Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy. It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.
The U.S. economy is most definitely in recovery mode, but it’s the sort of recovery one experiences after a scary heart attack. There is little confidence in being able to go uptempo. Fears persist about slipping into a permanent sort of disability.
Worse, many are resigned to the fact that big structural problems such as health care, tax reform, the federal deficit and education remain unaddressed by a political system that remains fiercely divided.
So America finds itself in a funny position: Clearly getting better and doing better than most of the West but almost completely lacking in self-confidence. If this is “morning in America,” then most citizens have hit their snooze button.
This week’s Wikistrat’s drill explores this ambivalence in the face of mounting good economic news, asking our global community of experts to present their arguments for the U.S. economy’s possible mid-term (3-5 year) paths ahead. We’ll start with the optimism and then let the darker thoughts pile up - much like most Americans today.
The optimistic view
There are plenty of reasons to be optimistic about America’s long-term fundamentals. America is experiencing a boom in energy production (significant in oil, truly revolutionary in natural gas) that will do more than just limit our dependence on foreign sources, it will reassert our nation’s past standing as an energy exporter of note.
While some lawmakers, environmentalists and manufacturers want to keep the current natural gas glut in place, the industry is poised to begin exporting liquefied natural gas in a big way - possibly as much as one-quarter of our national production within a half-decade. That will help our trade deficit plenty, and in more ways than one. Because we’ll enjoy an abundance of cheap natural gas over the long haul, we’ll use less of our high-quality coal in electricity generation and thus be able to export that as well, with rising India and China becoming major consumers. This could all occur despite the significant transportation costs.
Add to this the fact that a rising Asia is finding it harder and harder to feed itself, and thus turns ever more to agricultural superpower America.
Yes, we realize that these uplifting projections make America sound like a commodity exporter and not much else, but all that cheap gas will help our manufacturing base become a lot more competitive too. And amidst the rise of globalization’s burgeoning middle class, don’t forget our enduring/renewed prowess in the automotive, aerospace, electronic sectors. All those new consumers crave mobility, leisure, mass media and the like.
U.S. corporations are sitting on record amounts of cash. If we can just get them past some of their great anxiety over the uncertainties surrounding the federal deficit, taxation, regulations, the still unresolved housing crisis and health care reform, our economy is poised for a solid long-term run - especially when you consider our demographics (e.g., we remain youthful thanks to high immigration and birthrates) relative to Europe or even rapidly aging China.
Even the rancorous politics should clear up soon enough. The Democrats should hold onto the White House while the Republicans regain the Senate in addition to the House, yielding the sort of split government that often fosters pragmatic compromise - especially from a second-term president.
So chin up, America! Asia will keep rising and Europe won’t fall apart. Meanwhile, Latin America and Africa are doing great, even as the Middle East processes its Arab Spring. Overall, this is a great overall trajectory, considering how bad things were just 3-4 years ago.
The more-of-the-same view
Sad to say, this is the conventional wisdom, most notably found in the analysis of the International Monetary Fund. It says - in so many words - that America is locked into 1-3% annual growth (which feels like treading water once inflation is factored in), Europe will remain severely hobbled by its fiscal crises for the foreseeable future, and China, recently the global economy’s main engine of growth, will settle into a slow decline from its unprecedented growth trajectory. With the Big Three all on such relatively depressing glide paths, it’s hard to see how America truly recovers.
Frankly, even admitting that such global economic realities limit our medium-term upside is revolutionary in itself. For as long as most of us can remember, a rebounding America could - on its own - drive a global recovery. But those days are over, and the truth is the world relies on Beijing’s economic decision-making as much or more than on Washington’s.
Putting aside all the silly hype on China’s economic miracle - already fading, we face the depressing reality that the global economy will have to suffer the Middle Kingdom’s difficult transition from extensive growth (just add more labor and resources) to intensive growth (just add more technology and innovation), with all the tumultuous democratization implied.
Back home, the harsh truth is that our recovery is held hostage to all manner of looming domestic shocks (e.g., student loan crisis, local governments’ defaults) and international shocks (war in the Persian Gulf, sovereign default in Europe, “hard” landing by China), and one of which could send us stumbling again.
Meanwhile, our stubborn housing crisis keeps too many of our workers tied down, unable to move to better jobs (like those associated with the “fracking revolution” in natural gas). Overall, 1-out-of-6 American workers remains either unemployed or significantly underemployed, and darn near everybody still carries way too much consumer debt.
Put it all together and we should be grateful America hasn’t turned into Europe – yet.
The pessimistic view
The most depressing view simply assumes that some combination of domestic and international shocks will do us in. China, for example, has just suffered its biggest trade deficit in over 20 years, and, if Greece doesn’t torpedo the Euro Zone, then Italy or Spain eventually will. Most dangerously, Iran’s stubborn reach for the nuclear bomb will invariably trigger a debilitating war in the Persian Gulf, sending oil prices skyrocketing - and nothing guarantees a global recession like a nice spike in energy costs.
Against that depressing international backdrop, Washington’s amazingly dysfunctional political gridlock will only grow worse across the most expensive and caustic presidential election in history.
Obama will prevail, but he’ll be so damaged that he’ll be a lame duck from day one. Then tee up the “doomsday” scenario of 1 January 2013, when the Bush tax cuts and the Obama extension of unemployment benefits and Congress’s payroll tax holiday all end simultaneously and we’re collectively in deep trouble - plain and simple. You might as well start stockpiling canned goods in your basement.
The silver lining in the worst-case scenario? Historically, when Washington messes things up this badly, bold new answers emerge outside of Washington and the two-party system. We realize that statement comes off like an “insert miracle here” promise of visionary leaders to be named later, but hey, it’s happened plenty of time before.
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That’s Wikistrat’s “wisdom of the crowd” for this week.
Now tell us which path you find most plausible, or what other scenarios you can envision in the comments section below. And be sure to check out more at Wikistrat.com, a cutting-edge global consultancy.