Until recently it has been fashionable to denigrate the U.S. economic recovery: “America is the best house in a bad neighborhood,” sniffed many analysts. No longer. America is now a very good house in a terrible neighborhood.
This is the time that tries economists’ models. It has become the fashion at this time of year for forecasters to opine on the growth of GDP, the level of unemployment, the inflation rate next year—to at least one decimal place.
Until now, most forecasters have been framing the assumptions underlying their projections on what they assume a reelected Barack Obama would do about taxes, appointments to the Federal Reserve Board, spending, the deficit and a host of other policies. Suddenly, they are back to the drawing board. Polls are showing something inconceivable to the American media and foreign observers: Mitt Romney is closing in on the president, and might even hold a slight lead.
A cynic would be tempted to compare the eurozone to Ryou-Un Mara, the rusty Japanese ghost ship that floated across the Pacific after last year’s earthquake. Some wrecks surprise us by staying afloat for a long time, but that does not make them less of a wreck.
“[A] U.S. recession caused by the fiscal crisis in Europe would be very costly and could throw millions of Americans out of work.” So says the Center for Economic and Policy Research, a think tank that numbers Pulitzer Prize winning, generally liberal economists Joe Stiglitz and Robert Solow among its advisory board members.
The average American family is not going to cancel a trip to Disneyland because of headlines about “something going on in Italy or France,” says James Bullard, president of the Federal Reserve Bank of St. Louis.