The US in 2013: Economics trumps politics?
- 4 January 2013
- From the section Business
We've spent most of the the past two years wondering whether the roof was going to cave in on the global economy, as it did in 2008.
The collapse of the euro, a hard landing in China, or a sovereign default by the US - the fear was that any one of these things could trigger another crisis in the global financial system, with disastrous results for the real economy.
Nearly everyone I speak to - business leaders, policymakers and financial market folks - is hoping that 2013 is going to be different.
The feeling is that we won't spend the year worrying that a global financial meltdown lies just around the corner. But if so, that is only going to put more of a spotlight on economic growth - and its absence.
For all the talk of fiscal meltdowns and warring politicians, investors seem to think the US economy is now better able to deliver that growth than either Europe's or Japan's. That is is one reason why the dollar has been going up today, and so have long-term US interest rates, to the highest level in nearly a year.
The more short-term reason why investors are buying US assets is that the minutes of the latest meeting by the US Federal reserve suggest that some Fed policymakers want the central bank to stop pumping money into the economy much sooner than previously thought.
That won't happen if the recovery falters in the middle of the year, as it has several times since 2009. But there's a more general point here, which I'm increasingly struck by. More and more, the businesspeople and market analysts you speak to these days are upbeat about the US's future - in stark contrast to the political commentators and think tank-types, who are almost universally depressed.
"Can America be fixed?" is the gloomy question on the front of the latest issue of Foreign Affairs. The front of this week's Economist suggests that "America is turning European" - and not in a good way.
The contrast between the economic and political viewpoint is understandable.
If you're an investor or a business, looking at the real economy in the US, things look pretty good right now (at least if you're at the top, and don't have to worry about declining real wages, or unemployment). Households and businesses have largely made the difficult adjustments forced on them by the crisis: their debt levels are manageable, and corporate productivity is soaring.
Across the economy, US businesses are also starting to benefit from a flood of cheap, domestically-produced energy. Not to mention rising prices and wages in China, and technological developments in manufacturing, all of which are starting to encourage companies to shift production back home.
Add it all up, you can see why investors and the more excitable kind of economist (there are some) think the US could be about to stage an comeback - even, in the words of one, "eclipsing China" over the next few years, while the Chinese struggle to reform their economy.
The political commentators are depressed because, if anything is going to mess up this positive scenario, it's the US's politicians.
Beneath the surface, these thinkers (rightly) see deep fiscal and social problems which the country needs to address in the next five to 10 years, if it is going to avoid a Japan-like fate. And they don't see much recent evidence that Americas politicians are up to the job of fixing them.
The gloomsters may have a point. Nearly every advanced economy today is facing the same question: can its governments do politically what is required for the economies to put the crisis behind them? And none has all the answers.
What is striking is that, for the moment at least, financial markets seem to think that the US economy now has the capacity to put the crisis behind it, despite the worst efforts of its politicians.
They do not seem to have the same confidence in Europe or Japan.