The State of Our Political Economy
12:00 AM, Dec 29, 2012 • By IRWIN M. STELZER
The good news is that these opportunities for the expression of mutual distaste are concentrated in the early part of the year. The bad news is that there is no sign that the politicians are prepared to mount a serious attack on the $1 trillion annual deficits that are adding to the nation’s debt mountain, or to modify the unaffordable retirement, health care and other commitments made to America’s aging population. As Hudson Institute scholar Chris DeMuth noted in a recent essay in THE WEEKLY STANDARD, “America’s de facto fiscal policy since the early 1960s [has been] continuous government borrowing to pay for current consumption.” America’s structural deficit—the one that will persist even if the economy recovers fully—comes to almost 7 percent of GDP, the highest of any rich nation with the exception of Japan.
Offsetting these depressing (in more ways than one) politics are signs of strength in the economy.
· The private sector has been adding jobs by the millions despite the weakness of the recovery and the construction sector. Now, with the average workweek for construction workers at its highest level in seven years, hiring in a sector that has bled jobs cannot be far behind.
· The housing market is on the upswing. Sales of existing homes rose last month by 14.5 percent over last November, sales of new homes are rising, and prices, although still far from their pre-bust peaks, jumped 6.9 percent this year, the largest gain since 2005. Applications for building permits are up. Inventories of new homes for sale are at a 50-year low, and inventories of previously owned houses for sale are at an 11-year low. Thanks to Ben Bernanke’s low mortgage interest rates, rising rental rates that make ownership relatively more attractive, and an improving jobs market that encourages young couples to trade the comfort of their parents’ basements for homes of their own.
· Vehicle sales continue strong as Americans replace their aging cars and light trucks.
· Consumers are in good shape. Before the strum and drang about the cliff hit their confidence, and before Sandy hit an area accounting for about 24 percent of national spending, consumer spending and incomes rose nicely. Debt payments are claiming the lowest portion of household incomes since 1983, leaving more cash for other spending.
· Fracking has produced a boom in drilling, already created 500,000 jobs, by one estimate, will result in $90 billion of new investment, and has America on course to a future of cheap energy that is attracting manufacturing firms to expand here rather than abroad—gas prices are only one-third of those in Europe. Unfortunately, fracking and cheap gas make government subsidies for costly renewables even more difficult to defend, and might prompt the Obama administration’s regulators to bow to environmental pressure groups and a gaggle of Hollywood stars, and stifle shale gas and oil development.
· Corporate balance sheets are strong, and investible funds ample. Add policy certainty and investment might move from planning to implementation.
If there were a scientific method of predicting whether political drag will offset the private sector’s inclination to go about the business of investing, creating jobs, and adding to wealth I would use it. There isn’t. All I can offer is my guess that even inept government cannot for long stifle the animal spirits of America’s investors and consumers, and my best wishes for the New Year.
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