Note from Louis Basenese: Two weeks ago, I shared three of the most depressing jobs charts ever. And I concluded that the only way the stats would improve is when the residential real estate market rebounded. But I stand corrected. Turns out the seven-step solution proposed by my colleague, Martin Hutchinson, of Money Morning, could do the trick, too. Check it out!
The U.S. economy is sputtering. Second-quarter gross domestic product (GDP) growth was revised down to 1%. That means the economy grew at an average rate of 0.7% in the first half. And that’s pathetic.
Of course, it’s no secret why U.S. GDP growth is so sluggish: The government is standing in the way of private sector growth.
If the government would just get out of the way, though, growth might get onto a decent track during the rest of the year, and at some point people might get their jobs back.
Historical precedent backs me up here, too.
When you look at output of the private sector during the 1930s, its most vigorous recovery was in 1939 to 1940. And it was caused not by any good government policies, but simply by the end of bad ones. The Republicans won a huge victory in the 1938 mid-term elections, which didn’t allow them to make policy but was enough to block the endlessly inventive and expensive experiments of the New Deal.
That success could be repeated now. Specifically, there are seven things the government could do to jumpstart the U.S. economy by simply getting out of the way of the private sector:
Bring on the Private Sector Growth
The financial services sector may consist of bad guys, but it’s a major part of the economy. It’s been harangued with legislation of more than 1,000 pages, including instructions to the U.S. Securities and Exchange Commission (SEC) and other bureaucrats to write new, undefined regulations in all sorts of areas.
1. Back off the banks.
Additionally, the mortgage business – one of their major profit drivers in normal times – has been subject to endless regulatory harassment and lawsuits.
The combined overregulation and coddling of banks has suppressed small business lending to a level 25% below its pre-2008 plateau. It’s tough to sympathize with bankers, but it’s also tough to imagine how they can grow their business and flourish under these conditions.
2. Expand the energy sector.
Just like with banks, it’s tough to sympathize with oil companies. But very few permits have been issued for offshore Gulf drilling in the last year, and exploration in the rest of the country has been shut down.
Now energy companies have devised a wonderful new technique – “fracking” – that’s immensely increased U.S. natural gas reserves. Fracking has reversed the decline in national energy self-sufficiency for the first time since the 1970s. It’s also created an estimated 140,000 jobs since January 2010. However, the Environmental Protection Agency (EPA) wants to restrict this development.
Sorry, but fracking has the potential to create more value, more national security and more jobs than all the dubious toys of Apple Inc. (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG) and Facebook Inc. combined.
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A new energy policy of “drill, baby, drill,” and “frack, baby, frack” could speed U.S. growth into a brisk trot and it’s not being allowed to happen.
3. Clear Boeing for takeoff.
People hate banks and oil companies, but nobody hates aircraft manufacturers. However, the National Labor Relations Board is attempting to impose sanctions on The Boeing Co. (NYSE: BA) for opening a new plant in South Carolina rather than the unionized state of Washington. As a result, billions of investment dollars are being delayed while lawyers are deployed.
4. Turn the lights back on.
Since December, we’ve been prevented from buying the light bulbs that we’ve used for a hundred years, and instead forced to buy inferior, much more expensive, foreign-made light bulbs – all for the benefit of a “crony capitalist” manufacturer, General Electric Co. (NYSE: GE), which has closed its U.S. light bulb plants and moved manufacturing to China.
5. Ease off the brakes.
Automobile manufacturers are being forced to increase fleet economy, not just to 35 miles per gallon, but possibly as high as 62 miles per gallon by 2025. Meanwhile, energy prices are rising fast, while hopelessly uneconomic energy sources such as bird-slaughtering windmills, earthquake-causing geothermal power and famine-producing ethanol are being subsidized.
6. Leaner healthcare laws.
A healthcare law of more than 2,000 pages has been enacted, imposing immense new costs and regulations on business, many of them avoidable with better legislation. The healthcare bill also widened the budget deficit and brought huge new uncertainty in the lengthy run-up to its implementation.
A June 2011 survey of 329 large employers by the National Business Group on Health, a Washington-based nonprofit that represents large employers on national health policy issues, reports that employers estimate their healthcare benefit costs will increase an average of 7.2% in 2012.
Another survey from professional services firm, Towers Watson, said 9% of the mid-size and large companies plan to drop employer-sponsored health insurance altogether after the Affordable Care Act takes effect in 2014.
7. Free trade.
Congress has held up three trade treaties – two with major trading partners, Korea and Colombia – since 2007. The treaties would bring new growth opportunities. Meanwhile, Korea and Colombia already have signed trade treaties with the European Union (EU) and will focus more of their trade in that direction.
Colombia’s ambassador to the United States, Gabriel Silva Lujan, noted that U.S. farmers once claimed 46% of Colombia’s food import market. Now the proportion is more like 20% and headed lower. Colombia’s also the sixth-largest market for Caterpillar’s construction and mining equipment.
Bottom line: The private sector data shows that the U.S. economy is poised for growth. Now all we need is the government to stop hampering it.