The U.S. economy: Recovery feels different this time around
May 03, 2011
If you want to call the glass half full, focus on the fact that U.S. corporate balance sheets are strong, productivity growth has been impressive, households are deleveraging and exports are up. Allstate's Thomas Wilson said that while he's investing in anticipation of inflation, he's actually rather bullish on U.S. prospects. "Our businesses adapted and figured things out."

But you can't blame those who say the glass is half-empty, according to 2011 Global Conference panelists at the U.S. Overview session (see video). It definitely looks that way to the middle class, which finds jobs and wage growth in short supply.

The globalization of labor is fundamentally changing the shape of the economy, hampering the rate of job creation we would expect to see as we turn the corner from a recession. As Andy Stern put it, "Looking backward is not going to be a guide."

Panelists focused on the structural and long-term policy issues the U.S. has to tackle. We can't go on with a patchwork, ad hoc tax policy, said Lazard's Ronald Temple; we need to govern like adults and undertake a serious overhaul. But campaign finance undermines all attempts at implementing smart, comprehensive long-term policy. "Lobbyists come out of the woodwork to protect their narrow interests."

Two of the tax reforms that could jumpstart growth were suggested by the Milken Institute's Ross DeVol: making the R&D tax credit permanent, and lowering the corporate tax rate to be more competitive with other OECD nations. But we'll have to contend with political gridlock in order to get anything done, even though there is support in both parties.

Panelists agreed that gridlock and long-term deficit reduction can't be ignored much longer. If we can't arrive at a credible plan within the next couple of years, the markets are going to lose patience. It's going to be a delicate balancing act to tackle that problem given the ongoing need for stimulus measures and investment in infrastructure of the future. DeVol warned that if oil prices hit $150 a barrel, the odds would be even money that the U.S. would tip back into recession.

Housing remains in the doldrums, and it may take a long time for the market to clear. DeVol noted that multifamily housing starts are up, but single-family homes are another story. The household formation rate plunged as kids -- many graduating with unprecedented levels of student loan debt -- moved back home with Mom and Dad. Temple suggested that we need to rethink our mantra that homeownership is the be-all and end-all; some people just can't afford it.

Moderator Maria Bartiromo asked wryly why the panelists seemed bullish backstage but wound up talking about the negatives. Temple reiterated that he's investing in the U.S. There are lots of growth opportunities in emerging markets, but among advanced economies, the U.S. is still the best place for investors to be.