The US have cut their deficit more in one year than George Osborne is likely to over 5 years – and the economy is still growing (just)
Cebr executive chairman and founder Douglas McWilliams has just come back from an unusual 5 week fact finding tour of the US. He and his wife Ianthe drove 7,000 miles in their classic Aston Martin, visiting 20 states. The car opened doors that might never have been opened without it. The tour route included the East Coast first before travelling around the rust bowl, the sparsely populated mountain states and then the Pacific coast.
It seemed almost as if they had visited two parallel universes. In New York and Washington they met mainly with political people. In the rest of the country they mainly met people with ‘real’ jobs in business or faced with the problems of making ends meet on retirement incomes that however generous they had once looked, seemed less so in a world of low yields and higher prices.
The politicians were downbeat; but the ‘real’ people were conscious that although life was tougher in a world where there were more competitors, they were capable of rising to the challenge. Perhaps those with least confidence were young people, who sensed that life would have fewer easy opportunities for them than for their parents.
The key findings from the tour are:
- The US economy is in much better shape than it looks. The economic data is distorted by a bigger than intended fiscal squeeze.
- Although the problem with public finances remains, the initial impact of the sequester in improving them has been much more successful than expected, causing growth to slow down temporarily.
- NAFTA is working. Canada and Mexico are much better integrated into the US economy than would have even been imaginable when I made my last major visit to the US in 1984.
- The economy is continuing to shift geographically, from North to South and from East to West.
- The US is continuing to plug into the new economy more successfully than any other economy through its successful commercialisation of innovation. Amazon has invested or is planning nearly $14 billion on 89 state of the art warehouses to speed up ‘customer fulfilment’. Tesla is now worth $20 billion!
- But whereas in the UK (despite slow growth) we have been able to price many people into work in a relatively low wage service economy, in the US they have been less successful at this and as a result, economic growth has had surprisingly little impact on underemployment. This is partly because they seem unaware of the way in which globalisation means that people in rich economies doing menial jobs can no longer expect to be paid as highly as well as they once did.
- Their welfare reform – where welfare is time limited – has come up against an unusually long recession which has extended beyond the time period for which benefits have been paid. One result is additional homelessness. San Francisco has more than 6,000 homeless, whereas London has fewer than 600 (but see my caveat about the stats).
Partly because most political people get their news from partisan sources like blogs or other typically partisan media, and also because of the electoral system of primaries open to the party faithful, politics has become wildly partisan. But the differences of substance in opinion between ‘real’ people on either side are much less – the bulk of Americans’ views are roughly in line with those on the right of the Tory party or on the left of UKIP.
To read more, please see full PDF report below.
More information on the data sources used in this report can be found here.