Even Pessimists Feel Optimistic About the American Economy
Comment of the Day

June 18 2013

Commentary by David Fuller

Even Pessimists Feel Optimistic About the American Economy

This is an informative article by Nelson Schwartz for the NYT & IHT (may require subscription registration, PDF also included). Here is the opening
For more than a decade, the economy has failed to grow the way it once did. Unemployment has not stayed this high, this long, since the 1930s.

But could the New Normal, as this long economic slog has been called, be growing old?

That is the surprising new view of a number of economists in academia and on Wall Street, who are now predicting something the United States has not experienced in years: healthier, more lasting growth.

The improving outlook is one reason the stock market has risen so sharply this year, even if street-level evidence for a turnaround, like strong job growth and income gains, has been scant so far.

A prominent convert to this emerging belief is Tyler Cowen, an economics professor at George Mason University near Washington and author of "The Great Stagnation," a 2011 best seller, who has gone from doomsayer to a decidedly more optimistic perspective.

He is not predicting an imminent resurgence. Like most academic economists, Mr. Cowen focuses on the next quarter-century rather than the next quarter. But new technologies like artificial intelligence and online education, increased domestic energy production and slowing growth in the cost of health care have prompted Mr. Cowen to reappraise the country's prospects.

David Fuller's view It is all in the prior history, as I keep mentioning. Economic historians have pointed out that it takes at least 5 to 7 years before GDP growth in an advanced economy returns to what we would regard as normal, following a credit crisis recession. Conditions in the US began to improve after 2008, so approximately 5.5 years have elapsed since the trough.

The so-called 'new normal' mentioned above refers to a period when frightened consumers were trying to reduce their debts, while corporations were cautious and governments experienced widening deficits following a decline in tax receipts.

Inevitably, not all countries will recover at the same rate. For instance, some Asean developing economies were less damaged by 2008 and are currently doing better. Conversely, Europe's economic problems could easily persist for longer, although much delayed economic and political reforms which are now occurring with Mario Draghi's considerable help at the ECB will assist the eventual recovery.

Meanwhile, the USA has some significant advantages. Chief among these is America's current competitive position in energy costs among developed economies. US private industry invented fracking technology and the additional natural gas produced is helping to reduce America's CO2 emissions. America's favourable energy costs are attracting both domestic and foreign manufacturing to the USA. Moreover, there are more corporate Autonomies in the USA. These big, multinational companies are both contributors to and prime beneficiaries of America's technological lead during an accelerated rate of innovation.

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