Things could be worse, America

Things could be worse, America

Locked at home and glued to the TV by the great storm, I’ve undergone a barrage of election campaign ads. Romney’s emphasize slow growth and repeat again and again that "people are hurting in this country." Obama’s keep talking about a plan to create more jobs.

I think they are both mistaken and are saying all the wrong things. They should be cheering the American way and calling for more.

Let’s look at the facts. The U.S. economy is growing in excess of 2 percent at an annual rate. Okay, that’s not the best it’s ever done or even good by historical recovery standards. But it’s growth and it’s faster than six months ago. More importantly, it’s better than anybody else. Yes, I have long been and still am worried about American competitiveness and I have warned and still do about our chronic trade deficit and about falling behind in key industries and technology. But let’s take a quick world tour.

The EU, the world’s largest economy ($19 trillion GDP compared to the U.S. $15 trillion), is on the way to division if not disintegration. The move to a Euro-zone banking union that has now been set in train will exclude the British banks and tend to shift the center of gravity of European finance from London to the continent. At the same time, the policies and politics of British Prime Minister David Cameron and his Tory Party all militate toward a Brixit (British exit from the EU). For example, there has been no official denial of a recent report that a senior cabinet minister wants Britain openly to threaten to leave the EU. Cameron himself was notably silent as other EU Prime Ministers welcomed the award of the Nobel Prize earlier this month to the EU. Indeed, he has been planning to exercise over 100 opt out provisions in connection with EU police and judicial cooperation agreements.

Beyond Brixit, however, there may well no longer be a United Kingdom as Scotland votes to secede, leaving Britain to consist of Northern Ireland, England, and an increasingly reluctant Wales. Well, I suppose it has truly been said that "there’ll always be an England." But what of Spain? Catalonia (Barcelona) will soon take a vote that could lead to its exit from Spain, and if the Catalans leave can the Basques be far behind as Spain faces a likely fall of 15 percent in GDP. Nor does anyone think that Greece can remain in the Euro-zone as things presently stand. The preliminary report of the International Monetary Fund, European Commission, and European Central Bank clearly shows that Greece’s debt is not sustainable. Then there is Portugal whose exit is only just a little less likely than that of Greece.

So, not only will the world’s largest economy have no growth next year. It may well simply cease to exist.

There has been so much Schadenfreude about Japan’s two "lost decades" over the past few years that I have often taken the contrary view by pointing out that actually Japan’s growth adjusted for inflation and population growth over the past twenty years has been about the same as that of the U.S. while its productivity growth has been higher. Still, there is that population element. The Japanese people are aging rapidly and are fewer every year. It is very hard to build an economic success story on that kind of a foundation. And that holds for Germany, Italy, South Korea, Taiwan, Singapore, and China.

Of course, China is not Japan and advertises that although its growth rate has fallen below double digits it’s still a very respectable 9.7 percent (although the last quarter was 9.5 percent). Accepting for the moment that this is true, it is nevertheless a fact that the Chinese growth rate is on the decline. Whether it is really 9.7 percent has been questioned by some who say that this figure for overall GDP doesn’t accord with the amount of electric power being used, or with ship loadings, and other real production statistics. Whether it does or not, the more important point is that China’s high investment growth strategy has hit the point of declining returns and faces the necessity of a shift to less investment led growth to household consumption led growth. But to get there, household income would have to rise faster than GDP. Some experts believe China’s GDP growth will fall to the 3-4 percent level very soon. Interestingly, anyone who believes this asks not to be quoted publicly for fear of retribution by the authorities who want to maintain the 9.7 percent growth story.

This brings us to the other great growth story — India. Except that it also is no longer so much a growth story as a declining growth story as rampant corruption, faltering infrastructure, and political chaos have merged to create a massive roadblock to growth.

Thus, for all its problems and weaknesses, it may well be that the United States is the last man standing. Maybe Americans should go to the polls happy.