Despite large stimulus packages and near-zero interest rates since 2009, the U.S. still fails to achieve a sustained economic recovery. According to a third and final estimate from the Commerce Department, the U.S. economy contracted at a 2.9 percent annual pace in the first quarter of 2014, the sharpest pullback since the recession ended five years ago.
While harsh weather was blamed for some of the quarter’s contraction, the bulk of the final downward revision was due to spending on health care, which officials initially overestimated because of the introduction of President Obama’s new insurance programs.
The steep contraction in the first quarter pretty much ensures that the U.S. will expand by less than a 3 percent pace—an average pace for U.S. economic recoveries in the post–World War II period—for 2014. That would mark the ninth consecutive year the U.S. economy has grown by less than 3 percent. In 2005, it grew at a 3.4 percent clip.
This period of underperformance is unprecedented. One would have to go back to the early 1980s (amid high energy prices and interest rates and global recession) to see even three consecutive years below 3 percent growth. The previous record is four consecutive years, during the Great Depression (1930–1933), when the Commerce Department first started compiling figures on the gross domestic product.
Simplifying the tax code, agreeing to control future entitlement spending, and toning down business regulation (such as Dodd–Frank, which discourages lending), would go a long way toward ending the nearly decade-long malaise.
