More Evidence for Optimism Than For Pessimism
From The New Republic, an article by economist Stephen Rose (author of "Rebound: Why America Will Emerge Stronger From the Financial Crisis") titled "The Morning is Coming: Four Reasons Why the Economy Will Roar Back to Life":
"Our open economy encourages risk tasking; just ask the people behind the formation of 600,000 new businesses each year and the nine million who are self-employed. Because of this, we have a positive inflow of scientists and entrepreneurs—approximately one-quarter of the founders of Silicon Valley startups were non-Americans. And we have a great infrastructure for growth: an educated work force; many of the best universities in the world, which attract lots of foreign talent; access to capital; a good legal system; and an open society that encourages change. Europeans understand that Microsoft, Cisco, Apple, Intel, and the whole Internet revolution could not have started in Europe because businesspeople there are more risk averse and reluctant to build new relationships. And we have a thriving middle class that is ready to move, change jobs, and try new products.
If you look at the American capitalism since World War II, there are ample grounds for optimism. The U.S. economy has experienced almost continuous growth, punctuated by infrequent recessions, from which we have emerged stronger than ever.
Despite the green shoots, and the history of America quickly rebounding from other recessions since 1945, unexpected events could still slow the recovery. But I think the weight of evidence is on the side of optimism rather than pessimism."
Read the whole article here.
8 Comments:
While long term I am an optimist (our best days are still ahead - some time after the next two years), I see alot of signs of a second dip similar to 1980-1982 double dip recession. These include:
1) Total employment is falling. The household survey showed 301K jobs lost in June following 25K jobs lost in April.
2) First time unemployment claims are rising. The 4 wk moving average was 466,500 jobs. This is the worst since early March.
3) The ECRI Leading Index is now -6.1. This level on the ECRI has given only one false positive (-6 or lower ECRI with no recession) in 1988.
4) Car sales are falling. June sales (SAAR) was 11.08 million. This is the worst showing since Febrary.
5) Home sales are falling. The MBA purchase index is the lowest it has been since 1997.
6) New home sales reached a record low in May to a level not seen in a series going back to 1963.
7) Consumer sentiment is dropping. The Rasmussen Consumer Index has fallen from 91.1 on May 6 to 73.9 today.
It appears as though Stephen Rose is overtly ignoring the heavy hand of the current US legislative trend (multitude of newly created bureaucracies and entitlements) that not only has been added to the economic mix but will result in having immeasurable effects evolving for many years to come. Nor is there any recognition that the ideology of the current administration is anti-capitalist; not conducive to a healthy, prosperous business environment. Or, as Obama refers to be 'fundamentally transforming the United States of America'. In short, it is Stephen Rose who is optimistic as opposed to being realistic regarding the US economy roaring back to life in the years ahead.
America is no longer the mighty manufacturing based capitalist giant it used to be.GDP in the early 1960's was above 45% of world GDP but is now just over 20% today.
Problem. America is losing high paying jobs in manufacturing and replacing them with lower paying jobs like in health care retail and any other drudgery needed.
The whole issue is what time period one wants to look at. Short term things may be bad but on the longer term things look up. (Of course as Keynes observed in the long term we are all dead). It seems that the US is one of its depressive phases of its Manic Depressive disease. (The last one was under Carter when Japan was going to rule the world). The long term is significantly determined by demographics, and on that the US has Europe Japan and even China and Mexico beat. Over the next 20 years the working age population in Mexico and China will start declining. In addition the ability to start over in the US is so much greater. If you think about it a lot of the stuff being written today could have been written in 1895 or so but look what happened long term.
rbblum:
"It is global demand that will determine global growth and it will be difficult for the United States to have a robust recovery-rather than slipping into a Japanese-style malise--unless the world economy is strong".
JOSEPH STIGLITZ
Hey grant, quoting a Keynesian, eh?
Well Kynesim Keynesian policies didn't work for FDR...
Hey grant, quoting a Keynesian, eh?
Well Kynesim Keynesian policies didn't work for FDR...
Nice attempt at revisionism there.
My fear is that risk taking will not work as it has in the past because any jobs that the economy produces will not go to Americans. If Henry Ford was making a pitch for the money he needed to build a factory to make Model Ts today the moneymen would insist that the plant be outsourced. In a recent article Andy Grove noted that Apple employs 25,000 in the US to design and market its products and 250,000 in China to make them. If that ratio holds for new ventures then for ever 11 jobs created 10 will go to non-Americans. In the past all 11 jobs would have gone to Americans. It is unlikely that American risk taking will be enough to do what it did in the past because of that ratio.
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