Two of the great minds that the New York Times has picked for its editorial page debate the future of the U.S. in “The Economy is Still in a Funk”. David Brooks concludes with “The economy has always bounced back. There is an energy to the country so that after a time the animal spirits get moving and before you know people are starting businesses (even if there are slight chances of success) and expanding current ones, and a few of those turn into Apple and ESPN.”
None of the 100 or so comments seem to note Mr. Brooks’s survivorship bias. The U.S. economy has prospered to this point and therefore we believe it will always prosper… because we live in the U.S., a country whose economy has happened to do well for several hundred years. Plenty of folks in Argentina thought that way as well. Each bust was followed by a boom. Until it wasn’t and Argentina slipped from having a comparable level of wealth to that of the U.S. to being a relatively poor country. The U.S. economy has never faced the challenges of a health care system that costs 20 percent of GDP, of staggering pension obligations (mostly for public employees), of effective competition from China and India, or of global warming. It is, of course, quite possible that we will recover from our current recession as we have from earlier recessions. But past recoveries don’t guarantee anything about the future. It is possible that the U.S. recovered in the past because it was one of the world’s best places to do business, not because it was the U.S. In that case, we would have to do whatever was necessary to ensure that we were an attractive place to invest (see my economic recovery plan, for example).
You’re correct, just because our economy always has bounced back in the past, it does not ensure that it shall again. Of course, there are many reasons why it should (perhaps I should say ‘could’) recover and the majority will once again prosper. But there are uncomfortable facts that make successive recoveries more difficult, not least of which are the ballooning public obligations – social security, medicare, medicaid, health care and public pensions. Not to mention national debt service.
It’s interesting you mention Argentina, once one of the world’s largest economies in the early 20th century. In Niall Ferguson’s ‘The Ascent of Money’ he explores the reasons for Argentina’s collapse. Ferguson suggests that because powerful interests could not come to agreement on how to effectively share/apportion vast resources, they were locked up in the hands of a few, preventing a wide-scale economic benefits.
How does this relate to our impending recovery? Well, our economic culture is in a far better state than Argentina’s was. However, our state and national governments are effectively at legislative impasses and we (so far) lack the will to make any big legislative bets, instead preferring to destroy other’s ideas instead of creating. We lack an ability to legislatively adapt. What we have going for us is our ability to economically adapt. But we’re running out of runway. Both must be successful in the long term
The Argentina analysis is spot-on. Early in the 20th century, they had grand ambitions to compete with, or surpass, the US as *the* western economic and cultural power. Their circumstances were well-suited to that kind of success. That they blew it, and blew it so badly, haunts them to this day.