The first installment of “The Edgy Optimist,” a new column about what is going right in the U.S. economy, and why
Barely had the counting ceased in last week’s presidential election when the news took a somber turn. Two of the next day’s headlines read and my favorite,
How did it come to pass that even the resolution of a contested election brings almost zero relief from the relentless focus on problems and threats? How did a country that for much of its history exhibited a (sometimes naive) willingness to ignore obstacles and plunge forward become a society that struggles to turn its gaze away from the dangers that loom just ahead? In short, how did the United States become so pessimistic?
Some of it surely has to do with how the past decade has unfolded. Without question, this has been a challenging time for America and much of the Western world. We can all recite the crises, disasters and failures: Y2K, the bursting of the Nasdaq stock market bubble in 2001, 9/11, Iraq, Afghanistan, Enron, WorldCom, the bursting of the housing bubble, the Wall Street implosion of 2008, the euro zone’s troubles, chronically high unemployment, anemic growth, the continued emergence of China as a global economic force. I could go on.
The bleak attitudes of the past decade are in stark contrast to the giddy optimism of the 1990s, a consequence of the Internet revolution,a soaring stock market and the end of the Cold War. Yet even then, the growth model that so many Americans took for granted was showing signs of strain. Manufacturing jobs were quietly evaporating, and incomes for the middle class were stagnating. And so we have come to a point where even the conclusion of a peaceful, contested democratic election offers no pause in the drumbeat of negativity.
Few today are unaware of the problems that beset us. There is ample informed commentary, analysis and prognostication describing what is going wrong and could get worse: increasing deficits, waning economic growth, high unemployment, unstable financial systems, stock markets crashes, inflation spikes, geopolitical conflict, renewed recession, destructive gridlock, rising inequality, etc. No one could argue reasonably or rationally against the possibility that these issues will undo us or lead to worse times ahead. The problem, is that few argue consistently or cogently that our fears may, in the end, just be fears and that we will do more than muddle through.
That is the goal of “The Edgy Optimist,” my new column. It will examine what might go right and how, and what is going right and why. To deny the challenges and perils of our world, particularly the changing nature of our material and economic lives in the West and how we can ensure sustainable prosperity and growth in the years to come ‑ well, that would be foolish. But it is equally wrongheaded to dismiss arguments to the contrary as foolish, unlikely or ill-informed. Behavioral psychologists have shown that when people feel fearful, anxious or pessimistic, warnings about the dangers that lie ahead sound smarter and wiser than alternate views that suggest more constructive outcomes. Alliance Bernstein recently sent a note to clients charting how the Dow could quietly reach 20,000 within five years. The reaction? Anger and outrage. Bernstein was flooded with complaints that they were naifs. Had they released a paper with the title “Dow 5000” they likely would have generated just as much reaction, but from clients wanting to know how to prepare for what seemed like a credible scenario.
None of these outcomes can be known, by any of us, of course. Some seem more credible because they reinforce our view of the present, but unless you give a date at which all goes to hell, no argument about future peril can be falsified. This column won’t change the minds of those convinced that the road ahead leads down, but it will at least offer an alternate view about what is possible ‑ without donning rose-colored glasses or ignoring the risks.
That brings us to the election and the reaction. You would think the fate of the U.S. economy hinges on the election and that what government does will be the prime determinant of whether America rises or falls in the next few years. Yet government is only one piece of the three-dimensional chess game that is our economic system.
Yes, it accounts for as much as $ 6 trillion of the approximately $ 16 trillion of U.S. economic output. Much of that $ 6 trillion is necessary and productive ‑ it pays for schoolteachers, firemen, police, Federal Aviation Administration controllers. But even if you write that off as less productive spending, that leaves $ 10 trillion that has nothing to do with government.
And what about government regulation? There, too, the emphasis is almost entirely on costs rather than on the uncalculated benefits. But what is added to overall output by a judicial and legal system that enforces contracts? What boost is there to output because of rules against excessive pollution that reduce the healthcare expenses that would be required to treat those harmed? We are very good at looking at the inefficiencies and calculating the harm of over-regulation. We are less adept at weighing those against the benefits.
Non-governmental activity remains incredibly dynamic. With that comes the vertigo of rapid change and disruption. So much of the structurally morphing labor force is a function of disruptive technologies and the various forces of globalization. These forces have led to stagnant wages in countries such as the United States, Japan and Europe, while China, India and much of the rest of the world begin to make more.
That need not be a recipe for despair, nor proof that the future is grim for those societies. The flip side to the struggles of the developed world is billions of people entering the global middle class. Also, a porous global system has and will continue to yield benefits. (Whether our macroeconomic statistics and indicators are designed to measure that is another matter.) All those iPhones and iPads are possible only because of the fusion of American intellectual property and Chinese manufacturing ‑ as the recent focus on working conditions at Apple’s manufacturing contractor Foxconn has powerfully shown.
The election and the looming “fiscal cliff” have managed to add to general anxiety, but one is a validation of a functional political system and the other is a problem with obvious solutions. That makes the present challenges enviably easy to meet, whether they are met or not. No one can say what the future holds, but the chances that it will see our fears realized only increase when the consensus is that they will be. We know the risks; it is time to pay attention to the possibilities.
“The Edgy Optimist” column is initially published at