economist Michael Feroli said it's not so much the drop, but the amount of the drop that "calls into question how much vigor there is in the pace of economic activity going forward".  Other economists point out that 5 years into the recovery, high unemployment and stagnant incomes continue to restrain the American consumer.  And without more consumer spending, GDP can't possibly rise more than 1 - 1 1/2 %.

Trying to understand all of these numbers can be mind-numbing, particularly since statistics can be manipulated to fit any conclusion you want.  So let's look at the human reality behind the numbers.  Entrepreneurs are reluctant to create new businesses and many companies are holding back from expanding their existing production facilities.  These are facts.  But why?  American Chamber of Commerce surveys show that 80% of small-business owners believe the U.S.  economy is on the wrong track and that government is a major problem.  They report that a lack of skilled workers, a complex tax code, unnecessary regulations that raise the cost of doing business, high corporate income taxes and difficulties in obtaining financing are all factors that inhibit business creation and business development.  Government seems unable or unwilling to reform these problems and in fact, doesn't even seem to understand them.  Like the hamster on the wheel, the economic cycle goes round from slow growth to no growth and back to slow growth.

An editorial in the Wall Street Journal summarized it this way:
"Slow growth is the great tragedy of the Obama Presidency and one cause is that he put his social and political priorities above the revival of economic growth.  The focus on ObamaCare, carbon regulation, tax increases and more social spending added economic burdens that have weighed down growth and caused incomes to sputter for all but the affluent."
What an irony.  The president who said "the top 1% don't pay their fair share"  has created an environment where middle and low income earners have seen their wages stagnate for 5 years while the rich get richer.