Amid the slew of weak economic data coming this week, the stock market has lost the gains (the DJIA dropped 4.31% today alone) created by the Federal Reserve's quantitative easing. This comes as we await, what is expected to be a weak, July's jobs report - consensus estimates are for 75k new jobs, far below what is needed to bring down unemployment.
Last week, I suggested that the focus, in the immediate term, should be on economic growth rather than balancing the federal budget. Apparently investors are much more concerned with the growth prospects of the U.S. than its balance sheet. And the concern is heightened due the Fed's limited number of tools for stoking growth. How, then, do we get the economy growing again?
Rather than re-open the debate about the level of governmental support that is needed and should be in place, David Wessel of the Wall Street Journal suggests a more strategic shift in the way the U.S. does business (the accompanying video further elaborates on this idea). Mr. Wessel points to NYU professor Paul Romer who identifies our economy's over-weighted investment in financial services and health care. Mr. Romer points out that the financial services industry has destroyed a lot of value over the past decade, and that skyrocketing health care spending has not translated into greater health for Americans.
What Mr. Romer and Mr. Wessel are advocating is a reallocation of economic resources toward value creation through business investment, export growth and innovation.