Rich Karlgaard: Sixty percent of Americans say the economy is in lousy shape. Forty
percent feel certain we’re in a recession! Pollsters over the last 18
months have discovered these remarkably consistent sentiments about the
American economy.
Truly remarkable when you consider that:
1. The U.S. economy has grown a 3.5%-plus during this period
2. Unemployment in the U.S. has dropped well below the post WWII historical average of 5.5%. It is now below 5.0%.
3. Mortgage rates remain at near 40-year lows
4. Home ownership is at record levels
5. Consumer spending shows no signs of abating.
Paul Samuelson attempts to explain the mystery. He cites global competition and industrial volatility, alluding to (but not naming) last year’s report by McKinsey called “Extreme Competition”.
In this paper McKinsey noted that the “topple rate” – the rate at which
top companies fell out of leadership in their industry – rose from a
10% occurrence in 1975 to a 25% occurrence in 1995. This trend, says
McKinsey, is likely to continue in the face of a rising India and China
and Internet-mediated price competition.
I liked Samuelson’s take. Still, I think two additional factors have caused Americans to feel crappy about their economy.
- Business press coverage, in newspapers and on TV, that gives much
play to the problems of iconic American companies such as General
Motors, Ford, and United Airlines . . . and not enough play to the
country’s small, dynamic and mostly privately held companies that
create 80% of the new jobs. - Obsessive press coverage on the “twin deficits” – fiscal and
trade. It is true that the fiscal deficit, pegged by the OMB at $427
billion in 2005, was the highest ever recorded. But it is also true
that this figure, as a percentage of America’s GDP, came to 3.5%, or lower than in 2004.
In fact, last year’s deficit-to-GDP ratio ran about in the middle of
where U.S. fiscal deficits-to-GDP ratios have run during the last 25
years. Based on the last two months, during which the U.S. ran a fiscal
surplus, the budget deficit for 2006 could go below $300 billion,
making it one of the lowest ratios-to-GDP seen in recent history. Do
you ever read about this? . . . As for the meaningless trade deficit,
you know how we feel about that. This is a completely irrelevant
number, as irrelevant as the “trade deficit” that you run with your grocer or barber. - Mortgage rates remain at near 40-year lows
- Home ownership is at record levels
- Consumer spending shows no signs of abating.
Paul Samuelson attempts to explain the mystery. He cites global competition and industrial volatility, alluding to (but not naming) last year’s report by McKinsey called “Extreme Competition”.
In this paper McKinsey noted that the “topple rate” – the rate at which
top companies fell out of leadership in their industry – rose from a
10% occurrence in 1975 to a 25% occurrence in 1995. This trend, says
McKinsey, is likely to continue in the face of a rising India and China
and Internet-mediated price competition.
I liked Samuelson’s take. Still, I think two additional factors have caused Americans to feel crappy about their economy.
6. Business press coverage, in newspapers and on TV, that gives much
play to the problems of iconic American companies such as General
Motors, Ford, and United Airlines . . . and not enough play to the
country’s small, dynamic and mostly privately held companies that
create 80% of the new jobs.
7. Obsessive press coverage on the “twin deficits” – fiscal and
trade. It is true that the fiscal deficit, pegged by the OMB at $427
billion in 2005, was the highest ever recorded. But it is also true
that this figure, as a percentage of America’s GDP, came to 3.5%, or lower than in 2004.
In fact, last year’s deficit-to-GDP ratio ran about in the middle of
where U.S. fiscal deficits-to-GDP ratios have run during the last 25
years. Based on the last two months, during which the U.S. ran a fiscal
surplus, the budget deficit for 2006 could go below $300 billion,
making it one of the lowest ratios-to-GDP seen in recent history. Do
you ever read about this? . . . As for the meaningless trade deficit,
you know how we feel about that. This is a completely irrelevant
number, as irrelevant as the “trade deficit” that you run with your grocer or barber.
