Thursday, 1 February 2007

State of the US economy: better than you think

One thing I find funny lately is the notion that the United States economy is going downhill. It’s just not true. People from both parties and ends of the political spectrum are bombarding each other, saying that their opposition is worsening the economy. Anti-free trade people attack for example pro-free trade people for trade deficit bringing the American economy to its knees; anti-Iraq war people attack Iraq war hawks for hurting the economy with the massive cost of the war; people both against welfare in the US criticize it for harming the economy. The list goes on and on.
The Washington Post reports that 2006 wasn’t actually too bad of a year.

The U.S. economy turned in a surprisingly strong performance last year, new data show, growing 3.4 percent despite higher interest rates, high oil prices and the sharpest housing downturn in 15 years.

The report from the Commerce Department, showing that economic growth picked up in 2006 from the 3.2 percent growth of 2005, dispelled any lingering doubts about the momentum of the economy going into this year. Many economists predict growth will slow this year, but gone are the recession worries of last summer.

I am not arguing that there are not plenty of problems with things like inflation, interest, manufacturing jobs (especially auto), oil and energy, trade deficit, and the housing market, but the US economy in general is still holding strong. Just the fact that the economy is doing well means a recession or slump in the economy may be all but eminent. There are always cries of wolf by economists and market annalists; we can neither believe all of the fearful predictions nor can we dismiss each one.

Economy and Iraq are the two issues that brought the Democrats into power in last November’s elections. Of those two issues, the domestic one — the economy — has been the one less covered by the media. It was arguably just as significant to voters according to exit poll data, but a war and foreign policy disaster makes for more sexy news I guess. Nonetheless, ‘free trade’ and ‘fair trade’ have been hot issues for a long time now, and many people haven’t a clue what either one means; political jargon plus macroeconomics does not make a good topic a layman could grasp.

The American economy is doing fine. No doubt it could easily be worse. One thing politicians need to remember is that no matter how many tax cuts they give the middle class, no matter how much they want to isolate the United States from global trade, the best thing they can do for the economy is education. The US and many other developed, industrialized nations are at a point where the agricultural sectors have largely turned to manufacturing (c. Industrial Revolution) and now, in the information age, manufacturing jobs will need to convert into services jobs. A person who would have been a potato farmer in 1800, a factory worker in 1950, would now find the best job security in being a programmer for Google or a designer for Ford. Of course, service sector jobs — even the ‘elite’ jobs like those in the medical profession — are being outsourced. Eventually the sectors and shared trade between countries will need to balance out.

More on so-called free trade soon.

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