America can still run with the bulls
Avisiting Israeli Cabinet minister made two interesting points at a conference in Washington over the weekend. The current financial crisis, he said, is undermining the perception of American power when it comes to dealing with problems such as the Iranian nuclear program, Russian adventurism or the growing threat from Hamas and Hezbollah. Various actors around the world look at the U.S. and see a crippled giant. That reduces incentives to make concessions to Washington.
That problem is real, but so is the additional sentiment that he expressed after having been here for a few days. The economic woes of the U.S., he found, are not as readily apparent up close as they are in sensational media coverage abroad.
So far, Main Street has shown a surprising amount of resiliency given the problems of Wall Street. Even if the economy eventually succumbs to recession, as now appears more likely, it will bounce back before long. It always has.
There have been plenty of crises in the past -- the stagflation and oil-price spikes of the 1970s, the savings and loan debacle and soaring trade and budget deficits of the 1980s, the popping of the dot-come bubble and the terrorist attacks in the early 2000s -- that led many observers to predict that the United States would soon go the way of Rome.
What the pessimists ignore is that the fundamentals of the U.S. economy remain strong. Indeed, the World Economic Forum has ranked the United States as the world’s most competitive economy for the last two years. (The new survey comes out next month.) Its statistics show that per-capita gross domestic product in the U.S. consistently has grown faster than in other developed economies since 1980.
Looking deeper at the causes of American competitiveness shows that we score especially strongly not only in domestic market size (No. 1 in the world) but also in such areas as time required to start a business (No. 3), venture capital availability (No. 1), the cost of firing an employee (No. 1), ownership of personal computers (No. 2), university/industry research collaboration (No. 1) and quality of scientific research institutions (No. 2). The availability of venture capital might be affected temporarily by the market turmoil, and we should worry if Democrats gain control of both ends of Pennsylvania Avenue in November because they might exacerbate what the survey found to be the two most “problematic” issues for doing business in the U.S. -- high tax rates and cumbersome tax regulations.
But whatever happens in the next few months, most of the other advantages that have been powering the U.S. economy forward for decades will remain unchanged.
So too will another vital statistic: population growth. According to federal statistics, the fertility rate in the U.S., where each woman has on average 2.1 children, is now the highest among major industrialized economies. We are above replacement level while Europe, Japan and other industrialized economies have long been beneath it. That means that, even as our major competitors have to cope with graying populations, declining productivity and increasing pension costs, our population will remain relatively youthful and vibrant, notwithstanding the retirement of the baby boomers. This advantage is enhanced by our ability to attract and integrate hardworking immigrants from around the world.
America’s competitors display other weaknesses that become apparent in times of crisis. As Harvard economic historian Niall Ferguson noted over the weekend in the Washington Post, while the U.S. stock market has declined roughly 18% this year, China has seen a fall of 48% and Russia of 55%. “These figures are not very good advertisements for the more regulated, state-led economic models favored in Beijing and Moscow,” he wrote.
Although the current crisis exposes vulnerabilities in the American financial system, it also shows one of our greatest strengths: the ability of our politicos to cross party lines and formulate a decisive response in a time of crisis. We saw that kind of bipartisan action after 9/11, and there is a good chance that we will see it now -- assuming that lawmakers can agree on a bailout package that makes sense.
Contrast that with Japan’s dithering, delayed response after its real estate and stock market bubbles burst in 1990. A sclerotic political system dragged out its recovery for more than a decade and put paid to predictions -- heard so often in the 1980s -- that Japan would supplant the U.S. as the world’s economic powerhouse.
Given America’s record of resiliency, it would be foolish to “short” our prospects based on recent turmoil. The smart money will stay “bullish on America,” even if that was Merrill Lynch’s slogan before its downfall.
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