December 28th, 2010

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Happy Story or Sad Story for The Economy in 2011?

So 2010 comes to a close. Economists and everyone else seem upbeat about our economic prospects for 2011. Of course, some of this depends on the definition of "upbeat." 2010 was a better year for the economy than 2009. Corporate profits soared, the U.S. Treasury recouped significant portions of TARP payments to banks and the auto industry. But few people would call 2010 a good year for the economy over all. And a number of economic indicators, such as overall population in poverty and wealth inequality, were negative.

This is especially striking on a global level. In 2009, nearly every country experienced a significant decline in productivity as measured by GDP. In 2010, a number of countries experienced strong GDP growth: notably China, India, Turkey, and Brazil. So our problems in 2010 were about us, not about the world generally. Further, while much corporate profit was generated by business abroad, it did not translate into significant job growth here.

So what is likely to happen in 2011? Let me suggest the happy story, the disaster story, and the muddle story. My money is on muddle, but we'll see. All of these exclude the possibility of a catastriphic event or major disruptive event. For example, if a pandemic wipes out 1 billion people in China and India, this would have significant economic impact, as would an invention of a cheap room temperature superconductor.
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