No, The US Economy Is Not Stuck

From the Washington Post: The terrifying idea that the economy might stay stuck forever just got more terrifying

Shoo the pallbearers away; the US economy is not only not dying or stuck, it’s thriving – especially compared to the rest of the world.

The U.S. economy has fallen, and it can’t get up.

At least that’s the way it seems. That’s because our slump hasn’t really ended, even though the Great Recession officially did more than five years ago. Growth has been low, unemployment is still high, and it’d be even more so if the labor force hadn’t shrunk so much. And all this, remember, has happened despite interest rates being zero the whole time. It’s the opposite of what we would have expected: big crashes are usually followed by big comebacks. So why has this time been different?

Here we see the author committing the fallacy of composition, which is to assume the condition or state of one component (employment) of a dynamic system (the US economy) applies to the entire system. So by the author’s logic, because unemployment is high, therefore the entire economy is weak. But the unemployment rate has fallen to 5.9 percent, the lowest in six years. The single leg upon which the author’s argument bears its weight upon is itself a wobbly one.

Back to the fallacy of composition, excluding the anemic labor market, there are many parts of the economy doing quite well such as:

Foreigners are inundating America’s most prestigious tech companies and institutions of higher learning with applications. Rich foreigners are buying up expensive real estate in New York and Silicon Valley with reckless abandon. So while America, to the left, may seem like the unwanted stepchild, to the rest of the world they can’t get enough of it.

The housing market (as measured by prices), especially in the Silicon Valley, is doing great. With the unending web 2.0 boom, the Bay Area has become the center of the universe.

Stocks are at record highs. Trillions of dollars of wealth has been created in what is greatest bull market in over 100 years.

Profits & earnings at record highs.

Consumer spending at record highs.

Exports at record highs.

STEM

The web 2.0 boom is still going strong. Facebook is now a $200 billion company. Apple and Google are almost worth a trillion dollars combined. Snapchat is worth $10 billion on its way to $30 billion. This doesn’t sound like an economy that’s stuck.

How about wealth inequality? Not a big deal

But this isn’t just a mental problem. Real rates might also be negative, because there’s more supply of lendable funds but less demand for investment.

Isn’t this good news? Lax lending standards to irresponsible, impulsive homeowners was a major contributing factor to the financial problem. We should be celebrating lenders being more reluctant to lend and borrowers being more timid.

And no, America is not deleveraging. This is good news.

And compared to the rest of the world, the American economy is looking pretty good. While America chugs along with 2-3% growth, the entire continent of Europe is pretty much in a borderline recession. Same for Australia, Japan and Russia. Other countries, such as Brazil and Turkey, have more nominal growth – but more inflation to go along with it. And for an economy as large as America’s, 2-3% growth puts us back to rates last seen in the late 90′s and the 2000′s, and no one on the left was complaining about weak growth during end of Clinton’s tenure, that’s for sure.

Thank successful fed policy, thank high-IQ people for innovating, thank the indefatigable US consumer, thank free market capitalism, thank globalization, thank bond holders, thank web 2.0, and last but not least, thank the bank bailouts for America’s economic exceptionalism.

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