It is rare that a commentator gets to write a column that is unreservedly rosy and infused with optimism for the future. This kind of positive punditry doesn't sell newspapers, but I think it's certainly salutary given all that we've had to contend with over the last few years.
So, here it goes: Unemployment is at 8.8%, a 2-year low. We added 216,000 jobs last month, of which 200,000 were private sector (just what we needed to fill the void left by the receding stimulus). We've seen a full percentage point drop in unemployment over four months and now economists expect 2.5 million jobs to be created this year. No doubt, the countervailing news is from the public sector where local governments have shed 416,000 jobs since an employment peak in September 2008, and dropped 15,000 jobs in March.
The fact remains that the last time we made up this kind of ground was in 1983. You'll remember that in 1982, the economy contracted 6.4% and the prime interest rate reached 21.5% in June of 1982 as the Federal Reserve under Paul Volcker put a stranglehold on inflation. A year later, the U.S. posted six consecutive quarters of growth above 5%. Like Obama, Reagan employed a combination of deficit spending and the lowering of interest rates. One think tank, The Economic Cycle Research Institute in New York now seems prescient. All the way back in 2009, they predicted that we'd stage the strongest bounce back since 1983.
Of course, the staunch realists will say that all this is Pollyannaish on the eve of a possible government shutdown and our crippling deficits. Try this sentence:
"Soaring military spending for overseas commitments and the refusal to make significant cuts in most major domestic programs have created the worst deficits in American history."
Sound familiar? That's what the Cato Institute said about the Reagan administration in 1982. The administration had raised spending by $143 billion in just two years (that's 17% of the entire budget) and optimistically projected deficits of $104 billion in 1983 and $84 billion in 1984. Reagan increased the federal debt by 6.8% and then 15% in his first two years. The analogies between then and now abound.
Given our budget travails, how can we afford to be optimistic? Talk to the people who are bringing their money here. The doldrums of Europe and the tragedy of Asia have vaulted America back into a sort of ascendancy economically -- at least in the eyes of the investment community. The dollar's share of global currency reserves is stable at about 61%, while the Euro fell from 27.9% to 26.3%. Foreign investors represent 60% of 10-year Treasury note buyers. Using real estate as a bellwether, foreign investment in property doubled last year to $13.37 billion nationwide. Foreign investors -- including pension funds and sovereign wealth -- are once again committing huge amounts of capital to America in a number of ways, from joint ventures to buying stock in REITs. And they're from all over -- Australians, Scandinavians, Middle Easterners and the Hong Kong players -- looking for safe harbor for their capital in America.
The significance of foreign capital arriving at our shores is being able to see ourselves as others see us. I am required to say that we are not out of the woods yet, but it nevertheless seems churlish not to celebrate good news when it comes. And good news is important because so much of a recovery is psychological. One of the drags on the unemployment numbers is the fact that labor participation is low. Just 64.2% of adults are either in the work force or looking for a job. That is the lowest labor participation rate in a quarter-century. And it signals the fact that many people simply gave up. Buoyant numbers and a positive valence around the economy are important because they encourage people to try again. Towards that end, I think it is important to say that we could be at a watershed. In recessions to come, perhaps 2011 will be produced as a symbol of changing fortunes the way 1983 was.