If one could separate the breaking news, the campaign rhetoric and the seesaw of the markets from reality, it could be that America is approaching Ronald Reagan's "Morning In America" moment.
Due to tremendous increases in natural gas production, (the U.S. has now over taken Russia as the largest producer of natural gas in the world), new technological advances in oil drilling, non-carbon based solutions and of course conservation, the United States is moving towards self sufficiency in energy for the first time in 40 years.
The availability of large quantities of cheap natural gas is enabling energy price-dependent manufacturing to move back to and expand in the United States. It is causing a change in our balances of payments with obviously fewer dollars being exported to pay for energy.
The soon-to-be energy independence of the United States will also have major effect overseas. We are already seeing in the financial press stories about how Gazprom, Russia's state owned gas company and a major source of revenue for the Russian government, is concerned about the vast new quantities of natural gas in the U.S.
It is not just in energy that the U.S. is developing an advantage. Unlike Europe or China, the American banking system (irrespective of Moody's judgment) is getting much healthier. As Mitt Romney stated in his interview with Bob Schiefer of CBS, "Our banks are on a much stronger basis than they were at the time of the last economic crisis (2008) and they have built their capital base and their equity base and worked through a lot of their toxic assets, their toxic loans." As an aside Romney of course failed to mention the reason the banks are in better shape is because of the actions of President Obama and Secretary Geithner.
But the chief asset of the United States, and the product every country wants but finds very difficult to imitate, is the innate entrepreneurialism of America's culture. America is the start up nation. In our age of global knowledge where ideas are money, it is America's cultural blend of entrepreneurialism and diverse thought, fostered by intellectual freedom that acts as the catalyst for creativity. It is America's comparative advantage. Added to this is the benefit the United States gains by having one of the youngest populations of any advanced nation.
There are, however, three major problems that can severely cloud this picture:
In their new book, Why Nations Fail, Daron Acemoglu and James Robinson point out the importance of institutions in the success of a country and in particular institutions that allow what Joseph Schumpeter called creative destruction. As Acemoglu and Robinson state, "New firms take business away from the established ones, new technologies make existing skills and machines obsolete." (However) "The process of economic growth creates losers as well as winners in the political arena and in the economic marketplace." The authors repeatedly point out that the countries most likely to decline or fail are the countries that do not have ongoing institutions in place to limit the power of vested interests that inhibit creative destruction.
A major part of America's success story has been the expansion over time of institutions that put checks on these various vested interests. This expansion has taken place primarily due to the extension of voting rights in the United States. The right to vote in the United States went from only male property owners in colonial times, to all free men, to some free slaves, to women, then to the great-grand children of the free slaves and finally the Supreme Court doctrine in 1964 of one man one vote.
The Supreme Court decisions on campaign financing have now reversed this process. It has given several men and women many votes while others still have only one vote. Essentially, it is increasing the power of vested interests within the political arena to limit creative destruction, and essentially moving the United States towards the destructive stifleness of an oligarchy.
The other caveat to America's morning is technological job destruction. In principle either through the legislative process or through the amendment process or even through a change in the makeup of the Supreme Court, the campaign finance decisions could be overturned. Technologically driven high unemployment is a more difficult problem to resolve. The problem is ubiquitous and growing. As an example, people now read books on wonderful e-readers. But where does a person who use to work in a paper mill, ran a printing press, bound the books, drove the books to a warehouse, or sold the books now go to find work?
And finally there is the problem that America is no longer totally captain of its own boat. The most overused word, globalization, is a reality, especially in economics. International trade is now over 30% of the U.S. economy. But that figure tells only a small part of the story. Over 21% of U.S. corporate profits come from abroad. Then there is the global integration of the finance industry and foreign direct investment both here in the United States and American firms investing overseas, which makes the problem even larger. If there is a financial crisis in Europe, as there is today, or growth in China slows dramatically, the United States economy slows, with little that Washington can do about it.
So is morning coming to America? Possibly, but it also feels very much like Dickens, where it could be the best of times and the worst of times.
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