THE DISJUNCTION OF FACT AND PERCEPTION

It has been a long time since the economic data have been flashing positive signals, and an equally long time since consumers, businessmen, and occupants of the White House have been so gloomy. Why this disjunction of fact and perception?

Start with the data. The US economy grew at an annual rate of 3.5% in the third quarter (preliminary figures). The Federal Reserve Bank’s survey of business conditions around the US reports “either stabilization or modest improvements in many sectors…. Reports of gains in economic activity generally outnumber declines…” There follow the usual warnings that improvements are from low levels, and that setbacks remain possible, but the news is better than it has been for some time.

Retail sales are showing a bit of strength and although sales of new homes fell slightly last month, inventories of unsold homes are well below their peak, and sales of existing homes are up, as are prices. And more corporate news is cheering: IBM is so confident that business is picking up that it is increasing the purchase of its own shares; Verizon Wireless reports the highest increase in its customer base since 2005 despite the fact that iPhone sales are exclusively with AT&T; and Caterpillar, the world’s largest maker of construction equipment, is signaling a revival of the manufacturing and construction sectors by rehiring some of the 34,000 workers it has laid off in the past two years.

None of this seems to matter to the psyches of the businessmen with whom I speak, the consumers about whom I read, or the White House. America’s businessmen tend to look further ahead than most participants in the economy­— consumers worry about paying the rent or the mortgage next month, and politicians worry about tomorrow’s polling numbers and the November congressional elections.

Corporate executives here, few of them as upbeat as their Australian counterparts, fear that a new banking crisis will emerge when commercial property loans come due, and consumer credit card defaults mount. They see an administration and a congress that is spending the United States into such a deep debt hole that the dollar will continue to decline, perhaps at an accelerating rate, forcing the Fed to raise interest rates to depression-inducing levels to prevent a collapse of the currency. They think taxes will have to soar to bring the deficit under control. They also believe Barack Obama has no use for a market economy, preferring instead to turn the management of the country over to a series of “czars” who set bankers’ compensation, run the domestic automobile industry, will take over the health care sector, and now issue some 85% of the nation’s mortgages.

Small businessmen are more concerned about the Obama administration’s emerging $1 trillion health care plan, which will drive up their costs, and with the new taxes that are aimed squarely at the income groups into which small businessmen generally fall. So they won’t expand or hire.

Which is why the White House is so unhappy. The President’s priorities are jobs, jobs, jobs, another way of saying votes, votes, votes. Which is why he is considering a program that would give tax credits to employers who add to their work forces.

Consumers are the other unhappy member of the business-politicalconsumer troika. Consumer confidence fell in October for the second consecutive month—no surprise given the weakness of the job market.

What is one to make of all of this? In my view, last quarter’s 3.5% growth rate will prove sustainable in the near term. Inventory building, increased exports resulting from the declining dollar, and stimulus money that is only starting to hit the economy will combine to provide a boost. In the longer run, however, the pessimism of the business community seems justified: the White House and the Congress are dominated by politicians with little understanding of what makes an economy grow sustainably, and a devotion to spendand tax that bodes ill for the future of the dollar as a reserve currency, and for future generations whose living standards will be reduced by the need to pay the bills President Obama will leave in his wake.

However, what politicians have created, other politicians can put asunder. The problems that have so many so gloomy are reversible. As Lawrence of Arabia tried to persuade his fatalistic Arab allies, “Nothing is written.”

Dr. Stelzer, director of economic policy studies at the Hudson Institute, is a columnist for the Sunday Times of London. A former managing director of investment banking firm Rothschild, Inc., he earned his doctorate in economics from Cornell.