Cash-poor America and its future
Once the country with all the money, America is now a cash-poor international debtor. How did we get ourselves in this position and what does it mean for our future role on the global stage? Stephen S. Cohen and J. Bradford DeLong, both economists at the University of California, Berkeley, explore these questions in “The End of Influence: What Happens When Other Countries Have the Money.”
By Stephen S. Cohen and J. Bradford DeLong
The money has left the United States, and it is not likely to come back anytime soon. For so long the primary creditor -- America -- is now the world’s biggest debtor, and there is no other debtor nation of consequence. The legendary Spanish bullfighter Garcia was once asked: “Who is the world’s greatest matador?” His prompt reply: “Me, Garcia the Great. And there is no number two, and no number three.”
When you have the money and have had it solidly, rightfully, self-assuredly for about 100 years, and "you" are a big, economically and culturally vital nation -- you get more than just a higher standard of living for your citizens. You get power and influence, and a much-enhanced ability to act out.
When the money drains out, you can maintain the edge in living standards of your citizens for a considerable time (as long as others are willing to hold your growing debts and pile interest payments on top). But you lose power quite quickly, especially the power to ignore others -- though, hopefully, in quiet, nonconfrontational ways. And you lose influence -- the ability to have your wishes, ideas, and folkways willingly accepted, eagerly copied and absorbed into daily life by others.
As with good parenting, you hope that by the time this happens those ideas and ways have been so thoroughly integrated that they have become part of what is normal and regular abroad as well as at home; sometimes, of course, they don't. In either case, the end is inevitable: you must become, recognize that you have become, and act like a normal country.
For America, this will be a shock: American has not been a normal country for a long, long time.
Where did the money go? It went to pay for imports in excess of American exports, year after recent year, for oil and for manufactured goods from Asia, a good proportion of which came from U.S. multinationals in China. How did we pay? By piling up debt.
In the process we restructured the U.S. economy. We cut the proportion of manufacturing in GDP (what we produce, though not what we consume) by 7 percent of GDP, and increased the proportion of finance (and real estate transactions, not construction) by 7 percent of GDP.
How can we pay-off the debt? Not quickly, not painlessly, not easily. Can we lower it, or at least lower the rate of its increase? Yes, but. It would require a new restructuring of the economy -- shrink, radically, the place of finance in GDP and reindustrialize.
Would a plausible up-valuation of the Chinese currency do that for us? No, not substantially. We have got to do it ourselves: reindustrialize. And that means dropping the dogma of unfettered markets and re-fettered states and the resultant policies we have pursued over recent years with accelerating zeal. Only positive policy can set that transition in motion.
Steven E. Levingston
May 13, 2010; 5:30 AM ET
Categories: Guest Blogger | Tags: america as debtor nation
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