Wake up and smell the contraction.

The U.S. economy shrunk in the first quarter at the most pronounced rate since the first quarter of 2009, with gross domestic product shrinking by 2.9 percent. That was a sharp revision downward from the previous estimate of GDP shrinking by 1 percent. 

Health-care spending saw the greatest drop. Ironically, it was spending on health-care services, fueled by the implementation of Obamacare, that economists had previously credited for keeping the economy humming when initial readings of first-quarter GDP were released back in April. 

Consumer spending, though, also slowed dramatically. Spending grew by 1 percent in the first quarter, which was way down from initial readings that showed it growing at a 3.1 percent annual rate. Consumer spending makes up more than two-thirds of U.S. economic activity.

Related: Why Americans Don't Want to Start New Businesses

There was also a drop in exports. Exports contracted by 8.9 percent, well off the previous decline of 6 percent. 

This kind of economic contraction is more reflective of a recessionary environment, rather than a recovery, and comes at a time of modest job growth. But gains in employment, and other positive economic readings of late, have been flaccid at best. The latest GDP figure is the most visible example of how the economy is far from healthy.

That begs the question of why policy responses have acted like the economy is buzzing along. So far this year, there have been pushes to hike minimum wages on both the national and state levels. There has been the continued promulgation of regulations across industries that are meant not to protect consumers, but rather to protect incumbent, large corporations against entrepreneurial startups. There have been moves to increase taxes on businesses and the wealthiest Americans in a move to redistribute wealth. All of these seem like approaches one takes when there is money to burn.

But think about it: None of those suggestions actually addresses the two factors the U.S. economy needs to get back on its feet: jobs and spending. When you force businesses to pay a higher wage, you are not simply putting more cash in workers' pockets. Rather, you are increasing pressure on those businesses to raise prices -- making goods and services even less affordable -- and cut jobs. That hurts employment and economic growth.

Related: What Will Get Americans Working Again

Likewise, regulations continue to be proposed at a frightening clip. Worse, the targets of these are small, innovative businesses, which are trying to carve out new models and bring affordability and convenience to consumers. Many of the highest-profile regulatory battles lately have been against companies like Uber and Airbnb, which have come up against a regulatory framework meant to protect the turf of the taxi and hotel industries. Stunting the growth of new companies only stops them from creating jobs and expanding their product offerings.

Lastly, the demonization of wealth is clearly having an effect on spending. And it has targeted the kind of business creation that has driven America for more than 200 years. Take Thomas Piketty's book Capital in the Twenty-First Century. A villain in wealth inequality is the "entrepreneurial economy." How to fix this injustice? An 80 percent tax rate on incomes above $500,000, specifically to make such income less prevalent. Then comes taxes of 50 percent on income of $200,000, and so on. It is simple enough, he posits, to eliminate wealth inequality by elimating wealth itself.

None of this is helpful. What is missing is the power of the American entrepreneur and the power of free markets. Specifically, if policymakers have to do something, it should be breaking down the barriers that have pushed new-business creation here in the U.S. into a decades-long decline. That means lowering tax rates and creating a tax environment that supports startups. That means not forcing higher costs on job creators. That means celebrating, not attacking, wealth accumulation.

So much of the success of America came from ideas scribbled on napkins, or collaborations in shared-work environments, or inventions borne in labs funded by corporations. Good ideas are incubated, accelerated, fostered, funded and brought to market to be bought and sold. Along the way, lives are made better, for the employees who apply their labor in that ecosystem and for consumers who better their lives with new products and services. 

Any barrier to this entrepreneurial spirit, any attack -- big or small -- on this entrepreneurial economy, hurts jobs and it hurts our overall economy. Faced with the very real possibility that we may slip into recession, anyone setting a policy has to understand that growth does not come from limits to free enterprise, but by unleashing its power. 

Related: The Myth of the Have-Nots