ECONAMERICAWhy the American Economy Is
Alive and Well . . . And What thatMeans to Your Wallet
JEFF THREDGOLD
John Wiley & Sons, Inc.
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ECONAMERICAWhy the American Economy Is
Alive and Well . . . And What thatMeans to Your Wallet
JEFF THREDGOLD
John Wiley & Sons, Inc.
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Copyright 2007 by Jeff Thredgold. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Thredgold, Jeff, 1951- EconAmerica : why the American economy is alive and well . . . and what that means to your wallet / Jeff Thredgold. p.cm. Includes index. ISBN 978-0-470-09698-7 (cloth) 1. United StatesEconomic conditions2001- I. Title. II. Title: EconAmerica. HC106.83.T47 2007 330.973 dc22 2007007056
Printed in the United States of America.
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www.wiley.com
iii
Contents
Preface vii
Acknowledgments xi
CHAPTER 1 The Economy 1U.S. Economic Growth 3Goods and Services 7The Misery Index 9State of the States 11
CHAPTER 2 Employment 15U.S. Employment 17A Minimum Wage 25Outsourcing 29Small Business in America 33
CHAPTER 3 Government 37Taxes 39Government Spending 43Budget Deficits 45The Politics 48
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CHAPTER 4 Entitlement Programs 53The Entitlement Issue 55Social Security 57Medicare and Medicaid 63
CHAPTER 5 Inflation, Money, and Interest Rates 67
Inflation 69The Federal Reserve 72Other Central Banks 80Interest Rates 84Gold 88
CHAPTER 6 The Consumer 91Consumer Incomes 93Consumer Spending . . . Consumer Debt 96Housing 98
CHAPTER 7 The Changing Workplace 103Demographics 105Education 109Immigration 116
CHAPTER 8 American Retirement 121Bridging 123Defined Benefit Plans and the PBGC 125401(k) and Defined Contribution Plans 128
CHAPTER 9 Guaranteed American Growth Industries 133
Health Care 135Financial Planning 138Leisure and Entertainment 140
iv CONTENTS
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CHAPTER 10 Savings and Investment 143The Stock Market 145Savings 151Net Worth 153
CHAPTER 11 Major Global Issues 157Energy 159Currencies 162Trade 166
CHAPTER 12 Major Global Players 169The Pacific Rim 171Europe and Russia 177North America 183
CHAPTER 13 The Intangibles 191Competition 193Emotions and Confidence 195The Power of Incentives 199
CHAPTER 14 The Future 201The American Century . . . Again 203
Index 207
CONTENTS v
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vii
Preface
I learned a long time ago that I cannot have a useful discussion about the economy with a purely academic economist. To these university economists, almost everything fits into a mathematical equation. In the real world, it does not. Consumer attitudes and human emotion are as powerful as any other forces impacting the world in which we live. Economics is simply the study of life and the choices we make. Economicsalso known as the dismal sciencegets a bad rap too frequently as being vague and unscientific. To quote a friend, economics should get the respect it deserves alongside the other occult sciences. Every decision people make is an economic decision. Critical choices about education, employment, earnings, and investing can contribute to a successful career and stress-free retirement, as opposed to a working life and retirement based on pinching pennies. The American economy has performed well in recent years despite the painful shocks of global terrorism, sky-high energy prices, rising short-term interest rates, and volatile housing markets. Even as solid growth has occurred, the national media has led millions of Americans
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to believe that the economy is merely limping along, creating few quality jobs, and on the brink of disaster. Such negativity dominates the economic writing found in the nations bookstores. Books focusing on the demise of America; the coming debt crisis; the coming oil crisis; and the imminent domi-nance of China, Europe, or India are far too prevalent. I served many years as chief economist of one of the nations larg-est financial services firms and now enjoy a thriving business as a professional speaker and economic consultant. I have also been writ-ing a weekly economic and financial newsletter for the past 32 years. Whether in writing or speaking, I have always tried to present a bal-anced and optimistic view of the global economy and Americas role within it. This country has a bright future. The American people have a bright future. This book, econAmerica, reflects my view of the way things areincluding the good news and the bad newsand the way I think they should be. econAmerica includes discussions of many critical areas within the U.S. economy, including government and taxation, the entitlement issue, the Federal Reserve, education, immigration, bridging to retirement, the stock market, currencies, global competitors, and the power of incentives in the economy. This book can be of value to both novice and seasoned practition-ers of economic study. It focuses on four key factors, or Silver Bul-lets, that combine to create a strong American economy in coming years. Opportunities abound as much as ever before. An extremely tight U.S. labor market in coming years will lead to enhanced employee compensation and benefit programs offered by those companies that wish to keep their best and brightest on the job for years to come. In addition, I expect the stock market to perform well.
viii PREFACE
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Todays opportunities for our young people are no less exciting than they were a generation ago. The Internet provides the means for small players to compete with the giants. Americas leadership role in the world will continue. Such leader-ship will occur despite the challenges from China, India, Japan, and a more cohesive Europe. An important area of my work is forecasting the future. Forecast-ing is not easyeconomists are wrong more often than we are right, for which we receive considerable and well-deserved abuse. Economists give forecasts of the future not because we know what is going to happen. We give forecasts because we are asked to. Forecasting is a major challenge because the economy is a moving target subject to whipsaw by unexpected events, which you can expect to occur just after you put a forecast (or a book) into print. For the latest on the economy, please sign up for the Tea Leaf , our free weekly economic and financial newsletter delivered via e-mail. Just visit www.thredgold.com. I and many other economists will continue to provide forecasts for tomorrow. Tea Leaf readers and members of audiences I address yearly around the world will continue to challenge me, criticize me, and some-times even agree with me. In the meantime , I will conti
