StatGuy2000 said:
What I'm arguing is that if we look at a long-term view, the financial crisis will not have a permanent negative effect on the US economy as a whole.
I happen to believe that history is largely determined by the actions of people, so there is a lot of randomness and a lot depends on the decisions that people make. I also believe that the "more you sweat, the less you bleed." One reason I'm optimistic about the Chinese economy is paradoxically because everyone is worried about the Chinese economy. There are about a dozen things that can kill Chinese economic growth, but people are worried about them and so people will do stuff to fix them. Conversely, when you hear people being too optimistic, that's a sign to be pessimistic.
What I'm arguing is that the pessimism underlying these statements are unwarranted. There has been numerous periods (including the 1930's) when people have predicted the decline of the US, only to see the nation not only recover, but take strong leadership in all spheres of the world. Frankly, I don't see how the current situation is any different.
Survivorship bias. (i.e. first rule of finance, don't mistake luck for skill)
There are numerous cases in which people have predicted the decline of the UK, France, Japan, Germany, Argentina, China, and the Soviet Union, and they were *right*. If you take N countries and then put together a set of random events that causes them to collapse, then just by random chance, one of those countries is going to "magically" survive, and whoever magically survives is going to win the game.
However, the mistake is to then go back and then assume that because you were lucky, that you end up somehow *destined* for greatness. Because you flipped heads, eight times in a row, you shouldn't assume that this proves that the ninth time things will come out heads.
The resources available to the US -- the enormous creativity of the people, a culture that is accepting of experimentation, risk-taking and entrepreneurship, the great universities, the resilience of the nation as a whole -- are considerable, and I am fundamentally optimistic that the US will once again rise up to its challenges, and with it new opportunities for future students.
One thing that worries me is that when things get bad, the *first* people that leave are the risk-takers and entrepreneurs. The thing that worries me is that Chinese people that are packing up and ending in China are the people that would have started companies in the US in the 1980's and 1990's. They are starting them in China. (And it looks like the same thing is happening in India.)
Once you have people leave, then the universities will start to fall apart. It's not going to be a fast process (it will take decades), but it's going to happen unless people decide that it's not.
Now as far as when this will occur, or at any rate when we will reach full employment -- well, it could take a decade, or it could be sooner, and this will partly depend on events in Europe, as well as other events in the world, and I do not wish to hazard a guess of when that would be.
1) You don't have a decade to fix the problem. Right now the US is not going into a long term Japanese spiral, but it's headed in that direction. Every year that the employment situation doesn't improve is one more year of "brain drain." If you wait a decade before the problem gets fixed then all of your Ph.D.'s and entrepreneurs are going to end up overseas.
Also skills rot. If you have a particle physicist that ends up working as a waiter, then ten years when the physics jobs open up, they are going to be unqualified for them.
2) You could have full employment in six months if the political will were there. You could *easily* have full employment for physics Ph.D.'s if American politicians decided it was a good thing. It's possible for the US to just say, every physics Ph.D gets a job at a government lab doing whatever research we think is good for the US.
What political leadership in China did in 2007 was to say "Good grief, we are about to have tens of millions of angry unemployed people tear us to pieces, what the heck can we do?" Answer: Build 10,000 km of high speed rail. Now it's a crappy, unsafe system, but that means more jobs for safety inspectors. In 2011, the economy looked like it was too overheated. So what the political leadership did was to slow things down. All of the railway projects that were scheduled to be finished in 2012 were delayed until 2015. Now it looks like the economy is slowing a bit too much, so that some of the projects that were delayed until 2015 are going to get moved to 2013.
The idea of using government spending to set up employment was not invented in China. An Englishman, Keynes figured it out.
Right now, my big hope is that people will just get fed up and start demonstrating. I was really happy that "occupy wall street" was going on, and I'm sad that the demonstrations have died down. Alternatively, I'm hoping that there will be some Sputnik event that "wakes people up."