Although positive news about the economy is beginning to become more prevalent, many people feel that the United States economy remains mired in the doldrums. Government debt continues to expand, housing values continue dropping, energy prices remain volatile and people are waiting for the proverbial next shoe to drop.
Three fundamental problems are facing the US economy: business-unfriendly government policy, tepid job creation, and a weak US dollar. All of these problems are interrelated and can be solved by the economic growth which the US economy is poised to experience thanks to two recent trends: new energy production in the Marcellus Shale and Bakken Formation and ongoing wage increases in China.
Business-Unfriendly Government Policy
Current government policy is business-unfriendly in two ways. The first problem is the rapidly expanding government debt and the lack of serious plans to meaningfully address it. Not only does the high level of debt cause a great deal of uncertainty in the economy, but it also diverts funds that could be lent to expanding businesses.
The other major problem with government policy is a great deal of uncertainty. With employment tax laws practically changing monthly, it is hard for businesses to calculate the long-term cost of adding jobs. The business tax and regulatory environments also remain volatile. The 2012 election is likely to resolve some of the uncertainty and make it easier for businesses to plan their expansion.
Tepid Job Creation
The country’s tepid economic growth and uncertain economic environment hold back business growth, reducing the need for new hiring, and make employers afraid to hire. Although the unemployment rate has come down, data from both the US government and offline and online payroll services show that hiring remains weak. As the economic problems fade, hiring will pick back up.
Also, one of the major trends leading to domestic job loss — competition from foreign labor markets — is also beginning to abate. Labor costs in countries like China are rapidly increasing and making the cost of US labor more competitive. At the same time, some experiments in offshoring, like many call centers, have led to unhappy customers and motivated companies to rehire American workforces. These two factors will help to keep more of the jobs that the US creates in the future within our shores.
Weak US Dollar
While the weak dollar contributes to a general sense of malaise, in many ways it has a positive effect on the economy. By making American products comparably cheaper on world markets, it makes it easier for us to export. The weak US dollar also makes it more expensive for American companies to move jobs offshore where the workers need to be paid with foreign currency.
As the US economy recovers over time, the dollar will gradually strengthen. A reduction in government debt coupled with decreased energy imports due to increased domestic production will strengthen the US dollar and increase confidence in the economy. As the American economy grows, Americans will consume more American products, helping to compensate for the potential loss in an export volume that can come with a stronger currency.
While large issues remain for the United States, meaningful recovery is coming. Resolution of our political issues coupled with the good luck of our recent energy discoveries could very well usher in a new American century.
Leave a Reply