America at Stall Speed?

NEWPORT BEACH – Judging from the skittishness of both markets and “consensus expectations,” the United States’ economic prospects are confusing. One day, the country is on the brink of a double-dip recession; the next, it is on the verge of a turbo-charged recovery, powered by resilient consumers and US multinationals starting to deploy, at long last, their massive cash reserves. In the process, markets take investors on a wild rollercoaster ride, with the European crisis (riddled with even more confusion and volatility) serving to aggravate their queasiness.

This situation is both understandable and increasingly unsettling for America’s well-being and that of the global economy. It reflects the impact of fundamental (and historic) economic and financial re-alignments, insufficient policy responses, and system-wide rigidities that frustrate structural change. As a result, there are now legitimate questions about the underlying functioning of the US economy and, therefore, its evolution in the months and years ahead.

One way to understand current conditions – and what is needed to improve them – is to consider two events that recently attracted considerable worldwide attention: the launch of Boeing’s Dreamliner passenger jet and the tragic death of Apple’s Steve Jobs.

Let us start with some simple aeronautic dynamics, using an analogy that my PIMCO colleague, Bill Gross, came up with to describe the economic risks facing the American economy. For the Dreamliner to take off, ascend, and maintain a steady altitude, it must do more than move forward. It has to move forward fast enough to exceed critical physical thresholds, which are significantly higher than those for most of Boeing’s other (smaller) planes.