Tuesday, March 10, 2009

The US Role in the World Economy

Tom Kando

Today, I just want to raise a question. I don’t have the answer: There seems to be total international consensus that in order for the world to get out of the Great Recession, everyone has to resume consuming (more). What is meant here, by and large, is that the US has to resume consuming (more).
We must understand that the US’ role in the world economy is to consume. Sure, we also produce goods (Americans are the hardest working people in the world). But when economists say, for example, that our GDP grew by a healthy 4% or something, they mean that consumption/spending grew by 4%. Not production. We also carry the military burden of keeping the world economic system afloat, a burden which should be shared (or abandoned) but isn’t. But this is a topic for another day. The fact is that for the last several decades, the US consumer has been the economic engine of the world. As far back as we can remember - the 1st decade of the 21st century, the entire 1990s, and well before - it was reckless US consumption which carried the world. It was US consumption which helped to industrialize China, India, Brazil and the other upcoming giants. It was US consumption which enriched Saudi Arabia and the other oil sheikdoms. When Americans stopped consuming - as they finally did in 2008 - the world came to a halt. And America’s out-of-control consumption over the past several decades has given it by far the largest debt of any country on earth. It’s called the “current account deficit.”

Now, it is agreed by both the US authorities and the rest of the world that America must quickly resume consumption. This will save both our country and the rest of the world.

I suppose. Okay, so we go back to the status quo. The way the world has functioned for the past 30-40 years: Americans buy, others sell. Of course, our current account deficit - which grew by nearly a trillion dollars a year when times were good, resumes skyrocketing.

Interestingly, America’s monumental current account deficit is never seen as a major threat to our welfare. For example, Alan Greenspan, in his 2008 (now discredited) book The Age of Turbulence, pooh-poohs the problem. On the other hand, I read in today’s Sacramento Bee that the two latest arrivals to the World Recession are Japan and Brazil. And what are the indications that these two economies are now also becoming sick? Well, they are both suffering for the first time in many years from a “negative current account balance.” That is, they are no longer able to export their products; they are beginning to hemorrhage assets and they are starting to build up international debt - precisely what the US has been doing for decades. But the fact that the US is suffering from the largest current account deficit in the history of the world doesn’t seem to worry anyone.

I don’t get it. What’s good for the goose should be good for the gander, no? The prospect of utter and total bankruptcy of the American economy doesn’t worry anyone? And it’s okay if the dollar becomes a peso or rupee-like currency?
I don’t understand. Is it the responsibility of the American consumer to save the world, to be the world’s economic engine, to fund the industrialization of the planet by buying, buying and buying, as if there were no tomorrow? This is the “recovery” envisioned by all economists and all the governments of the world at this time.
As I said, I’m just asking a question. Does anyone have another scenario for recovery?
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