And think of this: Despite housing woes, credit problems and the sub-prime virus, banks are still lending to businesses. In other words, we don't have a genuine, across-the-board credit crunch. This is very good news, and more evidence that an economic contraction will not be drawn out.
That said, there are two related issues that worry me. First is the continued decline in the value of the dollar, which has permitted the global commodities boom (energy and food) to leak into higher U.S. inflation. Bulging commodity costs have depressed the profits of non-financial domestic businesses, where after-tax earnings are down 24 percent from a peak in late 2006.
Profits are the mother's milk of stocks, businesses and the economy. And because profits have fallen, some businesses are contracting and laying off workers in order to bring costs back in line with revenues.
If Washington really wants to help the business sector recover, nothing would be better than an across-the-board cut in corporate tax rates. This competitiveness-enhancing action would lower tax costs, boost jobs and lift worker wages. The growth incentive would reignite the economy. A permanent corporate tax cut would be far better than a temporary consumer rebate.
The other worrisome issue is inflation. The March jobs report showed a continued easing of hourly wage growth. After a 4.3 percent peak in late 2006, average hourly earnings for non-management workers has slowed to 3.6 percent for the 12 months ending in March. Consequently, headline consumer inflation of 4 percent continues to erode average wages. While most all market observers are focused on the sub-prime credit crisis, it's the pick-up of inflation in recent months that has dampened consumer-spending power and corporate profits.
As lawmakers in Congress contemplate a massive FHA housing bailout package, they would be better advised to look more carefully at the recession-ending benefits of lower business tax rates and a stronger greenback.
In fact, liberal economists should look at a new Rasmussen poll in which 48 percent of voters say the best thing government can do is get out of the way by reducing taxes and regulations. Only 36 percent disagree. What's more, 59 percent of voters believe it's more important to create economic growth than to reduce the income gap between rich and poor. Finally, 49 percent say the best government policy is to reduce spending.
Keynesian-style politicians please take notice.