Worst recovery since World War II

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Opinion Zone,Tom Blumer

Remember how liberal politicians claimed that President George W. Bush was presiding over "the worst economy since Herbert Hoover"? It's amazing how they couldn't recall Jimmy Carter's 20% interest rates and double-digit inflation.

Well, here's a pull quote from an early Associated Press report on today's economic growth report from Uncle Sam's Bureau of Economic Analysis (link is dynamic and subject to change):

"Overall, the U.S. economy may be performing much better than those in Europe, but this is still the weakest and longest economic recovery in U.S. postwar history," (Capital Economics U.S. Economist Paul) Dales said.

Capital Economics calls itself "The Leading Independent Macroeconomics Research Consultancy." It appears to be client service-driven, and not to have a particular political agenda.

Mr. Dales's statement is a damning indictment of the administration's choice to attempt economic recovery through time-debunked stimulus instead of time-tested tax cuts. This morning's BEA release of its third estimate of first quarter 2010 gross domestic product (GDP) growth apparently cemented his convictions.

BEA originally estimated in April that the economy grew by an annualized 3.2%. May's downward revision was to 3.0%. Today's announcement further reduced the result to 2.7%.

BEA's estimates for the fourth quarter of 2009 went from 5.7% to 5.9% to 5.6%. Third quarter of 2009 estimates went from 3.5% to 2.8% to 2.2%.

That's five out of six revisions in a downward direction. By contrast, GDP revisions I tracked from 2005 until the recession as normal people define it began in the third quarter of 2008 were usually upward.

Why the difference? There's nothing sinister about it, but simply put, the BEA's models, and economic models in general, tend to be slow to recognize the positive impact of a relatively low-tax, low-uncertainty business environment, and are also slow to pick up on the negative impact of a relatively high-tax, high-uncertainty business climate.

That we are currently in a high-uncertainty situation is beyond dispute. One never knows from day to day what new regulations the current administration in Washington will dream up (just one example: possible health insurance price controls), or who will be the next target of its bully-pulpit wrath. Meanwhile, significantly higher taxes loom beginning next year.

Many businessmen, entrepreneurs, and investors are laying low and focusing on muddling through instead of working on growth and expansion. Who can blame them? As long as the hostile business climate continues, the recovery, assuming it doesn't run out of steam and turn into a double-dip recession, will continue its historically poor performance.

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