The Entrepreneurial View #467
Not Happy with the Economy
by Raymond J. Keating
Congress and the White House suddenly are quite concerned about the economy. Why now?
Well, after two quarters of solid economic growth, the numbers are pointing to a slowdown in the last quarter, and even greater sluggishness in 2008.
For example, in his congressional testimony on Thursday, January 17, Federal Reserve Chairman Ben Bernanke observed: "Recently, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced. In particular, a number of factors, including continuing increases in energy prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008... In the business sector, investment in equipment and software appears to have been sluggish in the fourth quarter, while nonresidential construction grew briskly. In light of the softening in economic activity and the adverse developments in credit markets, growth in both types of investment spending seems likely to slow in coming months."
But there are other numbers that almost always draw the attention of politicians - poll numbers. According to the most recent polling, the American people are pessimistic and/or worried about the economy.
Consider the following:
• A New York Times/CBS News poll of registered voters taken over January 9 to January 12 asked the following: "What do you think is the most important problem facing this country today?" The top answer is now the economy. As recent as September, only 8 percent cited the economy, but that has now risen to 20 percent, topping the war's 16 percent. But the number on economic issues actually is higher. If you take the 20 percent citing the economy and add in those noting taxes, jobs, and heating oil/gas crisis, then the total for economic issues climbs to 27 percent.
Another question was: "How would you rate the condition of the national economy these days?" Only 3 percent said "very good," and 35 percent said "fairly good." That combined 38 percent contrasts with 61 percent saying bad - 42 percent "fairly bad" and 19 percent "very bad."
A third question on the economy was: "Do you think the economy is getting better, getting worse, or staying about the same?" A mere 4 percent said better, while 62 percent said worse. Staying the same came in at 33 percent.
• Over January 1-12, another poll of registered voters was taken by Diageo/The Hotline. Again, the question was asked: "And what is the most important issue facing the US today?" Those noting the "economy in general" came in at 24 percent, compared to 15 percent responding the "war in Iraq." Again, though, tally up all the economic issues cited in the poll - gas/fuel/oil prices, unemployment/jobs, high cost of living/inflation, and taxes - and economic matters climb to 29 percent.
• A Gallup Poll taken over January 4-6 found that a mere 15 percent of consumers said economic conditions were improving, while 77 percent said they were getting worse. Gallup reported: "Consumer expectations have thus returned to the historic low they hit two months ago, when only 13 percent said economic conditions were getting better and 78 percent said they were getting worse."
There's another poll question worth highlighting. The ABC News/Washington Post poll released on January 15 asked the following: "Which of these is the single most important economic issue facing you and your family?" The only answers reaching double figures were: health care costs at 24 percent, inflation or rising prices overall at 23 percent, price of gasoline at 16 percent, and high taxes at 12 percent.
Please note that government causes each of these problems, in whole or in part. Health care costs are driven higher by government mandates, regulations and third-party payments. Inflation is a result of monetary policy gone awry. The price of gasoline is affected by restrictions on energy exploration, development and production, as well as a declining dollar. And politicians, obviously, impose high taxes.
So, when our elected officials talk about an "economic stimulus" package, the answers are not found in more government spending, or temporary, highly targeted tax measures. Instead, if elected officials look at those top four challenges cited in the ABC News/Washington Post poll, they'd be on the right track by providing substantive tax and regulatory relief, while the Fed gets back to concentrating on getting inflation under control.
_______
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
