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Guarded Optimism for the Economy

10:15 AM, Nov 2, 2013 • By IRWIN M. STELZER
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To round out the bad news we have a decline in orders for durable goods (excluding the volatile aircraft sector) in September and a downward revision of August figures, and retailers’ resignation to a holiday season marked by heavy discounting, with some of the promotions scheduled to begin next weekend. Remember, the politicians have until right before Christmas to come up with a spending package, and right after the holidays to decide on an increase in the debt ceiling. The inevitable news stories during the run-up to a deal won’t do much to add to Christmas cheer.

Perhaps most worrying of all, if it is possible to worry about something more than the condition of the labor market, are two developments. The first is the decline in new business formation, to the record low reached in 2009. Commerce Department data show that the portion of businesses operating in the U.S. that are new ones—five years old or younger—has declined in recent years. If government policy is slowing the great American innovation machine, we are in for protracted slow growth.

The second worry is the persistent stagnation in middle class incomes and in upward mobility. The causes are complex. The Manhattan Institute’s Diana Furchtgott-Roth believes that allowing more parents to shop for alternatives to failed public schools is the best hope of getting more kids on the ladder to better incomes and lives. Other solutions are on offer, but that is for another column.

There: I have done my duty by those readers who tell me I am excessively optimistic about the outlook for the American economy, and my economist friends who challenge my credentials to practice the “dismal science.” I would urge them to balance these negatives against the longer-term positives. America is becoming an energy giant, with cheap natural gas to fuel the factories of foreign investors. Silicon Valley firms and their counterparts that are springing up in cities around the country continue to develop world-class technology and products. Despite rising prices and interest rates, home affordability remains above its long-term average. Corporate profit margins and cash piles are high. And America’s immigration problem is that the world’s best and brightest, and its hardest working, are clamoring to live here. They might just be better forecasters of America’s economic future than worshippers of economic models. 

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