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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6 comments:
I don't think anyone has a conclusive answer to your questions. But I would like to make the following remarks:
1. While in economic boom, the US trade deficit was high also.
2. When the world stock market is in turmoil, the US dollar benefits. Or as said on "This American Life" the other day: "The US is the only country in the world whose own currency benefits from messing up its own market." In other words: when stocks fall, investors flee to safer markets such as the US dollar. You can also see this in the exchange rates that have gone way up. The demand for the dollar has increased considerably. Your worries about the depreciation of the Dollar to the value of the Rupee are therefore unnecessary, in fact quite the opposite is happening.
3. I think the US has failed to recognize the enormous cost of their failing health care system, failing prison system, failing poverty approach and failing wars. "Consumption" might be important for the economy, but if your society is not properly managed, a lot of productivity goes wasted.
In other words, as you say, Americans might be the hardest working people in the world, but if all that work goes towards health care bills, Iraq, and housing prisoners serving (and therefore not working) 30 years for dealing marijuana at age 15, there is little money left for consumption.
Just my 2 euro cents,
Niek
As an example of the failing health care system in this country I would like to point to one of the more recent tactics of some of the major health insurance companies who are now opening store fronts to sell health insurance to the uninsured.
This announcement triggered a gag reflex in me. I don’t know about you, but my gut reaction is that this is the last step towards a full admission that people’s health in this country is as much of a commodity as a hamburger at McDonalds or a pair of nike sneakers.
I have lived in this country for a long time, but once in a while my European value system is rearing its head in full-blown fury, and in this case especially, everything that I consider ‘socially just’ is coming into question. The more worrisome part of this most recent development is that no one seems to question the fact that it is morally repugnant. It preys on the young and the weak in American Society. Not only will they sell minimal insurance for maximum premium, it will put a bandaid on an oozing cancer wound that should have been addressed decades ago.
Hear, hear Madeleine, the health industry has a lot to answer for. Health and industry (as in big business) are mutually incompatible. It should really be called the sickness industry, but to get back to Tom’s question: “Does anyone have another scenario than increased consumption for recovery from the crisis?” I truly hope so or the consumer might explode from over consumption (in Spain, three out of ten children under ten are obese). We all know the answer: increased conservation. I have a few more questions: Is money finite? If the consumer has no more money to spend, where is it gone? If all governments have a national debt, who do they owe money to? Who regulates the regulators?
It was great to read the comments...as talk of the economy flowed into health care discussion. It is, of course all connected. Earlier today I had only read Tom's take one the US recent history of mass consumption needing to resume, being presented as the cure for current economic woes. Joining the blame game, blame train and editorializing on US consumption, is not a solution, and that it occured of course was a fact. Instead, I found myself reminising about my early adulthood, in the mid-1970's. Spending my adolescence in the time when Viet Nam blazed, protest was rampant, hippies were cool (in my circle), and "less is more" was a catch phraze that had liveable relavance. It was a good thing that my first car cost $500 dollars and didn't have a heater. To own something that signified wealth, amoung my middle class American peers, would have caused my friends to wonder about me and my values, or perhaps superficiality. In candor, currently, my 24 year old daughter owns a new Lexus, she graduated from UCLA,she did hold a job while a student. She pays the monthly car payment, her dad is on the title. My point is, I too am part of the problem. I truly still believe money does not buy happiness, but realize that suffering poverty would also be horrendous. Maybe preaching a certain value system to our children, but giving with the other hand produces, at the very least a mixed message. It does not re-produce a culture of less is more. This is the "new" but "older" mindset that I am now trying to focus on, out of necessity, but also out of conscience. Clarice
I think that Americans are not very optimistic about the economy recovering from this recession. For example, I usually spend around $1,000 on gifts for the holidays. My family was disappointed when I told that I would not be sending gifts. Of course I had to buy a new car but I viewed this as a necessity. I think that Americans are asking themselves is it necessary to go out every other night for dinner or go to expensive plays and travel as much as in the past. The fear is that the media keeps emphasizing the negative ramifications of this current economic downturn. You see people on the news losing their homes and sleeping in tents and then you wonder, what if all the money drys up! I think that our government via the media needs to send us a healthy dose of optimism. I mean I feel guilty when I buy expensive things because I am usually among a few other people in the store buying goods. Then I think to myself,"why did you buy a new watch or pair of earrings?" I argue that I and many others have brought into this culture of fear to spend money and that we need to be afraid to spend our money for fear that we could be victims of some unknown fate. I dont know what it is but I still convince myself to buy goods and services. I must confess that this past holiday I succumbed to the fear of of economic uncertainty and unfortunately did not help the US Economy out that much.
U.S. banks could learn a thing or two from Canada. Check out this article on healthy Canadian banks by economics professor Nicolas Schmitt, writing for Geneva's "Le Temps." Thanks to regulation, Canadian banks operate in a way that has protected them from the crisis that U.S. banks are experiencing. Here's the link to the article:
http://www.truthout.org/041109G
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