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The Economy Is Slowing, but Perhaps Not for Long

12:00 AM, Jul 21, 2012 • By IRWIN M. STELZER
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Nor is it likely that big businesses will dip into their cash reserves until the fog of uncertainty obscuring future fiscal policy lifts. Or that unconfident consumers will unzip their purses: retail sales declined in May for the third consecutive month. Even workers not among the 23-million-strong reserve army of workers seeking full time work or too discouraged to do so worry that they might be the next involuntary enlistee in that sad group, and prefer a crouch on the couch to a stroll in the mall.

Which brings us to the longer run outlook, life after the new or current president settles down to governing rather than campaigning. In part that will depend on the policies adopted. But some observers feel that the die is already cast. Bret Stephens, writing in the Wall Street Journal, fears Americans have already developed a European-style “habit of dependency.” About half of Americans live in a household that receives some sort of government assistance. That compares with 44.4 percent when the financial crisis broke in 2008 and 30 percent when Ronald Reagan lived in the White House. Meanwhile, about half of Americans pay no income tax (they do pay payroll taxes), up from 34.1 percent when George W. Bush took office in 2000.

Stephens foresees a “civilizational” rather than merely an economic crisis because this trend to dependency is irreversible – it “will sooner drive a man to degradation than to reform.” Wrong, suggests Senator Bob Corker, a Republican from Tennessee who has grown into a spokesman for his party on economic matters. Corker believes we are “only a fiscal deal away” from resuming the sort of growth that has historically provided rising living standards and relatively full employment.

He might be right.

·     American consumers have reduced debt from 133 percent of their income in 2007 to 114 percent, are seeing real wages rise for the first time in nearly two years, and are therefore in a better position to spend than in recent months.

·     American banks are far better capitalized and in far better shape than those in almost any other country.

·     One-third of manufacturing firms are considering “re-shoring” suggests an MIT survey.

·     In June builders broke ground for more new houses than at any time in almost four years, so construction is set to add 0.3 percentage points to GDP, rather than subtract a full percentage point as last year.

·     High-value exports are booming, led by our high tech giants such as Apple, Google, Facebook, and game makers.

·     Manufacturing jobs are returning to America, with Airbus joining overseas firms locating in the South.

·     Energy costs are plummeting as “frac gas” hits the market.

Most of all, America remains the home of risk-taking entrepreneurs and venture capitalists. “There’s no way you can bet against America and win,” says Warren Buffett. Let’s hope he’s right. 

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