There are four big drags on the U.S. economy these days –
- The weak housing market
- The weak financial sector
- Rapidly rising commodity prices
- Weak consumer spending
Clearly these are interrelated. Analysts like to point out that our recent run of prosperity has been consumer driven. Since consumers are holding on to their cash to pay the mortgage and to buy staples, they declare the consumer driven boom to be over. What’s interesting is, this bad news is being over reported, and the good news about the amazing boom in U.S. exports is being ignored. In January 2008, the U.S. set records for total exports, as well as for exports of industrial supplies and materials, food, feeds, beverages, and petroleum. (U.S. Census Bureau, Monthly Trade Highlights)
Why does the export boom go unnoticed? Many chalk it up to the fact exports are a small part of the overall U.S. economy. An export boom doesn’t matter. As long as Americans aren’t consuming, it’s merely an island of plenty in a sea of poverty.
But just because our good economy was driven by consumer spending before, why should we expect or even want that to continue? What would be wrong with a strong American economy built on exporting tons of goods and services instead of Americans buying tons of plasma TV’s?
More American exports equals more American production. And more American production equals more American jobs — right? What am I missing? If what we’re going through right now is a transition from a spending based to a productivity based economy, isn’t that a good thing?
I don’t get it. Everybody’s worried about the fate of our major retailers. Not that I’d like to see any of them crash and burn, but how come nobody’s excited about the soaring fortunes of companies like Caterpillar and John Deere? There was a time when American manufacturing mattered, here and around the world. Those times weren’t all bad. The service economy we have today, which requires people to buy and buy and buy, encourages consumer debt and does little to create sustainable wealth for the next generation. I think a little more brick and mortar in our economy might be the best thing we could hope for. Am I crazy?
I for one agree with you Brad. Living here in Michigan I have often wondered why we were not focused on exporting our technological knowledge globally instead of selling cars to people who can’t afford them. Spending less and producing more certainly would shift our economy but I don’t think that’s a bad thing. Imagine if we became a nation of producers rather than consumers. It will be interesting to see how we adapt to this opportunity.
Karen
Karen, seems to me Michigan in particular would benefit from a broader based economy based on producing (not that the auto industry is a bad thing, it’s just too many eggs in one basket.) I’ve noticed ads here in Chicago touting Michigan as a global center for energy technology. Sounds like the state is listening to you.
Brad, you’re absolutely right! I’m also glad to know that something other than our political drama is being discussed! I came here from CA and wondered why the state had not acted years before to diversify their economic base but it appears we’re finally moving in that direction.
Hi Brad,
This may not be a popular viewpoint – particularly coming from a non-American. However, I feel that a mild recession for America right now, whilst painful, may not be such a bad thing. It could help pave the way for America to return to a period of sustainable growth in the long term.
The American economy suffers from a long term structural problem – a household sector which is overloaded with debt. In order for the economy to return to long-term prosperity, households must undergo a structural adjustment to reduce their debt burden to a more sustainable level.
This structural adjustment will not be fun. However, it is necessary if the economy is to return to a position where sustainable, long term growth is a likely outcome. A mild recession may be unavoidable during this process.
Structural adjustments bring economic pain in the short term, but can have very positive long term outcomes. Remember back to the Asian crisis of the late 90’s? The structural adjustments that occurred then were not fun, but allowed Asian economies to operate on a more sustainable footing. The result? According to The Economist magazine, Asia has accounted for more than half of global growth (on a purchasing power parity basis) this decade.
In a similar manner, a structural adjustment geared toward more sustainable level of household debt could, in the long term, put America back on the path of sustainable growth.
That said – it’s easier to say when you don’t actually live in America!
In terms of both your and Karen’s comments on increasing exports, I think you both have a good point. Exports, if I’m not mistaken, account for about 12% of the American economy (don’t quote me on that). To some degree, a re-balancing of the economy away from consumer spending and more toward a lifting export demand may not be a bad thing.
If America must go through a recession now, I hope it’s a mild one and that your country can return to a path of sustainable growth over the long term.
Cheers
Andrew
Andrew, thanks for your extensive and well thought out comment. (When is your new blog going to be ready?) You state the case very well and I think many Americans would agree with you. At one time America was a country where people saved and valued thrift. Today the emphasis is on immediate consumption. And as you observe, spending sprees lead to bubbles and inevitable bursts. What worries me is, if Americans think the current mortagage/banking crisis is bad, wait until we have to deal with Social Security and health care. Without the long term sustainable growth you describe, I just don’t see how we or future generations will pay for those necessities.
Don’t get me wrong, Brad, I certainly was not having a go at Americans.
No doubt America is not the only country that has a problem with household saving. I’m not as familiar with the situation elsewhere, but I would bet many western countries (including my own, Australia) are recording increasingly low household savings ratios.
Health care and social security will be a major area of difficulty for many countries, including America, particularly as the population ages. It will certainly be a long term challenge.
Cheers
Andrew
Sorry Brad,
I forgot your question about my new blog.
I’m still in the process of doing some research for it. I am aiming for around late April at this stage.
Cheers
Andrew
Well perhaps the recession is almost a sure thing to happen and start with US when the 3 big super giant run into trouble (AIG, LB & ML). Since the whole scope of economic is definitely going to be crude and ugly and long cold winter. I wonder what we have learn from the past recession can still be applicable to capitalize the opportunities of recession ?
In recession, i see moods of peple down. We use to welcome Monday in bull period but now we look in calendar for working holidays.Keeping apart…. I believe that best sector in recession for business is to look those area where the recession is felt most. We have to think out of the box. If we turn into positive outlook enviornment then such business which are in deep trouble of will give very handsome return wheras those business which will survive in recesiion with lot of hard working will not give so much handsome return.
Great information and I will pass this on to some other people I know would be interested. Good job.
I entered in the wrong information on the last post. Great information though.