We have national advantages that will help advance our economy when even bone-headed policies are implemented. And foreign countries have problems we don't have, so relative decline is even less likely, I think. So while we have problems to address, don't panic (although I'll admit that perhaps the panic we feel over potential problems is one reason we emerge from problems time and again). Have we reached a tipping point where we can't recover from bone-headed policies? Maybe. But I doubt it.
The problems of deficit spending with a new health care system and the stimulus and all that, which don't appear likely to subside any time soon, are surely problems in the 5-20 year time frame. I don't assume that we won't address the problem in non-destructive ways in that time.
And in the short run, while the stimulus and other financial rescue measures are surely massively inefficient, they did throw money at the economy. Some of it has to stick no matter how much the program was a political wish list of pork barrel spending rather than a smart and focused stimulus package for hard hit areas. So in the short run, that spending and the basic strengths of our economy--even if we are taking hits from federal policy that discourages economic activity--could very well lead to short term robust recovery:
But the long-term decline of the U.S. economy has been greatly exaggerated. America is coming back stronger, better, and faster than nearly anyone expected—and faster than most of its international rivals. The Dow Jones industrial average, hovering near 11,000, is up 70 percent in the past year, and auto sales in the first quarter were up 16 percent from 2009. The economy added 162,000 jobs in March, including 17,000 in manufacturing. The dollar has gained strength, and the United States is back to its familiar position of lapping Europe and Japan in growth. Among large economies, only China, India, and Brazil are growing more rapidly than the United States—and they're doing so off a much smaller base. If the U.S. economy grows at a 3.6 percent rate this year, as Macroeconomic Advisers projects, it'll create $513 billion in new economic activity—equal to the GDP of Indonesia.
So what accounts for the pervasive gloom? Housing and large deficits remain serious problems. But most experts are overlooking America's true competitive advantages. The tale of the economy's remarkable turnaround is largely the story of swift reaction, a willingness to write off bad debts and restructure, and an embrace of efficiency—disciplines largely invented in the United States and at which it still excels. America still leads the world at processing failure, at latching on to new innovations and building them to scale quickly and profitably. "We are the most adaptive, inventive nation, and have proven quite resilient," says Richard Florida, sociologist and author of The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity. If these impulses are embraced more systematically and wholeheartedly, the United States can remain an economic superpower well into the current century.
The problems we face ecnomically are real. And dangerous. We could sail over the cliff, Thelma and Louise-like, I suppose. But Thelma and Louise aren't the only ones in the car. Someone might grab the wheel and turn us. And that pending recovery could lessen the problems of the long term debt outlook and inflation risks, giving us more time to steer away from policies that may appear too dangerous to recover from. It is a mistake to assume that we can't recover despite the best efforts of our leadership class to turn us into a slow-growth, European welfare state. Just as I firmly believe that our economy is too large and complex for our leaders to organize and direct with any success, I suspect our economy is too large and complex for them to wreck completely. So maybe even if Thelma and Louise keep aiming for the cliff, the effects of tens of millions of people leaning to one side will shift our vector and allow us to ride into the future. That won't mean their policies of aiming for the abyss will be vindicated, but for all their passengers (that's you and me), not going over the cliff is still a good thing even if they claim success.
I remain an optimist about our future--even in the age of hope and change.
