The Commerce Department reported today the economy grew only 1.5 percentin the second quarter, down from 2.0 percent the previous period.
Consumer spending slowed under the weight of growing pessimism about the effectiveness of President Obama’s economic program, and a growing sense that Governor Romney will not unseat him. The President leads in polls in most swing states, and the President has made clear his intention to double down on interventionist economic policies.
The trade deficit worsened, increasing its drag on domestic demand and GDP. Administration curbs on domestic oil production and his failure to address Chinese currency manipulation—the two principal causes of the gapping $600 billion dollar trade deficit and hole in domestic demand—slow growth more and more each quarter. In the second quarter, the increase in the trade deficit subtracted seven tenths of a percentage point from growth, or more than $100 billion and one million jobs.
The President argues he inherited a big economic mess but so too did Ronald Reagan. During Mr. Reagan’s first term, unemployment peaked at 10.4 percent in contrast to 10 percent during Mr. Obama’s tenure.
Mr. Reagan cut taxes, followed through on deregulation initiated by President Carter, and put his bets on the private sector—when he faced the voters the economy was growing at better than 6 percent.
Mr. Obama has shutdown much offshore and Alaskan oil production, invested in failing alternative energy projects, and emphasized heavy regulation and state direction of the economy—his growth rate during the current recovery is 2.2 percent.
During Mr. Reagan’s first term, optimism caused more Americans to seek jobs. The percentage of adults participating in the labor force rose and unemployment fell to 7.2 percent by Election Day.
Since Mr. Obama took office, record numbers of Americans have become discouraged and quit looking for work, and the unemployment rate has not fallen nearly as much as it did for Mr. Reagan. It hangs above 8 percent and few economists expected it to fall much further.
The difference is plain. Mr. Reagan acted to unleash the creative energies of the private sector, while Mr. Obama has moved in the opposite direction.
America is all about private enterprise, and without leadership that believes in the primacy of the private sector, it can’t succeed.
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.