If the economy's so bad, why is it so good? Crashing dollar, twin deficits, rising gold, foreigners selling our assets -- the list goes on and on for members of the negative and pessimist mainstream media. But unfortunately for them, and fortunately for the rest of us, the economy is in excellent shape.
According to the latest report from the Commerce Department, real gross domestic product rose 3.9 percent in the third quarter of 2004. GDP is still the best overall measure of the economy -- that is, outside of the stock market, which is always smarter than the bean-counters. The S&P 500 and the Wilshire 5000 are both up about 50 percent since October 2002. That's two more votes for a healthy, non-inflationary prosperity, one that's chock full of rising profits and record productivity.
As usual, the optimists' list is way longer than the pessimists'. Core inflation is coming in around 1.5 percent. Business equipment and software ("cap-ex" as it is known on Wall Street) grew by 17.2 percent last quarter, while consumers spent at a 5.1 percent pace. Meanwhile, U.S. trade is very healthy. Exports rose by 6.3 percent at an annual rate, while imports increased 6 percent. New jobs are running near a 200,000 monthly pace. Unemployment, at 5.5 percent, is historically low.
The dollar? If certain officials at the Federal Reserve will stop bad-mouthing it, we'll wake up one of these days with a 15 percent dollar rally. Why? Because President Bush's pro-growth fiscal policies will restrain spending and reduce tax rates, especially on saving and investment. Higher after-tax investment returns will attract foreign capital from all over the world. If you haven't noticed, Japan's economy is slumping again. Europe's economy never recovered in the first place. And fast-growing China and India are becoming our best export customers. The dollar is way undervalued in this environment.
However, if you truly want a balanced trade account in the United States, the most effective but demoralizing way to achieve it is to induce recession with rising tax rates and excessive Fed monetary restraint. The trade accounts were balanced in the early 1980s and the early 1990s because of recession -- but this was reflected by a total collapse of U.S. imports, jobs and just about everything else. Recessionary policies would be lunacy today. America's trade gap is itself a sign of prosperity. Our economy is rising, while other industrial economies are not.