I am bullish on the American economy in 2012, while Neil Irwin is considerably more hedgy. On four of his five question areas, however, we don’t really have much in the way of disagreement. The only real point of analytic tension between us is take on China. We agree here that there are major risks to Chinese economic growth emanating out of China—they got another bad manufacturing datapoint today—but I don’t think it’s obvious that this bodes ill for us. How many Americans’ livelihoods depend in some clear way on the state of the Chinese construction industry? Not that many, it seems to me.
The bigger issue, to me, is that while over the long-term a richer China is very good for America (a richer China is a source of more innovation, science, etc. that the whole world benefits from) the short-term picture is much more mixed. In particular, super-fast Chinese growth serves as a kind of negative supply shock to the American economy by pushing up the price of oil and other primary commodities and the American economy is very sensitive to fluctuations in gasoline prices. It’s of course possible that the American banking system is vulnerable to a Chinese mortgage lending bust in some way I don’t understand, but with the exception of financial hijinkcs the United States is just not that exposed to global economic fluctuations. The Chinese economy was not exactly booming in the years of glorious postwar growth in the West.
