US: Debtor Nation (by William Greider, The Nation) [View All]

[IrateCitizen]

This is the feature article in this week's issue of The Nation. It raises some pretty serious concerns with regards to the current state of the US economy in relation to our balooning trade and fiscal deficits. In the end, Greider does express some optimism of a better future emerging on the other end, but it will not be without considerable pain and adjustment. I, OTOH, find it hard to view it with the least bit of optimism.

Please read the whole thing via the link at the bottom and share your thoughts.


Debtor Nation
by WILLIAM GREIDER

(from the May 10, 2004 issue)

The backstory for this election year lacks the urgency of war or of defeating George W. Bush but focuses on a most fateful question: When will this hemorrhaging debtor nation be compelled to pull back from profligate consumption and resign its role as "buyer of last resort" for the global economy? The smart money assumes such a momentous reckoning probably won't occur in time to disrupt Bush's re-election campaign, but it may well become the dominating crisis in the next presidential term, whoever is elected. At that point, the United States will lose its aura of unilateral superiority, and globalization will be forced to undergo wrenching change. The American economy, in other words, is in much deeper trouble than most people realize.

SNIP...

What might be done to avoid the worst? The necessary first step is for American politicians to cast aside the propagandistic claims advanced by multinational business and finance and endorsed by policy elites and orthodox economists. For decades, globalization advocates insisted, for example, that the solution to America's trade deficits was more "free trade." Each new trade agreement has been heralded as a market-opening breakthrough that would boost US exports and thus move toward balanced trade. That is not what happened--not after NAFTA (1993) and the WTO (1994), nor after China normalization (2000). In each case, the trade deficits grew dramatically. (Yes, it's true that since the early 1970s US export volume has grown by more than five times, but import volume has grown by eight times.) Economists have also claimed that ending deficit spending by the federal government would eliminate the trade gap. Yet when the federal government's budget did finally come into balance in 1999, the trade deficits were exploding. This discredited explanation is nonetheless being recycled, now that huge federal deficits have been spectacularly revived by the Bush Administration.

The humbling reality is this: Across three decades, only one economic event has been guaranteed to produce balanced US trade: a recession. When the economy is contracting, people naturally buy less of everything, including imports. Look at the chart: On the four occasions when the line of exports briefly converged with the line of imports, the country was in recession. Each time economic growth was restored, the trade deficits resumed. A more ominous contradiction occurred during the 2001 recession: The trade gap was so enormous it persisted throughout. This suggests that American dependency on foreign producers has advanced to a dangerous new level.

SNIP...

The fundamental solution is to raise wages everywhere in the world, with perhaps fewer millionaires but a more generalized prosperity, especially in developing nations. In short, the global system needs more workers with the incomes to buy what they make. Globalization would have to proceed at a more moderate pace, with less rip-and-run disruption, financial crisis and social disorder. It is most unlikely, I have to add, that America's governing elites will come around to such drastic measures in time to avert an end-of-era reckoning.

If a full-blown crisis does occur, the macroeconomic challenge would be unlike anything the United States has faced in more than half a century. While this would be a time of wrenching, painful change, the new adverse circumstances might also inspire a great shift toward a new, more progressive politics. Given our rapidly deteriorating condition, it is not too soon to begin considering how the nation might dig out, lest popular confusion and bitterness generate reactionary politics instead.

MUCH, MUCH, MUCH MORE...

http://www.thenation.com/docprint.mhtml?i=20040510&s=greider