The article was published in Global Times (US Edition)
Even as long-term fiscal problems remain, after a long economic winter, the US stock market is booming, housing prices are rebounding; mortgage providers Fannie Mae and Freddie Mac, long demonized by Republicans, are returning profits to the Treasury. Job growth has accelerated and consumer confidence has reached its highest level in almost six years.
According to the Commerce Department, economic growth in the first quarter was only marginally below the 2.5% rate originally estimated, but still much faster than the 0.4% growth during the October-December quarter. Hiring has been solid and in the past six months, employers have added an average of 208,000 jobs per month – up from an average of only 138,000 in the previous six months. The Commerce Department also added that the unemployment rate has fallen to a four-year low of 7.5%, down from 10% in October 2009.
According to a survey by Manpower Group, the global employment services giant, more US employers plan to hire workers in the next quarter than in any period since the fourth quarter of 2008.
Dr Mukul Majumdar, Prof of economics, Cornell University, New York, is also upbeat. Speaking to Global Times, he said: “There are several encouraging signs from the long-run perspectives. Housing sector has recovered; major players in the auto industry are not struggling to avert bankruptcies; financial world recognizes the role of regulation and vigilance; the country is expecting fundamental shifts in the patterns of energy production/consumption/import and moves are underway for designing infrastructure improvements.”
Dr Majumdar, however, expressed misgivings about health care reforms. “We are yet to sort out health care problems; to enrich the human capital to ensure meaningful employment opportunities; and carry the standards of science and technology in a more competitive world.”
Explaining the current state of economy, he said: “I wish I could say the days of uncertainty are “over” or that the problems of cycles have been “solved”…We surely have a better understanding of the forces that led to the recent debacles. But I don’t foresee an Arrow-Debreu world with complete contingent markets in which all agents have the same information.”
Dr Majumdar said he was always reminded of Galbraith’s concluding observations in “A Short History of Financial Euphoria”: “When will come the next great speculative episode, and in what venue will it recur — real estate, securities markets, art, antique, automobile? To these, there are no answers; no one knows, and anyone who presumes to answer does not know he does not know.”
Meanwhile, the IMF annual report has said the US growth this year would have been as much as 1.75% higher than the sluggish 1.9% forecast, had spending cuts and tax increases been introduced more slowly. It forecast 2.7% growth for 2014. “The deficit reduction in 2013 has been excessively rapid and ill-designed,” the IMF said. “These cuts should be replaced with a back-loaded mix of entitlement savings and new revenues, along the lines of the administration’s budget proposal.”
“The IMF’s advice is to slow down but hurry up: meaning slow the fiscal adjustment this year, which would help sustain growth and job creation, but hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability,” Christine Lagarde, IMF managing director, said.