America's economy: Reasons for optimism | The Economist

IN CALCULUS, rocket science and forecasting always remember the second derivative. It’s why I am optimistic on 2011.

Being an economics journalist takes less courage than being a trader or an economist and being held to my predictions. But for my article in our sister publication The World in 2011, I had to make a call. It turned out to be relatively easy. When I wrote the article more than a month ago, the consensus for growth next year was 2.4%; it hasn’t changed much since. That’s approximately our potential growth rate, meaning no decline in unemployment. That struck me as too low for an economy with so large an output gap in the second year of recovery

If this were a normal recovery, we could expect 6% to 8% growth after a recession of this magnitude. However, we know post-crisis recoveries are weak: deleveraging, debt overhang and impaired banks all interfere with the remedial powers of lower interest rates. The question is, are the impediments enough to drag growth all the way down to potential? I don’t think they are, which is why I’m predicting growth will top 3% and unemployment will fall to 9% or lower.

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America's economy: Reasons for optimism