…and if it has, are we prepared to deal with the consequences of an American economic resurgence?
Is the United States getting its act together? Were prognostications of long-term American economic decline premature? Yes, according to Newsweek‘s Daniel Gross, and he has some impressive numbers to support this:
[T]he long-term decline of the U.S. economy has been greatly exaggerated. America is coming back stronger, better, and faster than nearly anyone expected—and faster than most of its international rivals. The Dow Jones industrial average, hovering near 11,000, is up 70 percent in the past 13 months, and auto sales in the first quarter were up 16 percent from 2009. The economy added 162,000 jobs in March, including 17,000 in manufacturing. The dollar has gained strength, and the U.S. is back to its familiar position of lapping Europe and Japan in growth. Among large economies, only China, India, and Brazil are growing more rapidly than the U.S.—and they’re doing so off a much smaller base. If the U.S. economy grows at a 3.6 percent rate this year, as Macroeconomic Advisers projects, it’ll create $513 billion in new economic activity—equal to the GDP of Indonesia…
The recovery came quickly because the public and private sectors reacted with great speed. In the 1990s, Japanese policymakers deliberated and delayed before embarking on a program that included interest-rate cuts, a huge stimulus program, expanded bank insurance, and the nationalization of failed institutions. In 2008 and 2009 it took the U.S. just 18 months to conduct the aggressive fiscal and monetary actions that Japan waited for 12 years to carry out. And the patient responded to the shock therapy, as the credit markets and financial sector bounced back. Since the announcements of the Treasury-imposed stress tests in May 2009, banks have raised more than $140 billion in new equity capital. In August 2009, not even the most cockeyed optimists could have projected that within four months, Bank of America, Citi, and Wells Fargo would return $100 billion in borrowed funds to the taxpayers. But they did. [Newsweek]
Assuming Gross is right, and that there’s a lesson to be learned from this, it is that extending trend lines is almost always a dangerous enterprise. Most people made the mistake of assuming the global boom of the 2000s would continue interminably. Some of those same people were quick to assume that the United States would have to endure long-term stagnation in the wake of the bust of 2008. (In passing, Gross also notes the persistent strain of American declinism that I had remarked upon earlier.)
At the same time, it’s tempting to think that Gross and other leading media commentators making similar observations are jumping to early conclusions. My fellow INI blogger at The Gold Standard is far less sanguine about the prospects of a long-term revival. The lessons that should have been learned by Wall Street, he feels, simply haven’t been. (See Matt Taibbi for more in this vein.)
Nevertheless, the consequences of 3.5 percent economic growth for a large developed state such as the United States are immense. If Gross is right, is India—which appears to have shifted mental gears into taking steep American relative decline for granted—ready?