It was Warren Buffet who said: “Never bet against America.” Having recently returned from Florida, I wholeheartedly agree with the Sage of Omaha: if anywhere shows the resilience of the free enterprise system, it’s the USA.
America led the West into the downturn, and is now staging a comeback. This year it could grow as much as 3 per cent — a rate of expansion any constituent of Europe can only dream about. Its intrinsic strengths are reasserting themselves, as they always do.
For a start, the US has scale — a population of 300 million occupying an enormous and fertile land mass. It remains the place immigrants desire more than any other — so the world’s talent flocks there to study, to work, to invest and to try to get rich. Its robust democracy, defence of property rights, rule of law and protection of free speech combine to make it the most civilised large nation on earth. They also make it an incredibly attractive market — to export to and invest in.
The demographics of the US are the best of any Western nation, and indeed much better than many in the East. Within 20 years, thanks to immigration and reasonable birth rates, US citizens will on average be much younger than the Chinese. And it will have a dramatically younger population than states like Japan or Germany, which will become gerontocracies. This vigour is essential for any country to maintain its prosperity in the longer run.
The Great Recession that started in late 2008 was caused by the first nationwide property collapse in modern American history — previous real estate busts had been regional. But in typical fashion, the Americans have set about fixing the problem, rather than deferring it. So home prices have been sharply reduced, mortgages reset, owners have become renters, and the country is in the process of moving on.
Over time, the pain recedes — but only if the illness is addressed. Property in many parts of the US now represents sound value; indeed I have bought some recently because I suspect in the long run it might prove a bargain.
The US banks have taken huge write-downs on their loans and are now among the best capitalised financial institutions in the world. By contrast, experts are increasingly concerned about the solvency of many European banks — the top five French lenders, for example, are among the most highly leveraged in the world, and massively exposed to all the eurozone’s issues.
Meanwhile US industry is enjoying record profits, and is sitting on over a trillion dollars in cash. These funds will be put to work in the coming years and will create new jobs and wealth. Sectors like the automotive business have turned around: the big three car makers, two of which went through Chapter 11 bankruptcy, are now emerging as highly profitable, much leaner firms. The US possesses many hundreds of world-beating companies, from Apple to Boeing to Caterpillar. A high proportion of these are more productive and competitive than ever, thanks to restructuring over recent years.
As China becomes a more costly place to do business, so the US represents improved value. Its flexible workforce, cheap land and energy, modern infrastructure, and substantial domestic market make it a tremendous location for everything from component manufacture to microchip plants. Over time these many new facilities will generate jobs, tax and exports.
The credit crunch did the US much financial damage, from the failure of Lehman Brothers to the bailout of organisations like Fannie Mae. High unemployment has remained a stubborn burden. Yet America is fantastic at reinventing and rebounding, following Schumpeter’s rule of creative destruction. The biggest bailout of all, multinational insurer AIG, is symbolic of the amazing revival in US corporate fortunes. The Fed pumped in $180 billion to save the crippled underwriter: it is now estimated that not only will the US government recover its entire investment, having already received $150 billion back, it is on course to make a $15 billion profit within a few years.
The US remains the world’s most technically innovative economy. Its culture embraces entrepreneurship like no other. From Google to Facebook to Twitter to the very invention of the internet, its unrivalled array of superb quality, well endowed universities, together with venture capitalist backers, and a vigorous skill pool generates more heavyweight start-ups than the rest of the globe put together. It still captures an extraordinary proportion of all scientific Nobel prizes, thanks to its vast research capabilities.
In the late 1980s various professional pessimists wrote off the US as a fading power, and predicted that Japan would soon overhaul it to become the world’s largest economic force. Today the American economy is twice the size it was in 1990; Japan’s economy is no larger than it was then.
A big driver of America’s recent resurgence has been the shale gas boom. This new method of extracting natural gas — colloquially known as “fracking”— will soon make the US the world’s largest producer of the stuff. And expansion of “tight oil” and deep offshore well production could mean the same for petroleum. Both advances will substantially reduce US dependence on expensive energy imports.
Of course America has serious issues. It needs to reduce government spending to cut its federal deficit. It must reform its healthcare system, which is wasteful and litigious. Its political system is semi-paralysed, and requires more pragmatism and less extremism — from both sides. It should cut military spending and rein back much of the paranoid madness of Homeland Security. Vested interests and the lobbying machine should play smaller roles in political decision-making. Its tax code is over-complicated and could benefit from simplification. Its schools need more freedom, while its teaching unions should be challenged. And there are plenty of other imperfections.
But no other nation has anything close to America’s manifest destiny, resources or abilities. Its energetic citizens, with their can-do attitude, optimistic approach and raw ambition, are unmatched at wealth creation. It invents and pioneers for the whole world, be it new pharmaceuticals, means of communication or 3-D printing. I believe America has regained its confidence, and is once again a tremendous engine of prosperity and progress.