Free Markets, Free People

Is America’s economy stronger than reported?

That’s the argument Ruchir Sharma makes in the Atlantic this week.  It is one of those contextual or perspective arguments that says, “of course it’s bad, but look at the rest of the world”.   He also, heaven forbid, makes the American “exceptionalism” argument, saying":

Evidence of an American revival, against both developed and emerging world competition, is mounting, driven by the traditional strengths of the American economy–its ability to innovate and adapt quickly.

But … there’s always a “but”:

America’s worst worries — heavy debt, slow growth, the fall of the dollar and the decline of manufacturing — will look much less troubling when compared to its direct rivals. While US growth has slowed by a full point so has growth in Japan and Europe, leaving the United States on top of the league of rich nations.

Sharma says manufacturing is looking up and slowly growing.  As for debt?  Well, private debt is being shed in record numbers:

Consider the key challenge of "deleveraging" or digging out from debt. A new study from the McKinsey Global Institute shows that the United States is the only major developed economy that is even loosely following the path of countries that successfully negotiated similar debt-induced recessions, like Sweden and Finland in the 1990s. Total debt as a share of GDP has fallen since 2008 by 16 percent in the United States, while rising in Germany and rising sharply in Japan, the United Kingdom, France, Italy and Spain. As in Sweden during the 90s, the fall in total US debt is due entirely to sharp cuts in the private sector, particularly the finance industry and private households.

Note the emphasized points in the last sentence – “private sector”, “private households.”

So what’s our biggest problem, our biggest worry, in fact our biggest economic drag that is likely keeping us bouncing along the bottom of this recession/depression?

Well Sharma doesn’t hesitate in identifying it:

The weak link in the U.S. response to the debt crisis is the government. The Scandinavian cases show that government needs to start cutting spending and debt roughly four years after the downturn — exactly the stage where the US is today. Washington has so far failed to put in place a plan for long-term debt reduction, in part because some politicians and pundits are still pushing for more borrowing to ward off "depression." The Scandinavian cases suggest this is exactly the wrong worry right now. The public debt is a big reason that long-term US growth is likely to slow, but even then, it is important to keep America’s debt problem in perspective. China is arguably worse off, with total debt equal to 180 percent of GDP. The more wealthy you are, the more debt you can carry, so America’s total debt (350 percent) is actually less of a challenge.

Don’t worry, be happy … our debt problems is less of a challenge? No, that’s not the point.  It means, relatively speaking,  we’ve been somewhat lucky because the strength of our economy and its size has helped ameliorate the drag increased government debt has placed upon our economic recovery.

Note what Sharma says, given the evidence of the “Scandinavian cases” – we should be cutting spending and debt “four years after the downturn”.

That would mean what?   No QE3.  No trillion dollar budget deficits as far as the eye can see.

However, that’s the plan right now.

President Obama has a campaign ad out talking about how we don’t need to repeat the “Republican plan” because, in his words, we’ve tried that and it didn’t work.

Well I hate to break it to you but what he has planned for the next four years, if he’s re-elected, is a reprise of his first term.  Spend, spend, spend and expand government programs and services (to the tune of $46 trillion over 10 years, much of it debt).

And the Fed?  It’s easing its way toward another quantitative easing (QE3), essentially ignoring the fact that the first two pushed about $10 trillion in cash out there which it is going to have too wring out of the economy at some future date.  Adding even more doesn’t hit many as a very sound move.

One of those is Mitt Romney:

"I am sure the Fed is watching and will try to encourage the economy. But I don’t think a massive new QE3 will help the economy," Romney said, referring to a program called quantitative easing.


"I can absolutely make the case that now is the time for something dramatic and it is not to grow government,” he said. “It is the time to create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people and that is going to happen.

Key takeaway?  Romney gets the proper role of government in the economy – “create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people…”.

If government did that – became an enabler – then what should follow?  You should see employment begin to rise.

We should be seeing 200, 300, 400,000 jobs a month to regain much of what has been lost. That is what normally happens after a recession, but under this president we have not seen that kind of pattern. We have just been bumping along with barely enough jobs to just hold the unemployment rate about the same – above 8% – 42 months like that. You have to have the Steve Jobs of the world beginning businesses, making products that want to be purchased around the world. That gets Americans back to work."

He’s right.  Exactly right.  And the current president is clueless.  It isn’t about pumping more money into the economy and creating more debt and bigger government. If you want to see policies that continue to cripple what Sharma dubs the “traditional strengths of the American economy”, give the guy in charge 4 more years.

Government’s don’t produce wealth.  The private sector does.  Government spends that wealth.

(Oh, wait, the private sector “is doing fine”.  Never mind.)

Romney gets that part and it is indeed the most important issue of this upcoming election.  Getting government out of the way and into the enabler role of providing incentives and opportunities for businesses to grow and expand (while curtailing government spending and expansion) is what will get this nation on the road to recovery.

The current administration doesn’t understand that – at all.

And, for all practical purposes, that’s all you need to know to decide who should be sitting in the Oval Office next January 20th.

Hint: In case you somehow missed it, it isn’t the guy in there now.


Twitter: @McQandO

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22 Responses to Is America’s economy stronger than reported?

  • QE is a pre-bailout for the Financial Sector masked as a Economic Recovery package.  Basically we lend Fed. Reserve money to financial firms at zero or next to zero interest.  They invest it and pocket the return.  US taxpayers are on the hook if it all goes down and firms default. 

    Even with the interest being close to zero, its not worth the hassle and that little bit of cost to not invest your own money, unless this QE money is safer.  And the only way its safer is if people plan to stiff the US taxpayer, if it starts to fall apart again. 

    • You mean, like, Solyndra, for, uh, example.

    • The financial sector is doing just fine for now (until Frank-Dood kicks in with a vengeance).

      • They are not just doing fine.  They are doing fine with a tax payer safety net to the tune of $3 trillion dollars. 

  • There’s a guy in there NOW?  I heard we had a professional golfer trying out a ‘new plan’, I didn’t know he was actually the President!  No kidding??  You’re SURE??????

    • Obama’s “Record on Jobs” sucks so much that every time the White House talks about jobs, former chief of staff Daley still puckers.

  • Getting government out of the way and into the enabler role of providing incentives and opportunities for businesses to grow and expand (while curtailing government spending and expansion) is what will get this nation on the road to recovery.

    That “enabler role” came dangerously close to being un-McQ-like, McQ.  I take you mean in the passive sense, but that term “incentives” has me worried.
    The central government needs to provide a minimal civic framework, do what it does under the Constitution efficiently, and NOTHING more.  That would be plenty.
    And, I note with a sense of unbelief, that Obama seems hell-bent on repeating the housing debacle caused by the massive market distortions built in by government STOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOooooooooooooooopid.

    • Quite!
      The only “opportunities” government creates (legitimately) is for Defense contracts and building gov’t buildings.

  • Economist Richard Duncan has told CNBC that the debt of America and its closest allies is so big, and its growth accelerating so fast, that Western civilization is on the verge of a “death spiral.” He and his team of analysts have studied a variety of social and economic trends, and they have concluded Western governments have constructed pyramid schemes so large they are guaranteed to bring ruin.

    “It’s a pattern that’s hard to see unless you understand the way a catastrophe like this gains traction,” Dr. Moors says. “At first, it’s almost impossible to perceive. Everything looks fine, just like in every pyramid scheme. Yet the insidious growth of the virus keeps doubling in size, over and over again – in shorter and shorter periods of time – until it hits unsustainable levels. And it collapses the system.”

    There was a piece (by Kevin Drum ??) this weekend that the US has no sovereign debt problem so long as there is somebody to buy the debt. I guess he missed that part about how the Fed has intermediaries buy T-bills, then 24 to 48 hours later, the Fed buys them up and stacks them in the basement.
    As for the employment numbers, had a piece saying how the BLS Birth/Death Model fudge factor was the only thing propping up last weeks employment growth.

    • what’s a 1000% distortion…uh….smoothing…uh seasonal adjustment amongst friends.

  • And reflect that whatever fortune may be your lot,
    It could only be worse in Milwaukee.

  • Uncertainty.
    Oddly, that was not mentioned.
    But it is IMNHO the single most important factor dragging the economy.

    • But here I must disagree, more to your phrasing then to what I believe is, your intention…
      The sad truth is many people are VERY certain that whatever this collection of criminal asshats does won’t be good and I think that’s a bigger problem then mere uncertainty in comparison.

      • I beg to differ, mah friend.  If I KNOW a person is a profligate liar, I know what to expect, and I can wire around it if I have to deal with them.
        This, of course, is a gross oversimplification.  If I have NO flucking idea what the multiple agencies of government MIGHT take in their Collective heads to impose, and how ramifying the effects might be, I just stand pat.

        • eh…..I concede, you were right the first time based on the multiple at loose agencies he has let free to vex and despoil the people of the kingdom.

    • Obama has added “fairness” to the mix.  Nobody has a definition for “fairness.”  Some languages don’t even have an equivalent word.

  • I’m not so sure about this:  “create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people…”
    Obama did exactly that and we got Solyndra.  The problem with government creating incentives is that they usually lead to crony capitalism.

    • The right way to do that is through lower taxes and less regulation across the board. At this point, given the debt problem, the first step should be to reduce regulation, like eliminating Obamacare and EPA, etc. But really, private buisness shouldn’t be used as tax collectors, and only people, not buisness, pay taxes in reality.

  •   “Romney gets the proper role of government in the economy – “create the incentives and the opportunities for entrepreneurs”

    I disagree. In any free economy incentives and opportunities already exist. Human nature being what it is, some people will find ways to make money and thus grow the economy, as they have been doing since Ogg found he could make flint axes and trade them for food, thus avoiding the dangers of hunting. Government’s role is to  fill potholes, put thieves in jail, and otherwise keep out of the way.