Wednesday, April 30, 2014

The American Economy: Stagnation and Eclipse

The Financial Times has shocked many readers with a report that China is now poised to overtake America as the World's largest economy.
The figures, compiled by the International Comparison Program hosted by the World Bank ...[indicate that] China is likely to overtake the US this year.
Many commenting on the FT story are bitter — mostly blaming Obama and the democrats for America's eclipse. Truly, though, the blame lies mainly with the Chinese. They've vastly outnumbered and outproduced the Americans.

As we explained three years ago:
The Shanghai Tower (Source)
With five times as many people, China must produce five times as much food as the United States.

China's crude steel production accounts for 46% of the World's total, and almost seven times America's.

China's cement consumption accounts for about half the World's total.

And China leads the World in the emission of Carbon Dioxide with 22.3% of the World's total in 2007, a number that must have been far surpassed by now.

China is now the World's Number 1 producer of automobiles, and the World's largest exporter.

In the next five years China with invest US$1.5 trillion to construct 30,000 km of high speed rail, during which time America will stick with its 225 miles between Washington and New York (with a planned extension to Boston), with trains running at peak speeds of 150 miles per hour, although average speeds are much lower due to the poor track which was not designed for high speed rail.

So in terms of gross material and energy use, China is already way ahead of the US.
That, of course, is not the whole of the story. As we added:
... amount of stuff is not what economists measure when calculating GDP, they look at the monetary value of output. There the US is way ahead of China in many areas. In legal services, for example, Americans are so much better off than the Chinese.

Then there's healthcare. Americans don't live any longer than most other people, but they spend a heck of lot trying to -- about $2 trillion a year.

And they excel at spending on education, entertainment and advertising, with, surely, beneficial results.

But where American wealth is most evident is in the realm of organized violence. Who else could afford everlasting multi-trillion dollar wars?

So maybe the Chinese have more stuff. But when it comes to the things that really matter, America still leads the World.
But for those who regret the passing of American economic supremacy, what could American have done, or could do still, to end the grinding economic stagnation of the Bush/Obama years?

to answer that, one must first understand the cause, which we have already explained in: It's the Off-shoring, Stupid!
Wall Street Journal, April 27, 2012: Thirty-five big U.S.-based multinational companies added jobs much faster than other U.S. employers in the past two years, but nearly three-fourths of those jobs were overseas*, according to a Wall Street Journal analysis.
Those companies, which include Wal-Mart Stores Inc., International Paper Co., Honeywell International Inc. and United Parcel Service Inc., boosted their employment at home by 3.1%, or 113,000 jobs, between 2009 and 2011, the same rate of increase as the nation’s other employers. But they also added more than 333,000 jobs in their far-flung—and faster-growing— foreign operations.

Wage convergence between the West and the rest still has a way to go.

One in two new US graduates jobless or underemployed

Spanish unemployment hits a new high of 24.5%.

The US Economy slows

Falling US home prices drag new buyers under water

Eurozone Retail Sales Plunge

Canadian employment withers

and …

But it would be as tedious as it would be easy to go on, and on, and on.
So there are only two ways to end the stagnation now. They are:
1. An across-the-board import tax on everything, as is permitted under WTO rules (if one cares about the WTO, which personally, I don't).The magnitude of the tariff to be adjusted as required to drive up the cost of imports to the point that increase domestic demand soaks up all labor at a living wage. Or,

2. Abolition of the minimum wage and introduction of a negative income tax regime that insures that anyone doing a full-time job earns a living wage.
Either way, those who are thriving under the present system of globalized free trade will pay a price: either higher taxes (on imported goods) and higher prices for home manufactured goods, or higher income taxes to cover the cost of the income supplement to those otherwise unable to earn a living wage.

Either way, idiot libertarians will tell you that what you propose, wether taxes tarrifs, is theft. But that's alright. It's better to be a thief than a cold-blooded killer ready to let babies starve

* Emphasis added.

 Related: India now world's 3rd largest economy, behind just US, China

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