Is the Economy in Danger or Was Yesterday a Mere Speed Bump?

The Headlines are fairly ominous today at CNN Money. We read about a "Wound Licking Wednesday" because the stock market dropped by over 400 points. Just below that article we see that "Economic Growth Not So Strong," with the actual increase being only 2.2 percent instead of the initial estimates of 3.5 for the fourth quarter of last year. The problems are not merely domestic, with the headline "Asia Stocks Tumble -- Except China" (this news is considered a major factor in our stock market decline yesterday). In fact, the news is so bad today, I suggest you avoid any sharp objects while reviewing it.

Seriously though, there is probably some legitimate cause of concern, but I believe that the economy is still on track towards a positive trajectory for this year. I say this for a few reasons:

* The power of divided government. There is an old saying, when the legislature is in session, no one's wallet is safe. Thanks to the fact that the President is of one party and the majority of the Congress is in the other, the chance of much being done legislatively is very slim in deed. This is a good thing in the eyes of business.

* Unemployment remains at historic lows. Zero unemployment is considered by most economists to be around 4 percent (because of people who are seasonally employed, are in illegal activities, are actually creating a business, etc.). Our unemployment is a mere 4.5 percent, thus near zero. This means the housing bust is probably going to actually be a mere burp (since high unemployment is a typical prerequisite to a housing bust) and should find itself having a strong year over all.

* The long term and consistent growth for so many quarters. This too is historic (even with the small increase from the last quarter) and there is nothing in the fundamentals of the economy to make one think it should change any time soon.

However, if the economy does go south, there are several potential contributing factors. If Congress passes its massive increase in the minimum wage and the President signs off on it, the economy will certainly suffer. Also, if the President signs on to a Democrat tax increase, we could find ourselves in serious trouble. In fact, the Congress failing to keep the current tax cuts in effect (a requirement in the bill that was passed with the tax cuts) will equal a tax increase in the eyes of many.

In the end, though, I expect 2007 to be extremely strong on the economic front, even if it is a little soft compared to last year. I have such optimism, not so much because of the ability of government to prevent a slump, but because of the entrepreneurs that has kept this economy growing. Let's face it, the economy typically thrives in spite of government, not because of it.