4-24-05 - 1


Behind all this discussion of Social Security and outsourcing and our huge deficit and trade imbalance is a problem that no one is talking about - what if the US economy stops growing? For example, implicit in the Bush plan for SS is the assumption that the stock market will continue to grow by 5-10% per year on average. What if that stops? The entire US economy is built on being highly leveraged, as is our government and our consumers, and it's kept afloat by continuing appreciation of investments. What if the economy stops growing on average (in terms of inflation-adjusted dollars), as it has in countries like Japan for many years ?

Another question is the growth of sections of the economy. There's a general assumption by foolish people (eg. our government) which is that if the GNP increases, Americans are better off. Well, back in 1820 that may have held some water, because if the country made more money, it was from making more steel, which made Carnegie rich, but also helped his workers, and the grocers who supplied them, etc. etc. These days, all of our mass-employment industries are shrinking. Our economic growth comes from IP (intellectual property) and financial services. When our economy grows, it's likely because a US investment bank took an Indian company public and helped sell it to Saudi investors. So, Citigroup got a nice profit, but 99% of that profit went to the top executives and bankers. That money then hardly trickles down at all, especially under our new tax laws where it may be hardly taxed at all. I can easily imagine that in the future, the US economy will continue to grow, but if you sort of mentally split the US into two countries - the "Unites States of the Rich" and the "Unites States of the Masses" , the USR economy would be growing robustly, and the USM would be shrinking per-capita (partly because the USM bears the cost of supporting the increasing poor and elderly, etc.)

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