GDP: Still Too Much Government, Not Enough Private Sector

Ray Keating

Real GDP growth for the third quarter of 2010 was revised from 2.0% to 2.5%, according to the U.S. Bureau of Economic Analysis's second estimate released on November 23.

Any up tick in growth is welcome. But don't get too excited. A few points need to be kept in mind.

First, since 1950, real GDP growth has averaged 3.4%. Since this recovery supposedly began in mid-2009, real GDP growth has averaged only 2.9%. But it gets worse. During economic recovery/growth quarters, real GDP growth over the past six decades has averaged 4.5%. So, as most people sense, the numbers back up, i.e., that the U.S. economy is grossly under-performing.

Second, growth decelerated in the past two quarters. While real GDP grew at 5.0% in the fourth quarter of 2009 and 3.7% in the first quarter of 2010, growth in this year's second and third quarters came in at 1.7% and 2.5%, respectively. In the third quarter, the growth in private investment and exports, for example, slowed markedly. These are troubling trends that warrant watching.

Third, not only is the economy under-performing, but too much of the nation's economic growth is tied to government. When factoring out government, real private-sector GDP grew at only 0.9% in the second quarter and 1.7% in the third quarter. High-quality GDP growth means private-sector GDP growth.

Fourth, there is simply not enough in the economy in order to generate jobs - leaving us still down more than 7.4 million jobs since late 2007.

In order to get the economy and employment growing, costs and uncertainties created by government must be wiped away. That includes making the 2001 and 2003 tax relief measures permanent; rolling back the recent massive increases in government spending in order to free up resources for the private sector and removing the threat of increased taxes down the road; reining in recent hyper-regulation; and reducing barriers to trade and opportunity in the international marketplace.

That is, get government out of the way, so the private sector - lead by entrepreneurs, small businesses and investors - can grow.

Raymond J. Keating, chief economist for Small Business & Entrepreneurship Council.
Copyright 2010, Small Business & Entrepreneurship Council. All Rights Reserved.

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