Things are Good in America

[kaima]

April 6, 2010
Op-Ed Columnist
Relax, We’ll Be Fine
By DAVID BROOKS

According to recent polls, 60 percent of Americans think the country is heading in the wrong direction. The same percentage believe that the U.S. is in long-term decline. The political system is dysfunctional. A fiscal crisis looks unavoidable. There are plenty of reasons to be gloomy.

But if you want to read about them, stop right here. This column is a great luscious orgy of optimism. Because the fact is, despite all the problems, America’s future is exceedingly bright.

Over the next 40 years, demographers estimate that the U.S. population will surge by an additional 100 million people, to 400 million over all. The population will be enterprising and relatively young. In 2050, only a quarter will be over 60, compared with 31 percent in China and 41 percent in Japan.

In his book, “The Next Hundred Million: America in 2050,” über-geographer Joel Kotkin sketches out how this growth will change the national landscape. Extrapolating from current trends, he describes an archipelago of vibrant suburban town centers, villages and urban cores.

The initial wave of suburbanization was sprawling and featureless. Tom Wolfe once observed that you only knew you were in a new town when you began to see a new set of 7-Elevens. But humans need meaningful places, so developers have been filling in with neo-downtowns — suburban gathering spots where people can dine, work, go to the movies and enjoy public space.

Over the next 40 years, Kotkin argues, urban downtowns will continue their modest (and perpetually overhyped) revival, but the real action will be out in the compact, self-sufficient suburban villages. Many of these places will be in the sunbelt — the drive to move there remains strong — but Kotkin also points to surging low-cost hubs on the Plains, like Fargo, Dubuque, Iowa City, Sioux Falls, and Boise.

The demographic growth is driven partly by fertility. The American fertility rate is 50 percent higher than Russia, Germany or Japan, and much higher than China. Americans born between 1968 and 1979 are more family-oriented than the boomers before them, and are having larger families.

In addition, the U.S. remains a magnet for immigrants. Global attitudes about immigration are diverging, and the U.S. is among the best at assimilating them (while China is exceptionally poor). As a result, half the world’s skilled immigrants come to the U.S. As Kotkin notes, between 1990 and 2005, immigrants started a quarter of the new venture-backed public companies.

The United States already measures at the top or close to the top of nearly every global measure of economic competitiveness. A comprehensive 2008 Rand Corporation study found that the U.S. leads the world in scientific and technological development. The U.S. now accounts for a third of the world’s research-and-development spending. Partly as a result, the average American worker is nearly 10 times more productive than the average Chinese worker, a gap that will close but not go away in our lifetimes.

This produces a lot of dynamism. As Stephen J. Rose points out in his book “Rebound: Why America Will Emerge Stronger From the Financial Crisis,” when income is adjusted for family size, the percentage of prime-age American adults earning between $35,000 and $70,000 declined by 12 points between 1979 and 2007. But that’s largely because the percentage earning more than $105,000 increased by 14 points. Over the last 10 years, 60 percent of Americans made more than $100,000 in at least one of those years, and 40 percent had incomes that high for at least three.

As the world gets richer, demand will rise for the sorts of products Americans are great at providing — emotional experiences. Educated Americans grow up in a culture of moral materialism; they have their sensibilities honed by complicated shows like “The Sopranos,” “The Wire” and “Mad Men,” and they go on to create companies like Apple, with identities coated in moral and psychological meaning, which affluent consumers crave.

As the rising generation leads an economic revival, it will also participate in a communal one. We are living in a global age of social entrepreneurship.

In 1964, there were 15,000 foundations in the U.S. By 2001, there were 61,000. In 2007, total private giving passed $300 billion. Participation in organizations like City Year, Teach for America, and College Summit surges every year. Suburbanization helps. For every 10 percent reduction in population density, the odds that people will join a local club rise by 15 percent. The culture of service is now entrenched and widespread.

In sum, the U.S. is on the verge of a demographic, economic and social revival, built on its historic strengths. The U.S. has always been good at disruptive change. It’s always excelled at decentralized community-building. It’s always had that moral materialism that creates meaning-rich products. Surely a country with this much going for it is not going to wait around passively and let a rotten political culture drag it down.

[justjohn]

Kai, A great article. I believe it will pan out.

[kaima]

JJ, there are just a few parts I have to question, one of them being a chronic case of what seems like distortion. The income of Americans.

He quotes one author as saying <<This produces a lot of dynamism. As Stephen J. Rose points out in his book “Rebound: Why America Will Emerge Stronger From the Financial Crisis,” when income is adjusted for family size, the percentage of prime-age American adults earning between $35,000 and $70,000 declined by 12 points between 1979 and 2007. But that’s largely because the percentage earning more than $105,000 increased by 14 points. Over the last 10 years, 60 percent of Americans made more than $100,000 in at least one of those years, and 40 percent had incomes that high for at least three.>>

and I just have to wonder where all of these $100,000 families are! Are they double income families, which makes it a bit more believable?

The negative, the decline of 12% in real income is easy to believe, either because it has been reported often enough (repeat a lie often enough ... and people will believe it) or because it has seemed harder for families to make ends meet over the decades, and this is enhanced by the run of working class who refinanced houses to pay for everyday life... or did they do it to pay for the 'extras' in life advertising causes us to believe necessities?

What really gives me heart burn is when I hear $250,000 as a 'middle income family'. That only comes up in political arguments, never in statistical analysis. Yet no one refutes it.

Yes, I hope he is right!
Kai

[Nictoshek]

Shaky Foundations for the Economy

By LAURA FLANDERS
April 6, 2010

Two earthquakes, two vastly different consequences. If anything makes you appreciate solid foundations (not to mention building codes), it's the sight of those San Diego buildings swaying -- but not falling -- in Sunday's 7.0 quake; the same size quake that devastated Haiti.

When it comes to our economy, however, the foundations look anything but secure.

Last week Tim Geithner told steelworkers in Pittsburgh that unemployment is to remain "unacceptably high" for some time. He blamed what he called "the recession". But on the very same day, it emerged that what had been a recession for many had hardly been recession for all.

In 2009, a year of decline for most of us, the top 25 hedge fund managers made an average of $1 billion each. There was, said investor Carl Icahn (who made $1.6 billion), "a great opportunity in debt" last year. It's a stunning admission from a guy who spent the 80s as a corporate raider. He spent that decade laying people off.

In the 2000s he and the country's other top earners – speculators -- are making out, not from making widgets or giving people jobs, but from making wagers -- that people (and companies, even counties) will or won't default. Think about it. The White House staff fanned out this weekend talking up job creation and a bright future for all, but where's the incentive for creating jobs when the fattest fat cats are getting fatter by the day on how indebted we all are?

It makes you queasy, but not in a good way. The foundations of our economy seem more Haiti than San Diego, sad to say ..

[Nictoshek]

The director of Trends Research Institute, Gerald Celente, comments on Congress taking a 2-week break while 200,000 American people may lose their unemployment benefits.

“Congress is really detached from what’s going on with the average person,” says Celente. He predicts more protests and demonstrations to come on April 15, Tax Day.

“There’s going to have to be a time when they have to pull the plug on all of these bailouts and all of this stimulus. And when they do, you’re going to start seeing the economy, even on Wall Street, begin to unravel.” Celente explains how the American people don’t really have a choice with a 2-headed, 1-party system, financed by Wall Street. “It can’t go on like this with so many people losing so much and so few getting so much,” he says. Celente forecasts a new third party for 2012.

[kaima]

Yes, teh "just say no" politics of the Republican party seem to be hurting the country very badly, most recently when one Republican held back action on passing unemployment benefits before congress recessed.

My personal worry is that we will hit a second dip in the economy much as they did in 1937 when Roosevelt cut back government spending before the private economy was healthy enough to carry itself. With instant calls for 'balancing the budget' in these time when deficit spending seems called for, I fear we may pull the rug out of the recovery. Where were all of these Zombie Fistcal Conservatives when we had times of bubble-prosperity and went into a deficit funded war? They were contentedly underground so long that they stink to high heaven!

Well,I will use a follow-up post to post separate opinions.

Kai

[kaima]

April 8, 2010
Editorial
Job Creation Basics

President Obama recently noted that, by itself, government cannot replace the 8.2 million jobs lost over the past two years. What government can do, he said, is “help to create the conditions” for renewed hiring.

We couldn’t agree more. The question is whether Congress will do what is needed. The job situation is dire. But Republicans have apparently decided that grandstanding about the deficit is more important.

The economy added 162,000 jobs in March, a welcome gain after more than two years of nearly uninterrupted losses. But unemployment remained stuck at 9.7 percent. And without more government support, it is unlikely to fall much anytime soon.

Most of March’s job gains were temporary positions with the Census Bureau or in the private sector. The Census Bureau will keep hiring for a while, but the jobs will end by the fall. Private-sector temporary jobs won’t become permanent unless employers see steady economic growth, which is far from assured as stimulus spending fades later this year.

Perhaps most destabilizing, upcoming budget cuts by recession-battered states will lead to more job losses.

As states try to close their deficits with tax increases, consumers cut back on their spending, which harms businesses and hiring. As states cut spending, there is less business for private-sector contractors and more layoffs of government employees. Already in March, state and local governments shed 9,000 jobs.

That is why it is so critical to extend unemployment benefits through the end of the year and get more aid to states. Jobless benefits are the most powerful way to bolster waning demand during times of high unemployment. State aid also flows quickly to contractors, employees and beneficiaries, whose spending then supports jobs.

The House recently passed a one-month extension of expiring federal unemployment benefits. Before the Senate left town for spring break, Tom Coburn, a Republican of Oklahoma, blocked the extension, saying that it should be paid for with other budget cuts.

The House and Senate have already passed bills with a more generous extension and increased aid to the states. But they have been slow to finalize legislation and there are worrying signs that Mr. Coburn’s arguments are gaining ground throughout his caucus.

Make no mistake, the deficit is a serious problem that must be addressed in the medium term. The economy needs to be bolstered now.

Congress also must increase aid to small business. The Treasury should also redeploy bank bailout money for small business loans. And legislation is also needed to reinforce spending on infrastructure and clean energy, and create public jobs, especially summer youth jobs. Teen unemployment is currently 26 percent.

Mr. Obama is right that the government needs to do more to create the conditions for more hiring. But being right about the policy isn’t enough. He needs to get the politics right. Americans are nervous about the deficit, and so far the Republicans are carrying the debate.

The president needs to make the case to the public that without more emergency aid to jobless workers and hard-pressed states, unemployment will remain unacceptably high. And that will be bad news for all Americans.

[kaima]

I sure hope this fellow is right!

April 8, 2010
Why So Glum? History Suggests a Strong Recovery
By FLOYD NORRIS

The American economy appears to be in a cyclical recovery that is gaining strength. Firms have begun to hire and consumer spending seems to be accelerating.

That is what usually happens after particularly sharp recessions, so it is surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening.

Usually you can depend on the White House to view the economy with the most rose-tinted glasses available. But it was not until last week, after a strong employment report, that President Obama started to sound a little optimistic.

“The tough measures that we took — measures that were necessary even though sometimes they were unpopular — have broken this slide and are helping us to climb out of this recession,” he said in a speech at a factory making battery components in North Carolina.

Note, however, that he seemed to believe the country remained in recession. It is virtually certain that is not accurate, as least as will be determined by the arbiters of recession at the National Bureau of Economic Research. “The recession is over,” one of those arbiters, Jeffrey Frankel of Harvard, wrote this week.

But the White House is unwilling to make that claim.

Why is good news being received with such doubt? Why is “new normal” the currently popular economic phrase, signifying that growth will be subpar for an extended period, and that the old normal is no longer something to be expected?

It is possible, of course, that I am wrong and the prevalent pessimism is correct. The fact many economic indicators are looking up does not prove that the recovery will be self-sustaining. There are issues relating to over-indebted consumers and local governments. The housing collapse will have an impact for some time.

But there are, I think, a number of reasons for the glum outlook that are unrelated to the actual economic data.

First, the last two recoveries, after the downturns of 1990-’91 and 2001, were in fact very slow to pick up any momentum. It is easy to forget they were also remarkably shallow. If you are under 45, you probably don’t have much recollection of the last strong recovery, after the recession that ended in late 1982.

Add to that the fact that the vast majority of the seers did not see this recession coming. Remember Ben Bernanke assuring us the subprime problem was “contained”? In mid-2008, after the recession had been under way for six months, the Fed thought there would be no recession, and the most pessimistic member of its Open Market Committee thought the unemployment rate could climb to 6.1 percent by late 2009. It actually went over 10 percent.

In January of this year — after the recession had probably been over for at least a few months — the most optimistic member of the committee expected the unemployment rate to fall to 8.6 percent by late this year. The consensus was for a rate no lower than 9.5 percent.

Having been embarrassed by missing impending disaster, there is an understandable hesitation to appear foolishly optimistic again.

But even without that factor, it is normal for recessions to make people pessimistic. “Go back and read what people were saying in 1982 or 1975,” said Robert Barbera, the chief economist of ITG. “Nobody was saying, ‘Deep recession, big recovery.’ It is quite normal to expect an abnormally weak recovery. It is also normal for that expectation to be wrong.”

But if that is normal, one factor that brings optimism to some forecasts is absent this time. Both Republicans and Democrats have good reasons to be negative. Republicans are loath to give President Obama credit for anything, and no doubt grate when he points to his administration’s stimulus program as a cause of the good economic news, as he did in North Carolina.

Democrats would love to give the president credit. But much of the Democratic Party wants another stimulus bill to be passed, notwithstanding worries about budget deficits. Chances for that are not enhanced by the perception the economy is getting better.

The employment report for March, released a week ago, was a milestone that has been little noted. The household survey, from which the unemployment rate is calculated, showed a gain during the first quarter of this year of 1.1 million jobs, the best performance since the spring of 2005.

True, the more widely reported numbers from the survey of employers are not as good. But those numbers are subject to heavy revision as better data becomes available. At the turning points for employment after the last two downturns, those numbers turned out to be far better than was reported at the time.

Employment is a lagging indicator. Employers can be slow to cut back when business turns down, and slow to rehire when it picks up. It stands to reason that when employers cut back sharply — as happened in this cycle — they will have to rehire faster than if they had been slow to fire, as was true in the two previous downturns.

I looked back at the recoveries after seven recessions from 1950 through 1982 and found that, on average, such a strong three-month performance of the household survey, defined as a gain of at least 0.8 percent in the total number of existing jobs, came seven months after the recession had ended, with a range of two to 13 months.

If the 2007-9 recession ended in August, as the index of coincident indicators would seem to indicate, the lag this time will have been seven months.

The lag was 28 months after the 1990-’91 recession ended, and an amazing 42 months after the 2001 downturn concluded. Those really did deserve the title of “jobless recovery.” But they were very different from what appears to be unfolding now.

The stock market’s recent performance may be sending a similar message. Prices have been rising, but there is not much volume. Why? A lot of money managers are fully invested, but many investors remain fearful and are not putting cash into mutual funds. To judge from anecdotal evidence, some of the buying now is short-covering by hedge funds that expected the economy to be much weaker than it is, and thought corporate earnings reports would devastate investors. Instead, they are hearing from companies that business is stronger than expected.

Some Americans are in deep trouble, to be sure, and the days of paying for second homes by refinancing the mortgage on the first will not return soon. But many Americans — both individuals and businesses — who cut back sharply when fear was at a peak a year ago are now finding that they overreacted. The businesses need to hire to meet demand, some of it coming from individuals who are less fearful now of losing their own jobs.

In 1982, Democrats scoffed at a surging stock market and thought a severe recession would last for a very long time. They were confident that the economy would doom Ronald Reagan’s re-election campaign in 1984. All they had to do was make clear they offered a stark alternative to the failing policies of the incumbent

Change a few words (Reagan to Obama, Democrats to Republicans, 1984 to 2012) and you have an accurate description of the current political climate. Could the Republicans be as wrong now as the Democrats were then?