In the middle of the countdown to default and the ongoing search for political compromise, we learned yesterday that the U.S. gross domestic product (GDP) grew at an annual rate of less than 1 percent in the first half of ‘11. The government reported that the economy grew at only 1.3% in the 2nd quarter and the first quarter was revised down to .4%. (WSJ July 30, 2011) The economy is languishing and there should be no question why the unemployment rate remains stubbornly above 9%. There is a lack of business & consumer confidence brought about by the dysfunction in our nation’s capital, Washington D.C. John McDermott wrote in the Financial Times yesterday regarding the GDP figures: “Perhaps this will jolt lawmakers into getting their pony on. S&P and Nasdaq futures fell on the news, while - of course- yields fell on 10-year US Treasuries. Brent crude futures were down. The US dollar was at a four-month low against the Japanese yen. Over to you, Washington.”
The financial crisis and Great Recession were brought about by the bursting of the housing bubble, but during all of the debate about the debt ceiling have we heard any one of our political leaders come out with a plan to rebuild the domestic housing market and the jobs that were lost when this industry cratered? For several years while I was at Reed Business, I sat on the advisory board of Harvard Universitys Joint Center for Housing Studies www.jchs.harvard.edu as the representative of Reed Construction Data. This was during the bubble years of ‘04 & ‘05 and the housing leadership was well represented on the advisory board, including all of the major home builders & their suppliers. The Joint Center for Housing Studies has been researching and tracking the U.S. housing market since the end of World War II. This period up until the crisis was one of ever-expanding home ownership in the U.S. Both political parties strongly supported this policy until the crash. Now as we look for a recovery, which continues to be elusive, we do not hear the leadership of either party advocating programs to put the residential housing market back on a growth path.
There is no question that solving our current debt crisis requires both increased revenues over time and decreased spending. The revenue growth, though, cannot be realized by continuing to raise the tax rate on the wealthy (now defined as those who make over $250,000 per year) at a time when our economy is moving towards another recession. Restoring job growth is where increased revenues will come from. Leadership in both parties should start by addressing our dormant residential housing market. On the spending side of the equation, we need to address the ongoing cost of our three wars: Iraq, Afghanistan & Libya.