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Is business killing the economic recovery?

It looks very much like business, which CAUSED the financial meltdown through laissez-faire financial policies, is trying hard to kill the economic recovery, itself! Not intentionally, mind you. As Hanlon’s razor states: “Never attribute to malice that which is adequately explained by stupidity.” (Note added September 3, 2010: I am no longer convinced that “stupidity” adequately explains the “locust-like” behavior. Thinking only in terms of return on investment and short-term profits, prolonging the Great Recession might be in the short-term interests of corporations, at the expense of everyone else. Shall we assume malice?”)

Yesterday, the U.S Commerce Department reported that gross domestic product, the broadest measure of the nation’s economic activity, rose at a 2.4% annual rate during the three months ended June 30. The pace was DOWN from the upwardly adjusted 3.7% growth rate in the first quarter, and missed the economists’ (“dismal scientists:-) ) prediction of 2.5%.

Mercifully, the 2.4% was STILL the fourth straight quarter of growth.

So… why are economists upset?

There was a SLOWDOWN in consumer spending, which accounts for 70% of economic activity.

And this was a SURPRISE to some people…? 😉

According to CNN: Nigel Gault, the chief U.S. economist at IHS Global Insight said that the subdued consumer spending, pressured by high unemployment and debt as well as a lack of income and credit access, could lead to slower growth – or even another downturn.

“People are continuing to cut back, and that could mean that third-quarter growth will be the worst since the end of the recession,” Gault said. “The slowing growth path leaves the possibility of a double-dip recession on the table.”

OK, so it looks like:

1) Consumer spending, which drives 70% of economic growth, is off because people are unemployed, deep in debt, have no income, and have no credit.

What else is going on?

The government said that a SURGE in imports is slowing domestic growth and that imports “spiked 28.8% during the second quarter, up from an 11.2% hike in the previous quarter.” CNN states that the “increase was mostly due to 17% jump in business investments, as business increased spending by 22% on software and equipment, which Gault said are primarily produced outside of the United States.”

“Businesses reduced spending very sharply last year during the recession by cutting costs and employees,” Gault said. “The pullback helped them prop up profits. Companies are sitting on huge piles of cash, which they’re now putting to work.”


2) Business, sitting on piles of cash from cutting spending and laying off employees (oh, which, by the way, is why consumer spending is down), is now putting that cash to work. How? By hiring employees, which would increase consumer spending…? Heck no! By spending that cash overseas, which hurts domestic growth…! Business is probably hiring more workers “offshore,” too! THAT’s got to help! 😉

You can read the rest of the exciting article, but I think that you get the idea. A recovery will be driven by consumer spending, and consumers will spend when they have jobs and are feeling more secure financially.

Maybe something like this was the origin of the American expression, “Shooting yourself in the foot….” (Did you ever notice that “idiom” and “idiot” differ by only one letter?)

As I have said before, at this point we should be asking ourselves, “Are business people stupid?”

And my answer is still the same, “Only some….”

(An afterthought: To political candidates who “want government to run like a business” I would say that they are “aiming too low!” I want government to run MUCH BETTER than most businesses.)

(Note added August 15, 2010: It looks like an August 13 article in Fortune entitled “Don’t blame the consumer” supports my views. Time for business to “step up to the plate….”)

-Bill at

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