A Recovery With Many Fathers
The great American housing market is back. The Case-Shiller housing index, using data from 20 cities through March 2013, showed the largest annual increase in prices in seven years. That’s one sign of the essential dynamism of the American economy. Despite dysfunction in Washington, despite the sequester, the American economy has once again shown its core character: flexibility and resilience.
A housing revival was inevitable at some point. The U.S. is the only rich country in the world whose population is growing. We add 3 million people to our number every year, thanks largely to (legal) immigration. That means, over time, we will need new housing—unless children want to live with their parents forever.
The American consumer is also more confident, and not without reason. Americans have been paying off their debts at a steady clip since the financial crisis. The U.S. economy is susceptible to bubbles and manias, but it also has the flexibility to adjust. People and companies respond to crises. They change past practices, take the pain and prepare for the future. When you compare American companies since 2007 with, say, Japan’s great corporations after that country’s crisis and recession, it’s clear that U.S. corporations are more ruthless in restoring productivity (even at the cost of firing people) and nimbler, which means that they often come through a crisis stronger. And faster. In sectors from automobiles to airlines to energy, companies are posting strong sales and profits.
American banks have been under fire from many quarters. Critics feel they should have been punished or broken up or more tightly regulated. But if you compare them with their principal competitors in Europe, they are far better capitalized and more secure and have much stronger balance sheets. As home prices recover, that should create a virtuous cycle between credit and housing that will enhance both stability and growth.
Americans bounce back. watch what has happened after Hurricane Sandy or what will happen in Oklahoma. In fact, Oklahoma is already a story of American resilience. A week before the tornado hit the state, I was there to deliver the commencement address at the University of Oklahoma in Norman, just 10 miles from the eye of the twister. In preparing for the talk, I was struck by the resilience of that region.
Oklahoma is the heart of the Great Plains, a tough, arid place that has seen its share of booms and busts. It was also thought to be disadvantaged in an economy that is increasingly characterized by growth in service industries and high technology. Some believed the region was doomed to become a wasteland. But as Joel Kotkin has pointed out in an excellent study, the prairie has seen an economic recovery over the past decade. Oklahoma has one of the lowest unemployment rates in the country.
It’s not all about oil and gas, though both are booming. Global growth over the past 10 years has created an outsize demand for agriculture, and Oklahoma has become an efficient exporter, chiefly of wheat, beef and frozen chicken. Oklahoma’s educational system has improved considerably, and taxes and regulations are friendly to business.
This story, of local governments responding to hard times with skill and dexterity, is the subject of an excellent new book, The Metropolitan Revolution, by Jennifer Bradley and Bruce Katz. It points out that cities and counties across the country are getting over political divides, partnering with the private sector and investing for future growth.
But it’s also worth noting that some of the current recovery has to do with good national government. Looking back, it’s now clear that Washington handled the 2008 financial crisis extremely well. It acted quickly and with massive firepower: rescuing overextended banks, enacting a large stimulus, saving (but restructuring) two automobile giants. Perhaps above all, we will credit the Federal Reserve’s extremely bold strategy of flooding the markets with liquidity and keeping it up while the economy was depressed. Compare that with Europe’s response or Japan’s (after its crash) and you see the difference.
Many problems remain—chiefly high and persistent unemployment and stagnant wages. For the next generation of growth, we must focus on training and retraining workers, break the immigration deadlock, build out our infrastructure and invest in science and technology. We also need reforms that will make our entitlement programs affordable as we age. If Washington could do just a few of these things, imagine what the American economy might look like then.