Mike, again I ask the question I asked earlier in another response.
Why does the trade deficit pose a major problem when US growth is OBVIOUSLY greater than the growth of our competing economies?
After WWII, the US economy made up 50% of total global GDP as compared to the current 30% (give or take a couple percentage). In 1998, just before the Asian contagion, US GDP made up on 20% of global GDP.
That means that if the US economy falters, everyone else's will likely fall on their faces. If we slow to a walk, they will slow to a crawl. What is the more vulnerable economy, one that relies on exporting to others to maintain their economic health, or one that that imports commodities and provide value added services?
And if we can get them to hold ever increasing quantities of our dollars, then great. They loan the money to us, and if we pay it back in cheaper dollars, that's great for us, isn't it?
You can use hedonics, the laffer curve, the phillips curve, dialectic materialism, or voodoo economics... it doesn't matter. The reality is that until other economies show they can create wealth with investor dollars netting that capital as good a return as the US markets, I fail to see why they would suddenly be unwilling to continue plowing those dollars they earn from exporting to us back into our economy.
And again, the trade deficit is NOT reflecting the growth of the US service industry, like IT services. The WSJ had a very enlightening article on this issue several weeks ago, and they clearly showed that certain service corporations such as EDS were generating significant and growing portions of their revenue from providing services overseas. But because many of these contracts were being performed through US owned local subsidiaries, their revenue was not be applied against the trade deficit.
Show me where people will put their money in the event of a US systemic failure and I might be inclined to agree with you, but every other economy cannot compare to the returns and security available for investor dollars in the US markets.
And btw, note that US corporate profits started showing a decrease post 1998 (Asian contagion).. and while diminished to 1995-6 levels, much money has been invested in capital improvements, much of it Y2K related, which diminished profits.
And now the Fed has jacked up interest rates inducing an economic slowdown, so capital spending on productivity enhancing technology will be even more necessary in order to boost the bottom line down the road.
But there won't be much economic growth will there when 85% of US manufacturers are predicting a hard landing recession because they believe AG wants one. The economy, like markets, are psychologically driven into self-fulfilling prophesies. If people perceive a recession on the horizon, they plan accordingly until shown the error of their ways.
But to come out and claim that capital improvements in IT are faked or consist of "cooked numbers" is tantamount to declaring that building railroads or superhighways were white elephants which added nothing to productivity. The key to growing the economy in a reduced money supply state, is to increase the velocity of monetary transactions. You can either have bigger transactions that require months to complete, or grow your economy on the basis of lots of little ones which occur rapidly or facilitate more rapid completion of larger economic transactions.
If Boeing followed your hedonic interpretation of their 3D CAD aviation design software, and online maintenance library, they would have to expense this as a cost, rather than as an asset that continues to grant them increased productivity and reduction of future expenses.
They designed their entire 777 airframe on CAD, tested it, and digitally flew it, before EVER actually commencing manuturing of it. Clearly this is a system that is an asset and productivity enhancer and not just an expense. And from now on they will design, test, and simulate their future aircraft with this, or improved systems.
I'm sorry, I don't accept the evidence being provided about hedonic pricing at this time. And I certainly don't see the merits of those arguments from that link WHEN THEY CLEARLY ONLY FOCUS ON THE US, AND NOT ITS COMPETING ECONOMIES.
Take energy prices. They act like only the US is vulnerable to energy price spikes. But they fail to note that riots were taking place in the UK this past fall. Nor do they explore the additional burden that European social taxation places on energy prices. And they fail to also note that oil is denominated in primarily in dollars, NOT Euros (despite Saddam's maneuvering), thus exacerbating the economic damage to THEIR economies.
Now, I'm not trying to say the US economy is all hunky dory, here. But I AM SAYING that due to more transparent markets and less uncertainty and corruption, we have a substantial edge on our competitors.
For an interesting article on the European condition vis-a-vis the US:
Message 15046122
From that article, I found this statement to be very profound and indicative of the difference between Americans and Europeans:
"In 1989 pollsters asked citizens in seven countries to react to the statement "It is boring to live like other people." In America 69 percent of respondents agreed with the statement. In France only 25 percent did".
Regards,
Ron
Regards,
Ron |
