There are lots of reasons to think the economy will remain in the dumps for some time to come. But there are also reasons why I’d bet on a stronger upturn than most economists and other economic pundits now predict.
First of all, smaller businesses are growing more than official statistics indicate. As I’ve commented on before, there’s lots of reason to think that official reports of near stasis in the unemployment picture overstate things. During economic recoveries, smaller enterprises, many of them start-ups, create a disproportionate number of new jobs and nobody really knows how to count them. In fact, many startups (particularly at this stage) may be financed indirectly through unemployment checks, leading people — who are actually working quite hard and getting some money for it — to claim they are still “unemployed.” (I have at least three friends in this situation.)
Also, inflation seems to be picking up—and that’s a very good thing. The latest report points to a modest uptick in wholesale (producer) prices. This is a good sign. The American economy needs inflation. Badly. Inflation will encourage successful cash-rich companies (I’m talking to you Apple) to invest more. It will also move make many people now “upside down” on their mortgages right side up once again.
Another reason to be on a stronger upturn is the rising trade deficit. It’s mystifying why so many pundits think a trade deficit — the difference between what Americans invest in other countries and what other countries invest here — is a bad thing. In general, the American economy has done better when the trade deficit goes up and worse when it declines. A trade deficit is a vote of (relative) confidence in the American economy.
Finally, the “green economy” offers real promise — although not for the reasons many environmentalists would like. The promised “green economy” may or may not be a good way to protect the world from what may or may not be a serious problem resulting from human-caused carbon emissions. But at least one of the major “green” technologies—practical, plug-in electric cars—seems to have tremendous promise. Given the choice between a car that drinks $50 of gas a week and a similarly priced model that needs 10 cents of electricity, who wouldn’t pick the electric car?
The auto industry has done a good job bringing high end features to ordinary drivers: The cheap econo-boxes of today have features — powered windows, traction control, and anti-lock brakes — that were mostly the domain of luxury models even 20 years ago. There’s no reason to think that partly and all-electric drive-trains won’t move from exotic luxuries to standard features at least as quickly. Widespread use of electric cars will require an enormous new infrastructure of charging stations, power plants, repair equipment, design bureaus, and auto factories. This is the basis for an economic boom.