History has shown that the magnitude of an economic recovery in the US is proportional to the severity of the preceding recession and it is well documented that the anemic Obamanomics recovery has deviated from this historical norm. But are we being too harsh on Obama and his Keynesian economic principles? Was the worldwide recession of 2008/2009 so severe that no country could’ve rebounded to levels that matched previous recoveries?
Let’s take a look at the Organization for Economic Co-operation and Development (OECD) numbers for GDP growth rate of other countries and compare them to the US. The full data can be obtained here and I’ll show the real GDP graphs for a few of the countries below.
Here is how the US GDP growth rate compared with the average of all 34 OECD countries:
From the above graph we can say that the real GDP growth rate for the US has equaled the average of the other OECD countries. So much for American exceptionalism!
It is the opinion of Conservatives that the US has experienced a poor ‘recovery’ because the Free Market has been muted under the Obama/Reid/Pelosi regime and if we could’ve allowed businesses to operate without excessive government regulation and high taxes then the recovery would have truly been at magnitudes far higher than what we have seen. To test that theory out, I’ll graph the GDP growth rates of the US compared with a country that has had the best recover (Chile) and a country that has had the worst recovery (Greece) to see if Free Market principles were causal in their recovery magnitudes.
Before I do that, let’s take a look at how these countries stacked up on a metric called the Index of Economic Freedom (IEF). The IEF was compiled in 2011 by the Heritage Foundation and the countries are ranked here and the IEF rankings of the US, Chile and Greece were 10th, 7th and 119th respectively.
Now here is the graph comparing GDP growth rates of these three countries:
Although Chile had to recover from the dictatorship of Augusto Pinochet and survive a devastating earthquake in 2010, they still managed to triple the US GDP growth rate after the worldwide recession of 2008/2009! What is so magical about this country that allowed it to outperform not only the US but all other OECD countries? The complete story is here but here are a few key items (emphasis mine):
“Regaining its status as one of the world’s 10 freest economies, Chile continues to be a global leader in economic freedom. The economy benefits greatly from its solid foundations of economic freedom, which have been further strengthened in recent years. Recognizing the importance of limited government, the government has adhered to prudent public finance management practices that have kept public debt and recent budget deficits under control.”
“Contractual agreements in Chile are the most secure in Latin America. Courts are transparent and efficient. Property rights are strongly respected, and expropriation is rare.”
“Government spending is 24.4 percent of total domestic output, and public debt is under 10 percent of GDP.”
“The overall regulatory framework facilitates entrepreneurial activity and productivity growth. The time needed to start a business has been reduced to seven days from 22, with only seven procedures required. Bankruptcy is relatively cumbersome and costly. Minimum wage increases have exceeded overall productivity growth in recent years, but labor laws generally facilitate efficient hiring and dismissal procedures.”
Chile limits its government’s reach into private sectors, recognizes property rights, keeps its debt under 10%, balances its budgets, creates an environment that is conducive to entrepreneurial activity and has fair labor standards that benefits businesses and workers without the need for a huge union influence.
Now let’s look at why Greece has had such a terrible ‘recovery’ after the worldwide recession (emphasis mine):
“Greece continues to be challenged by a daunting debt burden and the severe erosion of competitiveness. Sparked by decades of overspending, a lack of structural reform progress, and endemic corruption, the ongoing sovereign debt turbulence must now be addressed in a climate of crisis and political instability.”
“The judicial framework is weak and vulnerable to political interference. Protections for property rights are not strongly enforced, and the rule of law has deteriorated. The law provides severe penalties for bribery, but enforcement remains lax. The problem is most acute in government procurement, where political influence and cronyism continue to play a significant role in the evaluation of bids.”
“The overall tax burden amounts to about 30 percent of GDP, and government spending has reached a level exceeding 50 percent of GDP. Chronic budget deficits continue, and public debt far exceeds the size of the economy.”
“The overall regulatory framework is hampered by government bureaucracy, and efforts to enhance the business environment have been sporadic at best. The process for launching a company is fairly streamlined, but licensing requirements remain burdensome. Labor regulations are restrictive, with the non-salary cost of employing a worker high and restrictions on work hours rigid. Monetary stability is weakening.”
Greece is burdened with huge debt, doesn’t value property rights, engages in cronyism, has tax revenues that are a significant portion of their GDP, engages in over regulation that stifles business and is ensnared with Union regulations that prohibit business.
There was a time when the United States business environment resembled Chile but now it is obvious that we are on a path similar to Greece. We have an election in November and this may be the last chance we have to change our course. Do we choose Obama/Reid which puts us on a collision course with the struggles that are facing Greece or do we choose Romney/Republican Senate which puts us back on a path that the US used to be on?
Elections have consequences!