The good news is that GDP growth came in a bit better than expected—at 2 percent versus 1.8 percent, which is up from 1.3 percent in the previous quarter. This was front-page news in the weekend editions of the New York Times (NYT) and the Wall Street Journal (WSJ). For the first time in two years, government spending was a major driver of growth. Consumer spending was also a significant contributor, but it came at the cost of lower saving rates, so it may not be sustainable. Business investment dropped, as did exports, in the face of growing weakness in Europe and China.

The sustainability of the growth is questionable, given that government spending is very likely to decrease going forward; in addition, consumer spending is also likely to slow (at best) as the fiscal cliff tax increases come closer. Nonetheless, a good quarter.

A friend recently forwarded me an e-mail to comment on. This friend is a very intelligent and informed woman, but the e-mail had raised concerns that she wanted addressed.

I am old enough to remember the last time an Asian economic superpower was going to take over the U.S. Back in the day, we heard a lot about how Japan was inevitably going to overtake the U.S. because of its superior work ethic, economic efficiency, and availability of low-cost capital because of high savings rates—and particularly how its government was so much better at managing its economy through agencies like MITI. Loud cries were heard that the U.S. needed to heed the lessons of Asia and become more like the Japanese. Does this sound familiar today?

Unfortunately, in many respects, we have become more like the Japanese. But that is the subject of another post. What I want to talk about right now are the similarities between China and Japan, especially about how Japan never looked as invincible as it did just before its two lost decades started.

There is a fair bit of news today, which I will deal with in other posts, but I wanted to start with this one because I think it encapsulates a lot of the arguments that are being made at a national level.

Over periods of time, the performance of the stock market and the real economy are closely linked. This is no surprise; in fact, it’s inevitable if you think about it, as the stock market is just the business expression of the real economy. The correlation of changes in the two has been about 60 percent over the past decade, meaning that the majority of the changes in the stock market can be explained by changes in the size of the real economy.

As we move into the last days before the election, both sides have a lot to say on any and every issue that could vaguely be considered relevant. Ever smaller groups of voters are being targeted and pandered to. Today, it’s the “waitress moms,” per the front-page article in the New York Times (NYT), “Crucial Subset: Female Voters Still Deciding.” Obama continues to be the favorite, but at slowly eroding odds. And people are starting to realize that regardless of who wins the election, we are still going to have to deal with the same problems.

The headlines now are focusing more on what we will do, rather than who is going to be doing it. Even as the political uncertainty escalates—the presidential race is getting tighter, and “Number of Competitive Senate Races Rises” on page A6 of the Wall Street Journal (WSJ) points out that control of the Senate may be up for grabs as well—the economic focus is narrowing. Whoever wins, there is a set of problems that will have to be addressed, and those problems are becoming the focus.

“Standing in the middle of the road is very dangerous; you get knocked down by the traffic from both sides.” — Margaret Thatcher

Margaret Thatcher is not usually associated with the middle of the road, but I have always liked the above quote. And, indeed, there is no question that the middle of the road may be the place to be in American politics.

In the past couple of weeks, I have given several talks to groups of clients, and there have been a couple of common questions and themes in the discussions. The most popular theme is employment—when and whether we will be able to get back to an economy that provides good jobs for lower- and middle-class workers that allow them to buy homes and live a good life. This is really the key question for everyone who loves this country.

The answer I have been giving is that we are not going back to the 1950s. At that time, America was the workshop of the world—because most of the rest of the developed world had destroyed itself. Europe was in ruins, Japan was worse, and the rest of the world had never industrialized. We could sell everything we made because we had no competition. In fact, our policy was to build up the other areas of the world again.

I sent a tweet about this earlier, but I want to mention it here as well. This Wall Street Journal article by Daniel Yergin, “The Real Stimulus: Low-Cost Natural Gas,” is worth a read.

The title pretty much tells the story, but Yergin goes into some detail about the numbers behind the story, as well as some of the second-order repercussions.

Contrary to the old adage that politics stops at the water’s edge, last night’s presidential debate started there and headed straight into politics. The debate made the front page of the U.S. papers, unsurprisingly, but it was a bit of a surprise that there was no real consensus as to who won or lost. To the extent that both candidates had something to lose here, that makes sense. Romney wanted to avoid looking out of his depth or making some obvious misstatement, and Obama had to continue to seem tough and engaged. Both hit their marks, but neither seemed to go much beyond that.

Overall, the race has tightened quite a bit since before the first debate, and, nationally, it seems to be pretty close to a draw. Elections aren’t decided nationally, though, but in the Electoral College based on state results, and there the president still appears to have an edge. Nate Silver has a good article on page A10 of the New York Times (NYT)—“Cutting to the Chase: What Are the Odds?”—that addresses exactly that. Basically, per his analysis, Obama still has a two-thirds chance of winning, based largely on his slight but persistent polling advantages in some of the battleground states.