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The Emperor’s Few Clothes 13 February 2007

Posted by VARANGALI in Economics, VARANGALI.

The US trade deficit … was financed by a steady sale of American assets – stocks bonds, real estate, and, increasingly, whole corporations to foreigners.
Paul Krugman

Economic indicators that catch our eye tend to be short- or medium-term ones: unemployment, inflation, budget deficit, etc. Since such indicators tend to be cyclical (unemployment goes up then down then up); they mask the tectonic shifts that are slowly but surely eroding the American economy. The emperor still has some clothes left, but has been shedding them faster and faster.

We consume part of our salaries (Big Macs, cars, etc) and save part (put it in the bank). The part we save gets loaned out to somebody else who invests it, which results in increased production. The more people save, the more the cash lying around banks, and therefore the lower the interest rate. Lower interest rates make it cheap to borrow, and production booms across the economy. Savings, then, are elemental to long-term growth.

In 2005, savings were not only lower than consumption, they were lower than disposable income. Americans actually spent more than they earned, nationwide. The last time that happened was 1933, at the nadir of the Great Depression. In 2006, the United States bought about $2.2 trillion in foreign products. The world returned the favor to the tune of $1.4 trillion. Where did Americans get the missing $800 billion?

The answer has increasingly been through selling American assets and corporations. The Dubai Ports fiasco last year was but the tip of the iceberg – major ports on both coasts are already owned and run by foreigners, the toll roads of Indiana and the Chicago Skyway, for example, are owned by the Australians and the Spanish. Even American corporate stalwarts are being sold: I’m writing this blog post on my IBM laptop – now owned and produced by the Chinese firm Lenovo.

After 9/11, George W. Bush asked that American consumers sacrifice for their nation by consuming, not saving.

Bush did nothing to mobilize public opinion to accept the sacrifices that war implies — the first thing a leader would do… “Go shopping” was the administration’s message.
International Herald Tribune, 01/14/2003

With savings at record-breaking lows and American firms being sold wholesale, George W. Bush has once again asked Americans to indulge their consumerist tendencies: flushing the economy with cash at the expense of a prosperous future.

As we work with Congress in the coming year to chart a new course in Iraq and strengthen our military to meet the challenges of the 21st century, we must also work together to achieve important goals for the American people here at home. This work begins with keeping our economy growing. … And I encourage you all to go shopping more.
George Bush, 12/20/2006



1. Oz - 13 February 2007

I totally agree with what you’re saying. I had a blog entry about Mr. Bush’s statement too. It just defies long-term economic logic that excessive spending will help the economy. It’s about as dubious as the argument that tax cuts will pay for themselves.

2. Antonio - 1 March 2007

Very nice site! Good work.

3. Phentermine - 9 March 2007

Nice design, good graphical content. I think I’ll come back later again;)

4. italia - 12 March 2007

mmm.. nice design, I must say..

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