A Case for Long-Term Optimism?

June 16, 2011 07:56

The same American spirit that’s always prevailed through adversity is likely to prevail again. Bet on it.

By Chuck Rogér at Clear Thinking

Declaring that America is “the best house in a bad neighborhood” might not inspire all that much good feeling about our economic future, but it’s a start in the right direction. BlackRock Chief Equity Strategist Bob Doll observes:

Over the next 20 years, the U.S. work force is going to grow by 11%, Europe’s going to fall by five, and Japan’s going to fall by 17. This alone tells me the U.S. has a huge advantage over Europe and a bigger one over Japan for growth. And the reason for this is pretty simple. We have higher immigration than both of these, and we make more babies. We have a higher fertility rate. And they are the long-term determinants of population growth and therefore work force growth.

It would be wise to temper Doll’s optimism with some realism. Three anti-business measures and tactics perpetrated by Barack Obama and the Democrat Congress will act as drags on job and economic growth: ObamaCare, Dodd-Frank financial reform, and Obama’s relentless push for tax increases.

So then, holding an optimistic view comes down to a question of whether America really can continue to increasingly prosper simply by staying ahead of Europe and Japan. So far, so good, notes Wall Street Journal assistant editor James Freeman.

And for all the “jobs are going overseas,” “fair trade” enthusiasts, here is something to munch on. Doll points out that in the fifteen years between 1995 and 2010, America’s share of worldwide gross domestic product (a misnomer when talking “worldwide”) went from 25 percent to… drum roll… 25 percent. That’s right, after high-tech and housing busts, a major terrorist attack, and a huge financial crisis, the United States of America hasn’t lost one single percentage point of global output.

And here’s the clincher for Mr. Doll’s optimism. The reason that Europe and Japan lost share of global output is that China and India grabbed that share. China and India took none of America’s portion of worldwide GDP. Doll believes that America’s performance against the Chinese-Indian threat “is a statement of our ability to be productive in a tough world.”

Doll’s reasoning captures exactly why it will be key for America to stay ahead of Europe and Japan.

Another reason for optimism, according to Doll, is that “entrepreneurial spirit is alive and well in the U.S.” Yet there is a sizable precondition to all of this optimism: serious federal spending reductions. Assuming that Congress agrees on something and spending gets reduced by trillions over the next decade or two, Bob Doll’s outlook provides reason to at least not be utterly pessimistic about America’s economic future.

One final “however,” and it’s a big “however.” With America’s proven ability to create steady technological advancements, and with the commensurate productivity improvements, we may not see much less than 5 or 6 percent chronic unemployment for some time. Still, Americans have never been willing to settle for “best house in a bad neighborhood.” The same American spirit that’s always prevailed through adversity is likely to prevail again. Bet on it.

Email Chuck at swampcactus@chuckroger.com

Chuck Rogér blogs at Clear Thinking

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