Economic View: Five Positive Economic Signs Are on the Horizon

The case for optimism is hardly open-and-shut. The economy’s problems include high unemployment, mediocre productivity gains and stagnant or slow-growing earnings for most income classes. Still, let’s consider five indicators that the future is starting to brighten:

MORE DIPLOMAS The nation’s high school graduation rate has risen — to 78 percent in 2010, the Education Department says in its most recent estimate. That’s obviously still not where it should be, but it’s the highest figure since 1974. (For a long time, the rate was under 70 percent. After decades of stagnation, the graduation rate started to turn up in 2000, and the growth has been robust for more than a decade.)

On average, these additional high school graduates — not to mention college degree recipients — will find better jobs and enjoy better health, long-lasting benefits that will be reaped for many decades.

NEW KNOWLEDGE, LESS COST When it comes to education, an even greater productivity gain may be on the way. This month, for instance, the Georgia Institute of Technology announced a new online master’s degree in computer science, for a price of no more than $7,000.

It’s part of a trend toward less expensive education and certification. The examples are numerous: the Khan Academy offers free online instruction in mathematics and other topics, and Coursera and other companies have popularized online courses for millions of users.

How far these trends can be pushed is unclear, but it can no longer be argued that the basic technologies of education haven’t changed in decades or even centuries.

LOWER HEALTH CARE INFLATION The growth rate in health care costs has been slowing for the last four years. In some years, in fact, it’s been no higher than the growth rate of the economy as a whole. And much of the change appears driven by efficiencies, rather than by the recent recession. This is documented in a paper by David M. Cutler, an economics professor at Harvard, and Nikhil R. Sahni, a fellow at Harvard Business School; it appeared in the May 2013 issue of Health Affairs.

This cost deceleration isn’t guaranteed to stick, but the danger that sharply rising health care costs, compounding over time, will crash the entire economy is now somewhat reduced.

POWERING AMERICA FOR LESS We appear to be at the start of a new era of cheap energy. Through advances in both oil and natural gas production, the United States is again becoming a leading exporter of fossil fuels.

Many of the nation’s economic troubles, like slow productivity and  income growth, began about the same time that America’s first age of cheap energy came to a sudden end, in the early 1970s. The effect of today’s energy boom on broader productivity remains to be seen, but it could prove a source of further gains. Unfortunately, cheap natural gas isn’t the path toward sustainable green energy, although it is cleaner than coal and has helped the nation make some progress in reducing emissions.

MOBILIZING THE CREATIVE This final development, concerning the fate of talent in lesser-developed nations, is perhaps the most fundamental. If you were born a genius in Shanghai in 1960, for example, your chances of making much contribution to the larger world were small, because China was largely isolated back then — and extremely unfree economically. It now does a much better job of mobilizing its considerable natural talent.

While the populations of countries like the United States are aging, the number of innovative young people worldwide has never been higher. Countries like China, India, Brazil and Russia, despite recent slowdowns in growth, still are making progress in improving their educational systems and scientific networks. That increases their ability to supply technological innovations — or scientists and entrepreneurs — to the United States. These gains can be reaped in coming decades.

Note, too, that none of these trends can be reduced to breathless or utopian claims about the future of information technology, even though each is intertwined with tech progress in subtle ways. Further breakthroughs in technology, perhaps in the field of quantum computing, could add substantially to these positive trends.

The first decade of this century was largely a lost one, economically speaking, for the average American household. And in the beginning of this decade, median household income has actually dropped, during a time of ostensible economic recovery. Yet the longer-run picture, finally, can be given a partly optimistic gloss. These trends may not ultimately be the dominant ones, but if we’re looking for a positive narrative about the American economic future, some important pieces are starting to fall into place.

Gulf Coast States Jockey Over Settlement on Deepwater Horizon Oil Spill

A lawyer briefed on those talks said that the Justice Department and the five states — Alabama, Florida, Louisiana, Mississippi and Texas — had reportedly prepared an offer to resolve the two biggest issues central to a series of trials against BP, the first of which starts Monday.

One of those issues is the fines that the company would pay for violations of the Clean Water Act related to the four million gallons of oil spilled after the explosion of the Deepwater Horizon rig, which BP had leased from Transocean. The other point of dispute is how much the company will have to pay in penalties under a different environmental statute for damage caused by the oil to the area: beaches, marshes, wildlife and fisheries.

The Wall Street Journal reported late Friday that federal and state officials were preparing a $16 billion settlement offer that would cover both the Clean Water Act fines and environmental penalties related to the spill. “The ball is on BP’s side of the table,” said the lawyer, who spoke on the condition of anonymity because he was not authorized to speak publicly on the matter.

Justice Department officials and state officials could not be reached Saturday to comment on any possible offer. A spokesman for BP, Geoff Morrell, said, “BP doesn’t talk about possible offers or negotiations, but I can tell you we are ready for trial and looking forward to the opportunity to present our case starting Monday.”

The lawyer briefed on the talks said that one problem with the current proposal was that it did not cover economic damages claimed by the states related to the spill. Such claims could still leave BP on the hook for billions more, in addition to the environmental damages.

The late negotiations among federal and state officials to find common ground represents progress, even if limited, in the search for a settlement. The five states have had sharp disagreements over how much BP should pay and how billions of dollars in potential settlement funds should be divided.

For example, only Louisiana and Alabama, are participating in the trial starting on Monday, though Florida, Mississippi and Texas could be part of any settlement. Officials in Louisiana believe their state deserves the bulk of any settlement since its coastal waters, fisheries and businesses suffered the most. Florida and other states that escaped serious coastal damage instead want money for economic losses that they sustained.

“There are a lot of moving parts,” said Luther Strange, the attorney general of Alabama. “Personalities aside, the issues are so complex.” Another lawyer briefed on the talks said he believed any proposal involving Louisiana would be significant because its participation would be critical to any settlement.

Also, billions of dollars could be assessed against BP in several ways, either through fines, or through penalties to redress environmental damage and payments to cover economic losses. And each of those methods represents a different set of stakes and consequences for each of the states and for BP.

For instance, BP would prefer to limit the fines and make more payments through environmental damage penalties, because those penalties can be written off as tax deductions while fines cannot. But the states have more flexibility in spending money derived from fines.

To date, BP has agreed to pay an estimated $30 billion in fines, settlement payments and cleanup costs related to the Deepwater Horizon explosion, which killed 11 workers aboard the rig. And so far, company officials have said they have no intention of acceding to demands from the states for huge economic damages.

Still, the stakes for BP in the trial are high. If the company is found in this first phase of the trial to have acted with gross negligence, it could face up to $17.5 billion in penalties, much of that in fines that would hit the bottom line hardest because they do not qualify as tax deductions.

The lack of a unified strategy to date among the states has also posed another problem for BP; companies are less likely to settle a major lawsuit if they know yet another one is waiting.

This article has been revised to reflect the following correction:

Correction: February 23, 2013

An earlier version of this article misinterpreted a statement by Geoff Morrell, a BP spokesman, about the state of settlement talks between BP and government officials. He said that the chances of a settlement before the trial begins on Monday were far-fetched; he was not referring to a possible $16 billion offer by government officials as reported by The Wall Street Journal.

Fiscal Cutoff Gradually Morphs Into a Horizon

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