U.S. economy poised for growth

As he left a Wagner opera in 1869, Mark Twain famously quipped that the performance “wasn’t as bad as it sounded”. The same could be said about current conditions on the U.S. equity market, according to Dr. Marvin Zonis, PhD at University of Chicago’s Booth School of Business.

Zonis, who opened the recent IMCA New York Consultant’s conference with a session on global business and politics, declared himself a “glass half full type of guy,” saying he was confident that robust growth will occur in three to five years, despite the climate of fear currently hanging over the U.S. economy.

In his view, globalization has had a disseminating effect over everything, including emotions. Investor fears have been stoked not only by the uncertainty surrounding November’s presidential election, but by the political and economic turmoil in the Middle East, China and the eurozone.

While it is easy for politicians to adopt a “beggar thy neighbour” approach, Zonis says economic nationalism can be counterproductive during hard times. That may be a tough sell, though, as elections loom in the U.S., France, Russia this year, and Germany in 2013. Attention is focused firmly on re-election, and not on much needed economic reforms.

“[The] consequence: a vicious contraction in which deleveraging reduces demand and surplus of exporting poor countries. It’s driven by humiliation and loss of pride,” he said. “Everyone in the world is being humiliated because of the financial crisis, the plummet of the asset base, the loss our homes and jobs. The result: a wave of rage in the U.S. that is unprecedented in my lifetime.”

Countries are shamed by factors like unemployment rates, while rage, fear and mistrust stoke political instability. In a democracy, leaders can be turfed out, but with a mixed bag of diverse political parties around the world, Zonis foresees a future full of challenging elections and riots.

Zonis pointed out that there “is a high correlation between governance and wealth,” and that conflict continues around the world, both between states and politicians within those states.

Yet, there is a silver lining—in the U.S., at least. Economic growth and substantial inflation have tamed the U.S. debt-to-GDP ratio, and the political parties have found at least one area of agreement.

“I have to credit Republicans and Democrats for not slashing R&D budgets of the government,” Zonis said. “Next year, the U.S. will spend more than $450 billion on R&D. Gordon Moore’s law: computing power of chip will double every 18mths. That’s happened.”

His take-away message: The U.S. will survive this crisis, and will see growth.

For young people, he stresses the importance of education as a means of overcoming income inequality.

“We have a horrendous problem of inequality. There’s something fundamentally wrong with our country,” he told the audience. “We the elites have to take some responsibility for trying to understand what the problem is.”

For more of the IMCA New York Consultants Conference, read Melissa Shin’s blog of the event.