Based on the government’s first estimate, the economy grew at a 1.9 percent annualized rate in the second quarter of the year. While weak, that’s not a number that signals recession. Even better, growth is picking up. The economy appears to have shrunk by 0.2 percent in the last quarter of 2007 and grown by 0.9 percent in the first quarter of 2008.
Unemployment is a lagging indicator, so the economy, especially the private sector, is continuing to shed jobs. But job losses, too, have been well below recession levels, and it is reasonable to expect job gains in the months to come. The housing market seems likely to find its bottom soon, too, notwithstanding Washington’s best efforts to interfere.
The biggest cloud on the horizon is inflation. The full effects of the Fed’s ever-looser-money policy have not yet been felt, but prices have already been going up. Middle-class families are being squeezed.
The solution is not more rebates or regulation. Instead we should cut the price of food by ending ethanol subsidies; cut the price of oil by drilling; cut the price of health care by letting individuals buy insurance on a competitive market; and cut the price of everything by tightening money. Tax relief for middle-income families, meanwhile, would help paychecks go further. In the long run, we should also unwind those government policies that use unhealthy means to encourage homeownership: We mean you, Fannie and Freddie.
In recent months, liberal pundits have been saying that the hour of free-market capitalism is past, discredited by our current fairly mild troubles. Wish fulfillment is masquerading as analysis. Markets are not perfect, but almost every one of our major economic discontents traces back to a boneheaded government intervention. Let’s not compound our errors with more of the same.