IT'S A FAITH THING

October 17, 2006

With equity markets steadily gaining ground and the Dow Jones Industrial Average reaching record highs, it is getting harder for cynics and pessimists to argue that the U.S. economy is doing poorly, says Brian S. Wesbury, chief economist at First Trust Advisors L.P. in Lisle, Ill.  But this does not stop them from trying.  Lately, the old class-warrior standby, that "Wall Street may be doing fine, but Main Street suffers," is echoing down the alleyways.

Fortunately, no matter how many times this theory bounces off the walls, there is little in the way of facts to back it up, says Wesbury:

  • The so-called "jobless recovery" was dealt a severe blow when the Bureau of Labor Statistics (BLS) reported that its annual recalibration of employment statistics will add 810,000 jobs to its previously calculated total; this is one of the largest revisions in history, exceeding the combined payrolls of GM, Ford, United and American Airlines.
  • The Treasury released its latest estimate of the budget deficit -- now expected to be $248 billion in fiscal year (FY) 2006; just eight months ago, the Congressional Budget Office (CBO) guesstimated a $337 billion shortfall and the White House forecast a $423 billion deficit.

The driving force behind the good news is productivity growth fueled by innovation, explains Wesbury.  If the 1980s and 1990s saw the invention and proliferation of new technology, the early 21st century is witnessing its implementation.  The impact is immense, and it changes everything.  The 2003 tax cuts have also played a major role. Before those tax cuts, the economy, job growth and the stock market were sluggish and stagnant. After them -- because they increased the incentives for risk-taking -- the economy and markets improved dramatically, says Wesbury.

Source: Brian S. Wesbury, "It's a Faith Thing," Wall Street Journal, October 17, 2006.

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