Last week’s non-farm payroll figures convinced many analysts that the US economy is once again headed back into recession. That would not be a surprise for many Americans who are not much more confident about the economy than they were back in 2009. Author Daniel Gross wrote a much talked about piece in Newsweek back in 2010 talking about the forthcoming rebound in the US economy. Gross, now at Yahoo Finance, has as a book out Bigger, Stronger, Faster…The Myth of American Decline . . . and the Rise of a New Economy in which he discusses the many (small) ways in which the US economy is in fact stronger than many people believe.
While the book will be an interesting read for economic optimists it is probably a more valuable read for any one who thinks that the American economy is in some permanent downward economic spiral. I recently had a chance to ask Gross a handful of questions. Below is the first half of our Q&A. Stay tuned for part two tomorrow.
AR: Much of your book is informed by your travels both internationally and domestically. Do you think you would have the same view of the US economy if you were firmly ensconced in New York City or Washington DC?
DG: Well, I am pretty firmly ensconced in New York City and D.C. They’re the only two places I’ve worked professionally in my 20-year career, and I go up and down the Acela corridor (a.k.a. the axis of misery) with some frequency. But, yes, getting out of here has made all the difference. All of my colleagues in the financial and political press can’t see anything but political dysfunction, the regulatory screw-ups, the bailouts, the rot at the core of finance and housing policy. If you focus on that all day, of course you’ll be pessimistic. It’s not just that they screwed things up. It’s that they seemed to screw things up on purpose, and then to resist the common-sense changes to fix it. But there is so much more to our country, and to our economy, than housing and finance. And you really to have to escape the gravitational pull of New York and D.C. to see it. For me, the most eye-opening trips are always visiting Northern California, where innovation and growth happens without any influence from Washington. I have a chapter on North Dakota, which has had phenomenal growth. And it’s not just about the shale oil boom. It’s a huge agricultural state and exports like crazy. It’s investing in higher education and infrastructure. And then when you go overseas, it’s not simply seeing the impact of consumer brands like Coke, Pepsi, etc. Those have always been there. It was seeing how American companies are on the ground, how local consumers are taking to our business models, and following the arc of money in the form of foreign direct investment that comes from the developing world into all parts of the U.S.
AR: What happened to political constituency for optimism? Both parties now seem to embrace the idea of US declinism, whether it be absolute or relative. Said another way, where is this generation’s Ronald Reagan?
DG: That’s a good question. We live in a polarized age. People always think the country is going to hell when the guy who doesn’t share their values is running the country. Conservative economic types were miserable throughout the 1990s, warning of socialism and high taxation. Liberals felt the country was headed for disaster during the Bush years (rightly, it turned out). I see this more on the right when it comes to economic analysts. There are people with very powerful megaphones – the WSJ editorial page, various CNBC and Fox personalities – who will shout from the rooftops that having a Democrat in power means the markets will tank and the economy will be in a permanent recession. So from the day Obama was elected, economic optimism was basically expelled from its natural home in the Republican party.
For Democrats, the story is a little more complicated. They’re all for growth, generally. But growth has been wildly uneven, especially when it comes to trickling down, over the past two decades – under Democratic and Republican presidents. It’s tough to be a real cheerleader for growth when your core constituents aren’t necessarily benefitting from it. Then the bailouts added another layer to this. For many Democratically-inclined thinkers – like Paul Krugman, or Joseph Stiglitz — the failure to deal harshly with the financial sector, the failure to end tax breaks for investors and high earners, the failure to push for an aggressive stimulus were a set of original sins. Without taking on the problems we face directly, they argue, there’s not much of a path forward. And so that explains some of the economic declinism in the Democratic party.
I tend to write a lot about the links between politics and business, between Wall Street and Washington. And I’m finding that the people who inhabit this world are generally hostile to my viewpoint. The people with whom my argument tend to be the people who have the least interest in politics, and whose businesses are least affected by policy.
AR: You wrote a cover story for Newsweek two years ago, that was widely criticized at the time, talking about the revival of the US economy from the depths of the financial crisis. However two years into the recovery a large portion of economists, politicians and everyday Americans would argue we are STILL in a recession. Where is the disconnect?
DG: We’re in a period of slow, subpar, and disappointing growth. And it has come after the U.S. suffered its deepest economic fall in 80 years. But that doesn’t mean the economy is shrinking. Very few people alive today have ever worked, or managed, or led, or invested through a period like this. So of course it is disorienting. The fall of 2008 and the spring of 2009 were extremely traumatic. But I go by the National Bureau of Economic Research when trying to figure out if the economy is expanding or contracting. NBER says it started to expand in July 2009. GDP has been positive in every quarter since then. The economy is now larger than it was at its pre-recession peak. Retail sales have rebounded and are at record levels. Ditto for exports. The markets have nearly doubled from their March 2009 lows. Plenty of metrics are lower than they were in ’06 and ’07 – especially bubbly ones like housing and car sales. While the private sector has added 4.3 million jobs since early 2010, we’re nowhere near regaining the total number of jobs lost. (Of course, many of those were unsustainable housing jobs purchased with borrowed money that wasn’t paid back). But, listen, you can have economic growth and expansion during low periods when the popped bubble sectors lick their wounds. The Dow didn’t regain its 1929 peak until 1954, and the economy grew massively in those years. We’re nowhere near regaining the 1999 peak in the NASDAQ, but think of all the technology developments that have happened in the past decade.
Look. Median income is still falling, housing prices are still falling. You can’t eat aggregate GDP. And you can’t convince people that things are improving if their personal situation is deteriorating. But on the aggregate, the economy has come back a long way from its catastrophic fall.
Thanks to Dan for answering some questions. You can check out Bigger, Stronger, Faster…The Myth of American Decline . . . and the Rise of a New Economy at Amazon. Make sure to check back for part two of our discussion tomorrow.