Here is a marvellously simplistic piece of economic claptrap. There can be no comparison between the economy of a nation and the economy of a household. Why? well, households cannot go to the grocer and buy their weekly shopping in Smith Family Dollars. Nor can they import and tax family members to make their economy grow. Nor, indeed, can they set out to devalue their currency against their neighbours in order to reduce their mortgage! The debt really does not matter. If you are a little household floating in a fixed economy it is a problem. If you are Greece, trying to exist in a defacto gold standard when all you have to sell is sandy beaches (and so does your next-door neighbour who sells them cheaper) you are not in a very nice place. However, if you are a nation with a strong trading balance and your own currency you are laughing, especially if you happen to print the global reserve currency. To get a perspective have a look at the UK in 1946 had a debt to GDP ratio approaching 270%. Through a liquidation tax they eliminated 40% of that in ten years, and in another ten or fifteen years had it back under 100% by a combination of domestic growth and inflation. Oh, and by the way in that period they built the welfare state! Rheinhart and Rogoff ? I dont think so. David Cameron? I dont think so. There is no doubt that the US is in strife. This is caused by a combination of factors. First, the USA is no longer the manufacturing powerhouse it once was. That role has been taken over by China. Like the UK before it, the US economy is in transition to a consumer economy. Trouble is, like the UK, the US has such enormous inequality that the consumer class is unable to support business because it cannot spend enough, and the rich cannot consume enough because there is only so many cans of beans or yachts one person can consume! This is exacerbated by fallacies of composition. It may be rational for one company to move the labour component of their operation offshore to a cheaper jurisdiction. However when they all do this, the result is that no-one has jobs any more, so they cannot afford to consume. The companies that do this are forced to compete in the global market, as they have unwittingly killed off their domestic market. There is no denying that the US government spends too much, mainly on healthcare (the crappest and least efficient system in the world), and on the military. But the military industrial complex pervades every state, and props up such a lot of the economy that no politician is ever going to do anything about it. We are watching the fallout over Obamas attempts to rectify healthcare in his own, stupid, American way. Americas problems are caused by politics not by economics.
Posted on: Sat, 19 Oct 2013 00:57:26 +0000
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