The truth about this crappy economy.

June 13, 2016

Eight years into the economic recovery, the U.S. economy remains woeful. The reasons for which are crystal clear. At least they are for those seeking answers as opposed to ideology. When the U.S. economy rested at the bottom of the cycle, the decision to place ideology before pragmatism was the death knell for real economic growth. Today's essay will clearly make that case.
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History's graveyards are littered with the bones of those who placed ideology above pragmatism. With tombstones testifying to ill-fated courses of action. The visionary plans of ideologues laid to waste when exposed to the retrospective light of history.

In 1999, Hugo Chavez won the presidency of a country blessed with some of the world's largest proven oil reserves. Other nations, similar in size but with half Venezuela's energy troves were becoming wildly wealthy. Chavez enacted a "Bolivarian Revolution," setting the nation upon a 15-year path of socialist redistributionist policies.
Today, despite the oil riches, Venezuela find itself broke, starving, lacking medical infrastructure and facing anarchy in its crumbling streets. Because Chavez placed ideology above pragmatic leadership.
For every Chavez, there exist any number of those in leadership positions who may not have ended in complete chaos. But instead placed their constituents in less-than-palatable situations. Many of which could have been avoided had practicality trumped ideology.
The lens through which advisors like ourselves log the nation's political machinations holds no affinity for either of the two major political parties. As both Democrats and Republicans have displayed an equal aptitude for allowing ideology to prohibit progress. Social. Economic. Technological. And cultural. Almost always to the nation's detriment.
The incompetence of both parties -- especially in light of the dearth of choices otherwise -- has become the American Achilles' heel.
While near-term political priorities are relative, history takes only the ten-thousand foot view. A vantage point encompassing many non-partisan questions. All combining to paint the historical perspective, like tiny fabric swatches that eventually comprise the tapestry of the times.
What situation did a leader inherit?
What choices were made to improve upon it?
Did a majority of society look approvingly upon the choices being made?
Eventually, did those choices elevate society, leaving progress and optimism to in their wake? Leaving its individual parts better off?
Seven years after the nadir of the Credit Crisis, ample time and resources have been spent towards the resurrection of the U.S. economy. Have those resources been allocated effectively? Does the nation find itself better off? Closer to the prize?
The prize, in this case, being the nation's economic well being. Unfortunately, bi-partisan surveys reveal a majority opinion standing in stark contrast to desired results.
Retrospectively, it is hard not to conclude that ideology has trumped practical priorities these last seven years. Even while the media has largely ignored the obvious answer to the question that has long tormented us: Why has this economic recovery been so torturously slow?
While it's true that recoveries following credit-driven recessions tend to take longer than others, that excuse -- like that of blaming the previous administration -- has long passed expiration.
Last month, 38,000 people were added to the rolls of American employers. The lowest such number in six years. That followed an April advance that was well below estimates. Of course, in typically bizarre fashion, the jobless rate fell to 4.7 percent. The lowest rate since 2007. But only because 458,000 discouraged Americans left the work force. And quit trying to find satisfying work. Bringing the number of working age Americans not in the labor force to a record 94,708,000.
This was on the heels of President Obama's defense of his economic stewardship last Thursday.
Speaking at a high school in Elkhart, Indiana, the president declared Americans better off "by almost every economic measure." He then called on voters to build upon his policies by electing a Democrat in this year's election. A call to arms that might have caused Hillary Clinton, the likely nominee, to cringe. As economic reality paints a starkly contrasting picture to the presidents' claims.
Despite some progress, an economy left for dead in 2009 has not been resuscitated.
The stock market has doubled. The jobless rate halved. Home prices have risen 20 percent. While the middle class -- families earning between $48K and $148K -- have seen their fortunes fall year after year. In the eighth year of economic expansion, real growth remains unremarkable. In fact, less than average.
Consider last week's sobering economic news. Q1 GDP was revised up to an annualized 0.8 percent from 0.5 percent. Still below the 0.9 percent analysts were expecting. The primary culprit? Lukewarm business spending. So underscoring the idea that you cannot over regulate and over tax American employers and expect them to invest in themselves and others. Not in the private sector, where capital is finite and accountability the norm.
Which accounts for why the current expansion has seen business deaths outnumber business births. An event never before witnessed since measurement of these figures began. Equally troubling? New business formation has been increasingly concentrated within a smaller geographic area of the country. With only 20 counties now accounting for half of the businesses formed. And most counties reporting fewer businesses created in 2014 than in 2010. All of which adds up to a lower amount of total businesses in the U.S. today than existed in 2004.
Following the 1990 recession recovery, the country saw a seven percent net increase in new firms. After the 2000 recession recovery? Six percent new business growth. Since 2010? Two percent new business growth.
The list of those wringing their hands over this poor recovery is long. Even while the answer is crystal clear. It's simply not the answer that much of the nation cares to hear.
Today's rampant confusion over this tepid economy? Disingenuous at best.
In 2009, as the country began to put the Credit Crisis behind it, a newly elected president confronted a challenging economic landscape. No on disagrees with that.
But contrary to the popular narrative, President Obama began exactly where a new chief executive would hope to be. In a smoldering crater. With nowhere to go but up. Because economies are cyclical. Consisting of four stages: expansion. Peak. Recession. Trough. Had the administration been handed an economy at the peak of the cycle, the next step would have been recession. Then trough. And the administration would have been blamed for steering the economy into the quagmire. Instead, the new administration adopted an economy already in its trough. Nowhere to go but up.
Millions of Americans were unemployed. And many millions more faced desperate economic circumstances. With that in mind, the president and his cabinet narrowed their immediate priorities down to three possible initiatives.
Pragmatism would dictate that policy makers consider the nations' most pressing priorities. And so which of the three initiatives might most help it to regain its economic composure?
The three initiatives being considered were as follows.
Carbon Cap and Trade. Initially proposed during his 2008 campaign, President Obama hoped carbon cap and trade would begin to curb the negative impact U.S. industry had on the environment. It would do so by placing a legal limit on the quantity of chemicals a company could emit each year. Representing a market-based approach to pollution control. Providing economic incentives for achieving reductions in pollutant emissions.
National Infrastructure Reinvestment Bank. Next, the administration considered the creation of a National Infrastructure Reinvestment Bank. A bi-partisan idea proposed in 2007 that would have financed thousands of national infrastructure enhancement projects. Creating jobs and stimulating the economy even as the country's roads, bridges, buildings, dams and water treatment facilities were modernized.
Today, we know that the administration chose the third option.
The Affordable Care Act. The ACA represented the restructuring of the biggest sector within the U.S. economy. It would ensure that a greater number of uninsured Americans were provided with health care coverage by forcing employers to offer healthcare or face punitive taxes. Further, it forced taxpayers to subsidize healthcare for low-income Americans who could not afford it otherwise.
Healthcare reform got the green light. Even as the economy suffered. And the nation's largest jobs creators -- small and mid-sized companies -- suffered under the weight of an opaque economic landscape further traumatized by zero economic growth.
Amid such realities, the administration determined to throw a big, wet blanket over an already dicey outlook. And in so doing, America's businesses -- still fighting for their survival -- determined that it was not in their best interests to hire, spend, expand or enhance. Especially as the various facets of the Affordable Care Act would occur in stages. Some parts of which would not be enacted until after the administration had left office.
Moreover, if contending with health care reform immediately following the Credit Crisis wasn't enough, the administration saddled American businesses with even greater burdens.
Since taking office, the Obama administration has heaped 20,642 new regulations onto the plates of businesses and consumers. Imposing more than $22 billion last year alone in new regulatory costs per year. Bringing the total new regulatory burden of the last eight years to more than $100 billion annually. With U.S. federal government regulations amounting to an estimated $2.028 trillion in 2012. And compliance costs falling disproportionately on small businesses. Costing them nearly $12,000 per year for each employee -- just to remain federally compliant with a litany of rules and regulations.
Did the administration cast a blind eye to the realities of a post-Credit Crisis recovery? Appears so. How else can you explain the decision to place thousands of new obstacles in the paths of businesses and households as they struggled to regain their financial footing? How could prescient, pragmatic advisors counsel such tomfoolery?
More likely, the administration was probably told, "Economies are cyclical. We're in the trough. You'll get a recovery regardless of what you decide."
Which led the the president to place ideology over pragmatism. And extend the recessionary symptoms for years longer than they would have been otherwise.
Ronald Reagan succinctly stated, "Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States." An opinion clearly not held by government planners these last eight years.
Which leads to today. Eight years into the recovery. The slowest in the post-WWII era.
Today, the United States can boast of 0.8 percent annualized GDP growth. Little to no wage growth. And the knowledge that more of the nations' young people (age 19 to 34) live with their parents than at any other time in the nation's history.
With study after study attributing the slow rate of business formation and economic progress to the regulatory fervor of the last decade.
So, when Americans question the lack of economic progress? When pundits can't place a finger on the root cause of the nation's dismal growth? Why the confusion? The embarrassingly obvious answers reside within the decisions made by a new administration in 2009 seeking to push progressive policy regardless of timing. In lieu of the nation's more critical priorities.
The consequences of which continue to ripple concentrically throughout the economy. Prohibiting commercial capital expenditures. Inhibiting consumer spending. Stunting wage growth. Preventing millenials from career opportunities. From purchasing a first home. From beginning a family. Or even vacating a parent's basement.
These are not ideological assessments. But anecdotal summaries of real data.
Bill Clinton's presidency began on a parallel path to that of the Obama presidency. Progressive thinking dominated his first term. To Clinton's credit, he realized that such tactics were stunting economic growth. So he changed course. Narrowly won re-election. And then pursued a more moderate, economically minded approach. Consequently, the economy soared. Ushering in prosperity for all Americans. Resulting in all of the societal benefits derived by dynamic economic growth. The kind that lifts the fortunes of all Americans.
Following President Obama's 2012 re-election? The administration chose to stay the course. Even doubled down. Revealing why, eight years into the slowest economic recovery in more than 75 years, annualized GDP growth remains an anemic 0.8 percent.
So do yourselves a favor. Stop feigning confusion over our economic doldrums. Over the inconceivable lack of productivity. The lack of career jobs. The missing wage growth. Lack of consumer spending. Missing corporate expenditures. And the scant economic confidence among recent college graduates. Don't act so awe struck by the fact that nearly 90 percent of parents believe their children will be financially worse off than are they.
Today's economic miasma? The obvious consequence of policy enacted to focus on everything but the economy. To the detriment of the economy. Inhibiting all traditional drivers of economic growth.
Those vocalizing logic to the contrary are being disingenuous for ideological reasons, or they remain dangerously ignorant and ill informed. And so long as that remains true, we all lose.

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