The Big Picture
Would you be frightened if someone told you that the stock
market would drop one quarter of one percent this year? Of course not, but
that’s the record for the Dow Jones Industrial Average after the latest 250
point drop. The headlines are scary and the future looks bleak. It’s hard to
look beyond the Great Recession and it’s easy to list overwhelming problems.
The reasons for optimism are more elusive. While the stock market was
disappointed in the outcome of the Supercommittee, consider this: the
non-partisan Congressional Budget Office now estimates that in the current
fiscal year the budget deficit will drop by $300 billion (one fourth), and in
the following two years by $460 billion and $235 billion. By that year, 2014,
the deficit will reach 1.6 percent of domestic output --- below the long-run
average --- under current policy, even assuming a weak recovery. Certainly our
future depends on more than the Federal budget deficit; Europe’s fate looms
large. But investors shouldn’t get fixated on the problem de jour. Instead they
should focus on the big picture. The
U.S. economy remains dynamic and diverse and given time is positioned to overcome policy errors and other disasters.