U.S. holds off a world of eco­nomic trou­ble

The Pak Banker - - OPINION - Al­bert R. Hunt

If you be­lieve the po­lit­i­cal dis­cus­sion, from left and right, the U.S. econ­omy is in dread­ful shape, be­set by ram­pant job­less­ness, no growth and too much debt. Ac­tu­ally, the econ­omy has been im­prov­ing steadily, if too slowly. Un­em­ploy­ment is down to 5.3 per­cent from about 10 per­cent in the first year of Barack Obama's pres­i­dency. Gross do­mes­tic prod­uct is ex­pand­ing at a clip of 2.5 per­cent, a mod­est pace but growth nonethe­less. The fed­eral deficit is es­ti­mated at $486 bil­lion this year, or about a third of what it was in 2009. De­spite all the com­plaints about the Af­ford­able Care Act, 15 mil­lion more Amer­i­cans are cov­ered than two years ago, and costs, so far, are ris­ing only mod­er­ately.

Why all the neg­a­tive rhetoric? Per­sis­tent sys­temic prob­lems have kept wage growth stag­nant for a long time. The re­cov­ery has been very top heavy. The econ­omy in­vari­ably be­comes a po­lit­i­cal tar­get when there is no White House in­cum­bent run­ning for re-elec­tion. The op­po­si­tion party has to talk about how bad things are and its ideas for change. The in­cum­bent party, in this case the Democrats, must be more nu­anced, striv­ing to avoid get­ting tarred as de­fend­ers of the sta­tus quo. Yet, the U.S. is one of the bright spots in an un­set­tled global econ­omy. Much of Europe re­mains pros­trate.

A few years ago, the BRIC na­tions -Brazil, Rus­sia In­dia and China -- were viewed as the world's lo­co­mo­tives. To­day, Brazil and Rus­sia are eco­nomic bas­ket cases. The pic­ture is mixed in In­dia, which changed its method for cal­cu­lat­ing GDP, po­ten­tially over­stat­ing growth. The shaki- ness of China, at least short term, was on dis­play last week when it al­lowed its cur­rency to plunge, un­der­scor­ing fragility in the sec­ond-largest econ­omy. The move fol­lowed re­cent gov­ern­ment re­stric­tions on the stock mar­kets that also re­flected dis­plea­sure with poor re­sults. In an in­te­grated global econ­omy, Euro­pean woes and wor­ries about China af­fect the U.S. Don­ald Trump's China-bash­ing may have pop­ulist ap­peal; it of­fers no eco­nomic ben­e­fits.

Pri­vate in­vest­ment re­mains slug­gish as com­pa­nies strug­gle to gen­er­ate more rev­enue for the top line. It's those in­vest­ments that drive pro­duc­tiv­ity that then turns into wage growth. That isn't hap­pen­ing. So, de­spite the com­par­a­tively promis­ing per­for­mance, many Amer­i­cans don't ex­pe­ri­ence any im­prove­ment. Not only are wages stag­nant but the un­em­ploy­ment rate is de­cep­tively low, in part be­cause it doesn't ac­count for part-timers who want to work full-time or those who've stopped look­ing for a job.

There's lit­tle that politi­cians can do to change the sit­u­a­tion in the 14 months be­fore the pres­i­den­tial elec­tion. One mod­est pos­si­bil­ity would be for Congress to es­tab­lish an am­bi­tious in­fra­struc­ture pro­gram funded by repa­tri­at­ing for­eign source in­come at a lower tax rate.

Washington grid­lock pre­cludes most ac­tions. But the pre­mium should be on not do­ing harm, such as shut­ting down the gov­ern­ment or bring­ing the U.S. to de­fault by fail­ing to raise the debt ceil­ing this fall.

The Fed­eral Re­serve could make a dif­fer­ence by tight­en­ing mon­e­tary pol­icy and rais­ing in­ter­est rates soon (most ex­pect a de­ci­sion in Septem­ber of De­cem­ber). Fed Chair Janet Yellen is very sen­si­tive to weak­ness in the em­ploy­ment mar­ket and the best guess is that her steps will be cau­tious and mod­est.

Po­lit­i­cally, at some point the crit­ics will be held more ac­count­able. Sen­a­tor Bernie San­ders, the Ver­mont so­cial­ist who is chal­leng­ing Hil­lary Clin­ton for the Demo­cratic nom­i­na­tion, arouses crowds with de­nun­ci­a­tions of the econ­omy and vows to soak the rich. Few main­stream lib­eral econ­o­mists be­lieve steeper taxes on in­vest­ment and wealth­ier Amer­i­cans would pro­duce an eco­nomic boom.

Many of the more right-wing Repub­li­can pres­i­den­tial can­di­dates ad­vo­cate slash­ing fed­eral spend­ing, not a pre­scrip­tion to goose the econ­omy. For­mer Florida Gover­nor Jeb Bush, though he has been short on specifics, has promised to pro­duce an econ­omy that grows 4 per­cent or more a year. His top eco­nomic ad­vis­ers were lead­ing de­ci­sion-mak­ers in the ad­min­is­tra­tion of his brother, Pres­i­dent Ge­orge W. Bush, when the rate of ex­pan­sion never reached 4 per­cent. The only time over the past half-cen­tury that such growth was achieved for four con­sec­u­tive years -- the length of a pres­i­den­tial term -was un­der Bill Clin­ton.

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