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Jane Richey / July 31, 2012

1.5 Percent Problem

What is wrong with the economy?  Something is wrong when the GDP expands by only 1.5 percent a year as it did in the second quarter.

The problem is that nobody knows.  Everyone thinks they know, but F.A. Hayek long ago put that fatal conceit to rest, if only for conservatives.

Some people think the problem is the continuing mortgage meltdown.  It is said that 30 percent of home mortgages are still under water.  That’s a problem because any economy runs on credit, in the strict sense of that word.  People need to have faith that other people are solvent, and in Obama’s America they don’t.  In addition, there is the minor problem that business startups have, since the days of the Hewlett Packard garage, overwhelming used home equity as startup capital.  Now they can’t.

Others think the problem is the federal budget deficit.  To anyone not blinded by Lord Keynes, the idea of a trillion in capital getting sucked away from business expansion every year into the funding of entitlements doesn’t sound like a recipe for quick economic expansion.

The other side of entitlement spending is the savings deficit.  When the government provides against the vicissitudes of life then people themselves learn to provide less against the vicissitudes of life.  They work less, save less, plan for the future less, and that ends up with a lower GDP.

Then there is the looming crisis of next year’s tax cliff.  Fewer people plan business expansions if the government take is going to increase.

Read more.

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Filed Under: Constitutionally Limited Goverment, Fiscal Responsibility, Free Markets Tagged With: business startups, entitlements, federal deficit, GDP, mortgage meltdown

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