Monday, May 7, 2012

Government Gridlock Keeps Stalling Job Growth

Politicians all say the economy needs more jobs. Job growth depends more than anything else on certainty about government spending and tax policy. Yet our political leaders can’t get their act together long enough to take any action letting us know what future government policy will be. As a terrible result of their inaction, we have little job growth and slower economic growth.

In 2009, the American economy declined 3.5%. In 2009 Congress enacted a package of significant stimulus spending, and in 2010 the American economy grew 3.0%. Then the 2010 Congressional calendar was used up in government budget gridlock, with a number of quarter by quarter emergency budget measures passed just to keep the bureaucratic doors open in Washington, D.C. As a result, American economic growth slowed to a paltry 1.7% in 2011, and talk of a “double dip” recession was rampant.  Learning nothing from the first year of gridlock, Congress continued to pass band aid interim spending measures all through 2011, with no action on those appropriation bills which set government budgets for more than a year into the future. As a consequence, businesses that depend for some of their revenue on having government as a customer couldn’t plan long term expansion. Furthermore, Congressional stalemate on long term tax policy stifled business investment decisions. This ongoing gridlock isn’t helping the American economy, capping first quarter 2012 growth in our economy at 2.2%.

Consumers have been tightening their belts for three years now, and first quarter 2012 consumer spending is up 2.9%. Most of that gain is represented by higher motor fuel prices and increasing auto sales, neither if which is a reliable long term engine of future progress. That consumer spending growth is offset by a 3.0% drop in government spending for the quarter, along with a 2.1% drop in business investment, stifled by ongoing tax policy uncertainty coupled with expiration of some investment tax breaks on December 31, 2011. Economists tell us we need year long economic growth exceeding 4.0% to bring down unemployment by one point. Because consumer spending is 70% of the economy, job growth is the only thing that will get us back on track to a “healthy” overall growth rate of better than 2.5%.

Every day our Representatives and Senators leave those important long term appropriations measures and tax reform bills sitting on the tables in committee rooms costs the economy months and months of sluggish growth.

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