Economic Reinvention

Economics is called “the dismal science” with good cause. While Wall Street officials tend to paint positive pictures of the stock market, they do have a vested interest in the eventual success of the market. Economists, on the other hand have no such motivation. If anything, they may tilt in the other direction as they try to grab readers with scary scenarios.

So the July 14, 2012 edition of The Economist magazine caught my attention with a “Briefing” article entitled “Points of Light”. The article points out that the recovery from the “Great Recession” of 2008 is taking a while to happen due to the nature of the imbalance that the recession corrected: unwinding the excessive debt both at the corporate and individual consumer level (also known as “deleveraging”). We consumers have to learn to live within our means, and the result is a slow recovery.

However, the main thrust of the article was how wonderfully adaptable our economy is. If there is demand out there, someone in U.S. industry is working on satisfying it. No need to wait for a centralized planning board (or politburo) to tell us what to produce. There are some notable changes to how the U.S. is doing business.

One significant trend is that our dependence on the American consumer is lessening, and our exports rose substantially, contributing 43% of our growth. The greatest area of growth is exports to Brazil and China. Another factor improving our exports is participation by small and medium sized companies. In the past most of our export trading was from our huge corporations. No longer. It seems that our businesses up and down the size spectrum have grasped that they are operating in and have to succeed in a global economy. They get it!

The U.S. continues to export services at a high clip. Engineering, scientific, financial, and consulting services are growing very well. The article points out that these services have nearly doubled from 2006 to 2010.

Areas of rebound are housing and even selected manufacturing. Housing is rebounding simply because of pent up demand and enticingly low interest rates. U.S. manufacturing employment has been increasing over the last two years. Factors that help manufacturing employment are the convergence of Chinese and U.S. manufacturing wages and the weakening dollar, which helps our exports.

Another shift involves the U.S. being a net commodity producer and exporter. We were always good at farming. So exports of wheat, corn and soy beans are pretty normal; although the mid-west draught conditions will hurt exports in the short run. What is striking these days is how well we are doing at energy production. Our crude oil production is the greatest since 2003. New techniques for natural gas production are increasing supply to the point that excess supply is starting to put a damper on increasing production. Excitingly, these new techniques can be applied to oil production also. Bottom line: we are the world’s #3 oil producer and increasing. Our net import of oil has fallen and we are an exporter of refined oil products.

There are still some things to gripe about. Due to our outstanding productivity, all this adds up to an improvement in employment but not the huge increase needed to reduce our 8% unemployment. Maddeningly, due to deficiencies in our educational system, skills mismatches are such that some manufacturers have to import foreign engineers and scientists. Our improved ability to export makes us more vulnerable to problems in the markets to which we need to sell. So we become more concerned with the health of our trading partners.

All this improved trade just demonstrates again that perhaps our most valuable asset is the American entrepreneurial spirit. All we need is a government that produces an environment in which that spirit can find its wings and fly like crazy!