Current US Economic Indicatiors – June 1, 2013

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After navigating the tremendous recession of 2008, the worst since the Great Depression of the 1930s, the United States today is in better economic shape. This report contains a summary of the views of two American writers who have analyzed the economic indices which reflect, at least in part, this recovery.

Charles M. Blow has explained that in May 2009 the unemployment rate had risen to 9.4% from 5.5% the previous year. “People were losing their homes to foreclosures in record numbers”. The Dow Jones industrial average had fallen to about 8,500 from more than 13,000 the previous May. And the deficit had tripled from the 2008 fiscal year to the 2009 fiscal year, according to the non-partisan Congressional Budget Office. Americans were rightly worried and “near panicked” about their economic prospects.

Now the economic picture is more hopeful. The unemployment rate has dropped to 7.5%. The Dow is above 15,000 and “continuing to set records.” [Note: is this a return to the “irrational exuberance” of the stock market mentioned wonderingly by former Federal Reserve Chairman Alan Greenspan?] The housing sector is rebounding with sales of previously owned homes reaching the highest level in more than three years, with the share of foreclosure purchases shrinking, according to a recent report in the Wall Street Journal. Another piece of good news is that the deficit is shrinking faster than expected, according to a report of the Congressional Budget Office. The report has stated, inter alia, “Relative to the size of the economy, the deficit this year at 4% of Gross Domestic Product (GDP) will be less than half as large as the shortfall in 2009, which was 10.1% of GDP”. Blow concludes his account by suggesting that the “signs look positive for Democrats this spring. This is not to say that they should prematurely lift their glasses, only that they have no reason to prematurely throw up their hands”.

Tyler Cohen a professor of economics at George Mason University is also of the view that while the “state of the economy is far from ideal, but some very definite positives are brewing”. He has outlined five indicators which suggest that the economic future has started looking up:

1) More Diplomas: The nation’s high school graduation rate has risen to 78% in 2010, the highest figure since 1974. On average, these additional high school graduates – not to mention college degree recipients – will find better jobs and enjoy better health, long – lasting benefits that will be reaped for many decades.

2) New Knowledge Less Cost: When it comes to education, an even greater productivity gain may be on the way. This month, for instance, the Georgia Institute of Technology announced a new online master’s degree in computer science, for a price of no more than $7,000.This is part of a trend toward less expensive education and certification. The examples are numerous: the Khan Academy offers free online instruction in mathematics and other topics and Coursera and other companies have popularized online courses for millions of users.

3) Lower Health Care Inflation: The growth rate in health care costs has been slowing for the last four years. This is documented in a paper by David M. Cutler, an economics professor at Harvard, and Nikhil R. Sahni, a fellow at Harvard Business School. The paper appeared in the May 2013 issue of Health Affairs.

4) Powering America for Less: America appears to be at the cusp of a new era of cheap energy. Through advances in both oil and natural gas production, the United States is again becoming a leading exporter of fossil fuels. The effect of today’s energy boom on broader productivity remains to be seen, “but it could prove a source of further gains”.

5) Mobilizing the Creative: This final development, concerning the fate of talent in lesser-developed nations, is perhaps the most fundamental. If you were born a genius in Shanghai in 1960, for example, your chances of making much contribution to the larger world was small, because China was largely isolated back then – and extremely unfree economically. It now does a much better job of mobilizing its considerable natural talent. While the populations of countries like the United States are aging, the number of innovative young people worldwide has never been higher. Countries like China, India, Brazil and Russia, despite recent slowdowns in growth, still are making progress in improving their educational systems and scientific networks. That increases their ability to supply technological innovations – or scientists and entrepreneurs – to the United States. These gains can be reaped in coming decades.

Cohen concludes that the trends enumerated above may not “ultimately be the dominant ones, but if we’re looking for a positive narrative about the American economic future, some important pieces are starting to fall into place”.

In conclusion I would like to allude to the forecasts of geopolitical trends in The Next 100 Years, a book by the eminent futurologist George Friedman.  Friedman is the founder and CEO of STRATFOR, touted to be the world’s leading private intelligence and forecasting company. Friedman makes the caveat that he could be proved wrong in some of the events that he has presented. In sum, he posits that while the United States will remain a powerful country in the year 2100, while China and Russia would be weakened, it will face increasing problems from its neighbor Mexico, which would have grown appreciably in power. The US and Mexico have had a tumultuous relationship in the past during which Mexico lost considerable territory to the US. How this standoff will be resolved in 2100 and to whose advantage, Friedman does not, understandably, mention. I do not think that any analyst could peer that far into the future and make credible assessments of geopolitical trends.

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