Thursday, June 24, 2004

More on The Myth of US Economic Superiority

Since the last post, I read an article in, of all places, The Economist aimed at debunking the myth of the US economic miralce. One thing I left out in the last post was the effect of population growth and German re-unification:

...GDP figures exaggerate America's relative performance, because its population is growing much faster. GDP per person (the single best measure of economic performance) grew at an average annual rate of 2.1% in America, against 1.8% in the euro area—a far more modest gap...

...Strip out Germany, and the euro area's annual growth in GDP per person rises to 2.1%, exactly the same as America's...

I note the Euro area is taken as it is a single economic unit, taking the whole EU, growth figures are again slightly higher.

And something new to me, about the improvement in productivity:

...America's productivity has indeed quickened in recent years, but the difference between productivity growth in America and the euro area is exaggerated by misleading, incomparable figures. In America the most commonly used measure of productivity is output per hour in the non-farm business sector. This grew by an annual average of 2.6% over the ten years to 2003. For the euro area, the European Central Bank publishes figures for GDP per worker for the whole economy. This shows a growth rate for the period of only 1.5%. But unlike the American numbers, this figure includes the public sector, where productivity growth is always slower, and it does not adjust for the decline in average hours worked.

Tuesday, June 22, 2004

Consume Yourself Into Bankrupcy

A rant against the absurdity of modern politics calls our attention to the alarming rise in US private indeptedness and personal bankrupcies, and predicts recession.

The question is when.

This is how the American economy works at present:

1) consumers buy on credit,
2) banks hand out the money to consumers from a capital pool they themselves borrowed from the Fed or foreign investors,
3a) the Fed is feeded by foreign central banks (mainly the Japanese and Chinese) buying its treasuries to maintain an exchange rate allowing exports,
3b) foreign investors are attracted by high returns expected from general economic data or stock market reports of firms,
4a) the Japanese, Chinese etc. exports close the circle to the careless US consumers and blow up the US trade deficit,
4ba) the economic data are blown up with numerical tricks like the Hedonic Price Index (<-responsible for most of the perceived extra growth of the USA relative to Europe in the nineties),
4bb) the company balance sheets likewise thanks to poor accounting that was NOT improved after the Enron and ArthurAndersen etc. scandals, and the feedback created by accounting for stock price changes in them.

Of course, to maintain the system, the foreign purchasers of US stocks and treasuries have to purchase increasing amounts of these - always invest more than the returns from existing investment. In effect, this is an imperial tax.

And of course, this won't go on forever, and the greater the losses for Japan, China and US stocks Owner Johnny English Average the later they get out of it.

I wonder in what order and with how much a mitigating effect on each other Peak Oil, nonlinear global warming effects and the 'self-correction' of the above global economic imbalance will be upon us. And if the social-political side effects won't completely overshadow the causes in the eyes of most people.