The End of the Euro? Not the End of the World!


Originally published in Flourishing June 2012 

Some months back, I wrote that the Eurocurrency and the European Union could go the way of the Dodo—that is, they could become extinct species.  We  seem to be  getting closer to that virtually inevitable day.   The financial media report on this as a bad thing only, because it may induce cataclysmic (temporary) market disruptions and a wretched (warranted) decline in European living standards.  But, there is more to the story. 

The good news in this “crisis” is—as noted by Nick Murray—that lessons will be learned.   To which I must add—perhaps somewhat less tactfully—the macro lesson of the European debt crisis is that it is the perfectly logical come-uppance of a collectivist/socialist philosophy of government.  As the “Iron Lady” Margaret Thatcher has said, “The problem with socialism is that—sooner or later—you run out of other people’s money.”

Unlike the governments of the European Union—or our own federal government for that matter—American businesses have reduced unproductive spending, paid down debt, and emerged from the recent recession better equipped than ever to produce the goods and services demanded by consumers.  Non-financial U.S. corporations have reduced their debt from 83% of GDP to 77%.  Financial sector debt has declined from 123% of

GDP to 89%.  Similarly, household debt has declined from 98% of GDP to 84%.1   In one simple, but telling, example of cost-cutting, UPS is getting more deliveries from existing resources just by eliminating left turns from its trucking routes.  Just as the business philosopher W. Clement Stone taught us, “Little hinges swing big doors.”

You may have heard that Americans don’t manufacture anymore.  It’s not true.  In 2011, for example, a GE gasturbine plant in South Carolina built and shipped ninety units to foreign markets, each with a price tag north of $25 million.  Total American exports to China alone exceeded $104 billion in 2011, more than double the $41.2 billion we shipped to them in 2005.  Don’t forget about food; in 2011, the U.S. exported $136 billion in agricultural products.2

But wait!  We’re just getting started with the good news.  The April 21st-27th edition of The Economist featured a 14-page “Special Report: Manufacturing and Innovation” in which it described “a third industrial revolution”.  The report notes that although the U.S. and China are about equal in manufacturing output in dollar terms, the U.S. achieves its production with 10% of the workforce required in China.  So, as wages continue to rise in China and other developing countries, America’s superior technology will make the American worker more competitive than ever.  And, Susan Hockfield of MIT says that American productivity may seem to mean fewer jobs, but jobs created by the huge supply chain needed to support automated American manufacturing will more than make up for fewer feet on the factory floor.  She also reports that there is a growing demand for post-sale support workers; 10-year auto warranties require skilled local technicians, for example.

The “Special Report” also describes digital 3-D printing—an incredible new manufacturing process.  In one example, a factory in Rock Hill, South Carolina is printing parts for consumer products, like electric drills, dashboards for cars, lampshades, and—hang on to your hat—artificial human body parts. The materials that can be printed now include plastics, ceramics, and many metals.  Food can be printed (CornellUniversity researchers are printing cupcakes).  Simple living tissues like skin, muscle, and short stretches of blood vessels can be printed; and someday, whole body parts might be printed, using the patient’s own stem cells as a digital program to circumvent—or at least reduce—the body ‘s natural tendency to reject transplants.

[Go to and read how “programmable matter” may create devices that can “evolve” by changing their own physical structure, morphing, for example, from wrench to antenna to tripod.  Prepare to freak out.]

More down to earth, and perhaps more relevant, is the fact that operating earnings of the S&P 500 companies came in at $98.57 last year, 17% better than 2010, and more than 12% better than the previous high, set in 2006.  That may not seem significant, until you realize that the S&P 500 Index closed out 2011 at 1257.60, still 14% lower than where it was on December 31, 2007 (1466.36).  Operating earnings for 2011 were nearly double the operating earnings at the depth of the recession in 2008 ($49.51), and 75% greater than at the peak of the tech bubble in 2000 ($56.13).  In the last twenty years, operating earnings of the S&P 500 companies have nearly quintupled, while the S&P 500 Index itself has not quite quadrupled.  The consensus estimate for 2012 earnings is $103.06, and for 2013, $112.82.3  It is axiomatic that stock prices track corporate earnings—sometimes anticipating them, sometimes lagging.  So, stay attuned to corporate earnings.

Now, you may fairly ask, “If things are so good, why is unemployment so stubbornly high?”  I’ll leave that question to your imagination and/or analysis; and I’ll give you my answer next month.  For now, I’m merely suggesting that you not look to the future through the lens of chronically dysfunctional government behavior, which has nearly always come-a-cropper; nor to the daily short-attention-span theater of the financial media; but to the long-term performance of America’s and the world’s best managed, most innovative companies.   mh


Daniel Gross,

S&P 500 data provided by University of Pennsylvania (Wharton School) Finance Professor Jeremy Siegel at; subscription required.