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U.S. Holds Off a World of Economic Trouble

Albert R. Hunt is a Bloomberg View columnist. He was the executive editor of Bloomberg News, before which he was a reporter, bureau chief and executive Washington editor at the Wall Street Journal.
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If you believe the political discussion, from left and right, the U.S. economy is in dreadful shape, beset by rampant joblessness, no growth and too much debt.

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Actually, the economy has been improving steadily, if too slowly. Unemployment is down to 5.3 percent from about 10 percent in the first year of Barack Obama's presidency. Gross domestic product is expanding at a clip of 2.5 percent, a modest pace but growth nonetheless. The federal deficit is estimated at $486 billion this year, or about a third of what it was in 2009. Despite all the complaints about the Affordable Care Act, 15 million more Americans are covered than two years ago, and costs, so far, are rising only moderately.

Why all the negative rhetoric? Persistent systemic problems have kept wage growth stagnant for a long time. The recovery has been very top-heavy.

The economy invariably becomes a political target when there is no White House incumbent running for re-election. The opposition party has to talk about how bad things are and its ideas for change. The incumbent party, in this case the Democrats, must be more nuanced, striving to avoid getting tarred as defenders of the status quo.

Yet, the U.S. is one of the bright spots in an unsettled global economy. Much of Europe remains prostrate.

A few years ago, the BRIC nations -- Brazil, Russia, India and China -- were viewed as the world's locomotives. Today, Brazil and Russia are economic basket cases. The picture is mixed in India, which changed its method for calculating GDP, potentially overstating growth.

The shakiness of China, at least short-term, was on display last week when it allowed its currency to plunge, underscoring fragility in the second-largest economy. The move followed recent government restrictions on the stock markets that also reflected displeasure with poor results.

In an integrated global economy, European woes and worries about China affect the U.S. Donald Trump's China-bashing may have populist appeal; it offers no economic benefits.

Private investment remains sluggish as companies struggle to generate more revenue for the top line. It's those investments that drive productivity that then turns into wage growth. That isn't happening.

So, despite the comparatively promising performance, many Americans don't experience any improvement. Not only are wages stagnant but the unemployment rate is deceptively low, in part because it doesn't account for part-timers who want to work full-time or those who've stopped looking for a job.

There's little that politicians can do to change the situation in the 14 months before the presidential election. One modest possibility would be for Congress to establish an ambitious infrastructure program funded by repatriating foreign source income at a lower tax rate.

Washington gridlock precludes most actions. But the premium should be on not doing harm, such as shutting down the government or bringing the U.S. to default by failing to raise the debt ceiling this fall.

The Federal Reserve could make a difference by tightening monetary policy and raising interest rates soon (most expect a decision in September or December). Fed Chair Janet Yellen is very sensitive to weakness in the employment market and the best guess is that her steps will be cautious and modest.  

Politically, at some point the critics will be held more accountable. Senator Bernie Sanders, the Vermont socialist who is challenging Hillary Clinton for the Democratic nomination, arouses crowds with denunciations of the economy and vows to soak the rich. Few mainstream liberal economists believe steeper taxes on investment and wealthier Americans would produce an economic boom.

Many of the more right-wing Republican presidential candidates advocate slashing federal spending, not a prescription to goose the economy.

Former Florida Governor Jeb Bush, though he has been short on specifics, has promised to produce an economy that grows 4 percent or more a year. His top economic advisers were leading decision-makers in the administration of his brother, President George W. Bush, when the rate of expansion never reached 4 percent. The only time over the past half-century that such growth was achieved for four consecutive years -- the length of a presidential term -- was under Bill Clinton.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Albert R. Hunt at ahunt1@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net