The story today is the President’s State of the Union address last night. He made many points, but all centered around the role of government in the economy. Implicit in his program was the presumption that government can engineer outcomes superior to what the market would create. Also implicit was the notion that government can be key to kick-starting growth. Are those presumptions right, and can the President’s proposals really start to create a better outcome?

Let’s step back a moment and consider what “growth” means. If we are looking at a pie, any way we slice it, for someone to get more, someone else has to get less. This is how much of the debate on spending and taxes has been framed so far—either we cut spending or raise taxes, because the pie is only so big.

Here in the U.S., we are pretty lucky. We transact all of our business in dollars, and it never occurs to most of us to think about other currencies until we travel outside the U.S. It just doesn’t enter into our consciousness that we should care, or need to care, about the dollar itself. Like air, we take it for granted.

But, like air, when things turn bad, we have to start paying attention pretty quickly. Again, here in the U.S. we have never really had to cope much with that problem. As the “reserve currency,” the U.S. dollar is the currency for most of world trade, and therefore everyone else has to hold dollars in one form or another if they want to trade with the U.S.—and they do. We have a built-in demand for our currency that supports its value. The benefit is that we can buy things made in other countries cheaper, in dollar terms, if the dollar is strong.

After spending the weekend digging out from the latest “storm of the century,” it feels good to get back to my desk and away from my shovel and snowblower. Hope everyone here in the Northeast made it through with as little pain as possible.

According to my wife, who presumably got it from a reliable source, it was the fifth worst winter storm on record. But then, we’ve had multiple record-setting “hundred-year storms” over the past couple of years, which suggests either that something has changed or that our standards for hundred-year storms are out of whack. Maybe we’ve all been the unknowing beneficiaries of a spell of peaceful weather that’s now ending.

First of all, an apology—I didn’t post yesterday. I was in New York at a Morgan Stanley conference, and I blithely assumed that Wi-Fi connectivity would be available. For some reason, which was not the fault of the venue or the sponsor, I could not connect with my laptop. Even on the train home, the Wi-Fi was out for the first hour of the trip, and by that time, it was too late in the day to post.

It is surprising how dependent I have become on connectivity. I have a Mac Air laptop, which I love, and it usually works seamlessly with all sorts of connections, but not yesterday. And trying to connect with only an iPhone, which was heaven just a couple of years ago, was instead incredibly frustrating. How quickly we get spoiled. It was not all that long ago that I refused to even carry a cell phone.

Yesterday, I posted an update on the rising risks in Europe. After I wrote that piece, I spent some time thinking about other risk areas that have fallen off the radar screen a bit and decided that today would be a good time to address those as well.

Off to a great start

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The market hiccup yesterday was widely attributed to Europe, which raises the question—what’s happening in Europe? I haven’t written about Europe for a couple of months. The last time, just after Thanksgiving, I noted that the situation was normalizing but we could certainly expect storms ahead. Two months later, the storm warnings are starting to sound.

Economic improvement has continued since then, with a start at recovery in the northern tier of the European Union. The southern tier, however, has continued to weaken—not so much economically as politically. Greece, for a change, isn’t the driving factor this time. Instead, two of the largest countries in the EU, Spain and Italy, are now showing cracks.

I have spent some time looking at the fourth-quarter GDP report over the past couple days, but it occurred to me that it might be helpful to step back and take a look at exactly what GDP is, what it is composed of, how growth happens, and what it means. This is essential to understanding any analysis of what happened in the fourth quarter.

I am actually not going to spend a lot of time talking about the numbers today, as I have made most of my points multiple times. I am also on my way back from the West Coast and am writing this in Sky Harbor airport, which will constrain my time.