In the first quarter of 2014, GDP in the U.S. plunged at a 2.9% annual rate, and productivity—the inflation-adjusted business output per hour worked—declined at a 3.5% annual rate. This is the worst productivity statistic since 1990. And productivity since 2005 has declined by more than 8% relative to its long-run trend. This means that business output is nearly $1 trillion less today than what it would be had productivity continued to grow at its average rate of about 2.5% per year.

So report Edward C. Prescott and Lee E. Ohanian in the Wall Street Journal in an article that is behind the paywall and that also deals with a decline in startups. The cause of this slough in economic activity is not entirely mysterious. Taxes and regulation are inhibitors of commerce which comes down, essentially, to an exchange of goods in which both parties gain something. Such transactions are now weighted down with rules that either slow the pace of things or bring it to a complete stop. And the parties involved are likely to ask, if there is that much, after taxes, to be gained from the transaction.

lf business activity in the private sector had increased at something like the rate at which the EPA issues new regulations, we would be in the midst of a boom. And there is a correlation between those two activities.

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