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The Economic Outlook Looks Good, Politics Aside

12:00 AM, Oct 19, 2013 • By IRWIN M. STELZER
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Then there is the nation’s energy resource base, an important recent addition to the asset side of the national balance sheet. Thanks to fracking, the nation is or soon will be the largest producer of energy in the world, and less at risk from upheavals in unstable, unfriendly producing countries. Energy prices are so low relative to those in Europe and Asia that foreigners are setting up factories here instead of overseas. Warning: we don’t yet know much about the productive life of all these new wells.

Finally, there is the financial sector. The big banks face stiff litigation costs and declines in trading and other income, but Warren Buffett nevertheless finds, “The banks are in the best shape I can remember. They have built up capital enormously, the loan losses have come down drastically, and the portfolios are in good shape.” That improvement is a plus for the economy.

Add all of these to the traditional American assets: the rule of law, an abundance of Keynesian “animal spirits,” risk-taking innovators and consumers receptive to new products.

Which brings us to the liability side of the national balance sheet, dominated by the labor market. And not only the unacceptably high portion—close to 14 percent—of the work force unemployed or underemployed. Equally disturbing is the decline in the portion of workers participating in the work force, down to 63.2 percent from over 66 percent when the financial crisis hit. We simply do not know how many jobs a recovering economy will create, how many workers will attempt to re-enter the labor market when economic growth accelerates, or how many have the skills required to hold down 21st century jobs. Those are areas in which policy can have an important effect, and given the recent performance of the President and the congress there is little reason to hope for agreement on pro-growth policies. Democrats and Republicans have far different views as to how to stimulate job growth, the former favoring higher taxes, more borrowing, more spending, and more regulation, the latter tax cuts, less borrowing, less spending, and fewer regulations. Both sides say they are not for turning, which puts the political process on the negative side of the national balance sheet.

That leaves it up to the private sector to battle through the political headwinds to the higher growth of which the economy is capable. My guess is that it will.

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