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by SixFigureStart | April 15, 2010


"So what will our new economy look like once the smoke finally clears? There will likely be fewer McMansions with four-car garages and more well-insulated homes, fewer Hummers and more Chevy Volts, less proprietary trading and more productivity-enhancing software, less debt and more capital, more exported goods and less imported energy. Most significantly, there will be new commercial infrastructures and industrial ecosystems that incubate and propel growth—much as the Internet did in the 1990s."

So wrote Slate's Daniel Gross in an excellent—if somewhat overly-optimistic—recent assessment of the US economy's chances for recovery. His prognosis is significantly more upbeat than most of the commentariat these days—a fact underlined by the article's subhead which, even if Gross didn't write it himself, does a good job of summarizing his content: "Why the U.S. recovery will be bigger, faster, and stronger than economists and politicians expect."

One of the core premises in Gross' piece is that the worst predictions regarding business and economic cycles tend to be made at the extreme ends of the curve. Thus, he references the "Dow 36,000" predictions foolishly bandied around at the height of the recent bubble, and suggests that we're at the other end of the scale right now, with leading economists and politicians viewing the world through a more pessimistic lens than is strictly necessary. There's certainly no reason to hope Gross is wrong, and more than one to back that sub-head up.

At this point, there are two major "known unknowns" in Gross' piece. The first is the Dow, whose recent resurgence he points to as a sign of economic recovery. While that is true to an extent, part of the reason for its recent rise is an improvement in profits from some of its leading components—improvements that, by and large, have been made by cutting costs and improving efficiency (points Gross also notes), rather than by doing more business. Make no mistake: if current business levels do not improve, there will be no job growth.

The second unknown in Gross' article is his claim that " thousands of start-ups and small businesses are trying to crack the markets developing at home and abroad." While that, too, is true, and many major companies have stories that begin amidst just such a period of chaos, there's no guarantee that, even if something does come of all these attempts, it will bring enough jobs with it to put the economy back on an even keel.

All told, then, there's no reason to disagree with the scenario outlined in the excerpt at the start of this post. All of those things are likely to come to pass. Whether or not they're capable of adding significant—and lasting—job growth into the economy is the one thing missing from the prediction. Unfortunately, that issue is likely to also be the single most significant factor determining our overall economic wellbeing over the next decade.

--Posted by Phil Stott,


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