News has just crossed the wire this morning that the economy contracted at an annual rate of 1 percent during the first quarter of this year. Many people will probably point to the brutal winter weather as a factor, though the Dept. of Commerce fingers “negative contributions from private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment,” and notes that consumer spending was actually up slightly during the quarter.
I’m sure the White House will tell us today not to worry—a “recovery summer,” the sixth in a row now, is on its way.
But I was already wondering about the durability of the current “recovery” because of news out a few days ago of falling income tax receipts:
Personal income tax receipts in April were below year-ago levels in 27 of 32 states where data were available, Reuters reported. The average decline was 12.4%. Tax planning ahead of the ’13 federal tax hikes, like booking capital gains at the lower ’12 rate, helps explain the drop. Some states expected as much, but others like N.J. are now faced with budget cuts.
But an even more worrisome sign of deeper economic weakness can be found in Bob Litan’s recent study of the falling rates of new business startups for the Brookings Institution, showing that the U.S. economy overall is becoming less entrepreneurial. (See chart below.) Litan observes in the summary:
[T]he performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience. While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future. . .
This ought to be extremely worrying, as most job growth comes from entrepreneurial activity. And I don’t think some of the major reasons for this are “still unknown.” Start with occupational licensing laws, which have a disparate impact on minorities and immigrants who might start, for example, food truck enterprises. The Obama Administration and jurisdictions like California might want to rethink their reflexive hostility to entrepreneurial activity.