Got Growth?

The U.S. economy has really taken it on the chin over the last 2 years.

U.S. Gross Domestic Product shrunk the most since the Great Depression. Unemployment hit double digits for the first time since the 1970’s. Our housing market dropped like a stone.

Added to this, the world economy turned down pretty much because of the economic collapse in the U.S. This makes sense when you think about it; the U.S. economy is larger than the next 3 largest economies combined. How could the world keep growing when it depends so much on U.S. consumers and capital markets?

At the height of the crisis, many Europeans seemed to bask in the glow of American failure. They seemed to wag their fingers at us and say, “I told you so!”

In some ways they were right, but not in the most important ways.

You see, the U.S. economy returned to growth last quarter, a whopping 3.5% annualized growth rate. This was far faster than anyone, including yours truly, predicted 9 – 12 months ago. And, economic growth in the current quarter looks good, too, projected at around 2.5%.

Amusingly to me, the European Union grew in the third quarter, too, but at only 0.4%. I’m not surprised we aren’t hearing as much from European know-it-alls.

Why such a big difference in growth? I’m sure every economist and armchair economist has an opinion, and I do too: I think it’s mostly due to our more flexible labor markets.

America has its share of problems, but we still have one of the most flexible and adaptive economies in the world. One reason for this is that U.S. companies are relatively free to hire and fire when compared to places like Europe or Japan.

This is not a one-sided benefit for employers, it benefits employees, too, who can quit and find better employment when they want. I think not being able to quit is as bad a sin as not being able to fire.

Contrary to popular belief, what will get U.S. and world economies growing again will not be stimulus, but adjustments of the economy to new economic realities. And, it’s unlikely bureaucrats in any government position will be able to see this before businesses and entrepreneurs.

The places where labor and business flexibility are stifled, like Europe and Japan, will be mired in slow growth until they change. The economies that are flexible and adaptive, like the United States, will return to growth more quickly and will re-establish high growth rates.

That doesn’t mean the U.S. will grow faster than Brazil, China, India, Korea or a host of other emerging markets, but compared to any developed market, I’ll place my bets on the good ole U.S. of A.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.