The budget deficit is shrinking to roughly 2.5 percent of GDP in line with the average of the past four decades. As for the claim that trade deficits are bad for U.S. workers, consider this thought from Café Hayek blogger Russell Roberts, a professor at George Mason University: “The U.S. has run a merchandise trade deficit for every year since 1976, trillions of dollars of deficits. And since 1976, the U.S. economy has created over 50 million jobs.”
Wall Street economist Michael Darda points out that non-financial productivity is trending at a 3.2 percent annual rate for the past ten years. If the Fed doesn’t invert the yield curve by tightening too much, U.S. economic growth ought to trend around 4.5 percent from this high productivity base.
President Bush had the right idea at the recent G-8 meeting when he pushed to stop a worldwide carbon tax. Such a tax would have damaged all manner of global economic growth. Hopefully Bush also can stop a China-bashing trade and currency war at home, which like the disastrous Smoot-Hawley tariff of 1930 would undermine economic growth.
I’m not all that confident in Old Europe, but it’s a good bet that flat-tax-type market reforms in Eastern Europe are going to force Old Europe to get rid of their old-style socialist policies. The recent defeat of the European Union constitution, which would have blocked reforms and strengthened central planning by the Eurocrats in Brussels, was a good thing. The pro-American Angela Merkel will soon replace Gerhard Schroeder in Germany. In France, Jacques Chirac has become the lamest of political lame ducks.
But just stop for a second and think of the confidence the global stock markets are showing in the future. Despite the assaults of radical Islamists on free societies, rising equity bourses surely suggest that the U.S.-British-led coalition of the willing is making enormous gains as it strives to defeat totalitarianism and spread democracy and freedom worldwide.
Undoubtedly there will be more heartbreak in the terror war. But the message of the stock market strongly argues that we are moving in the right direction.