Yes, but not for the reasons you might think.
Don’t blame me, I voted for Kodos.
Boo Boo Foo,
Thanks for the long explanation. I think I followed most of it. I’m not an economics expert by any stretch of the word. Partly because is is too complex for me to understand and partly because I think that it is as much voodoo as science.
I understand that trade deficits, federal budget deficits, and the prime lending rate interact on the world markets if very complex ways. And that some of these interactions may, in fact, be dangerous.
I’m not entirely convinced that trade deficits are as large an evil as many seem to think. When things are imported in eschange for dollars, the dollars don’t disappear. Neither does the value of the thing I imported. Economics is not a zero sum game.
Also I am very suspicious of claims of doom relying on predictions or even measurements of “falling standard of living INTERNAL to the United States in relation to the rest of the world”. What exactly is the problem for the standard of living to go up for everyone? This would necessitate that the US standard falls “in relation to the resto of the world”. But it certainly does not imply that I might be living on the street any time soon.
Also, are you talking about Alan Greenspan? My limited understanding was that he altered the way that the fed managed the prime rate when he took office.
Pervert, I’m pretty sure that the rule of thumb is this - it’s okay to be a net importer and to run a trading deficit - but only if your debt levels are low. If the average debt levels of American citizens are high, then in turn, your ability to continue being a net importer can only be sustained by incurring greater personal debt per average per citizen, or, by keeping the value of the US Dollar artificially high so that it’s buying power remains very attractive to foreign exporters. And therein lies the crux - my understanding is that increasing numbers of people are having employment problems in the US - ergo the economy is tanking in some manner. By extension this means that the buying power of US citizens for imported goods will drop - and under the normal course of events so should the value of the US Dollar. But it isn’t. The US Dollar is being kept high to maintain the US’s buying power - but it’s being done by smoke and mirrors I’m told.
Now, I’m the first to admit that I too aren’t an authority on this - the guy on this postboard who could explain it really well is Hawthorne but I can’t guarantee he’ll visit this thread.
Nonetheless, every financial article I read time and time again keeps mentioning how the US Dollar is being artificially kept high to ward off the seemingly endless series of domino effects that a devaluation of the US Dollar would cause. And my understanding is that the price which is being paid is that personal debt levels per citizen keep climbing and climbing whilst concurrently, the net productivity per US citizen actually falls.
** Boo Boo Foo **
Please re-read my post. I stated that IF NEEDS BE!
The subject of the strength of the dollar is irrelevant, I still maintain that the United States is self sufficient, that is to say she could both feed her citizens and maintain the current standard of living if she chose to WITHOUT TRADE ABROAD.
Anyone who has followed international money markets knows that it is not the USA that is propping up the US dollar. Indeed, Europe has all but directly accused the USA of pursuing a deflationary strategy, forcing the dollar to fall in order to improve US market share in Europe.
The dollar is being kept artificially high by the countries that depend upon exporting more to us than they import from us. It’s such a delicious irony. If they indulge in local pride and let the dollar plummet, they destroy their own economies, which have become parasitic upon the USA as a market for their goods.
No, really, what was this Professor Tyler talking about? He made this statement in a book or essay or whatever it was about “The Fall of the Athenian Republic,” and from what I know of Ancient Greek history, the sequence of events he describes never happened in Athens or any other polis. Lots of polities went from democracy to dictatorship, but never as a result of loose fiscal policy resulting from voter greed. Usually it resulted from some kind of coup by a charismatic leader, such as Pisistratos, or from conquest by a foreign power, as when the Spartans conquered Athens and imposed the Tyranny of the Thirty. What on earth was Tyler talking about?
I’ve been trying to find the essay, without success so far. I can tell you that the guy who said this was Alexander Frasier Tytler (not Tyler), Lord Woodhouselee, and he lived from 1747-1813. He’s best known for his “Essay on the Principles of Translation” He was a history professor at Edinburgh University, who then went into law, and ended up becoming Judge-Advocate of Scotland.
If this is a real quote, it would probably be in his book (it’s a collection of essays) “Elements of General History; Ancient and Modern”. It was first published in 1801, to critical acclaim, so if anyone can find it, that might answer some questions about the essay.
I don’t know if this essay is real or not, but it feels fake to me. Googling for
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury”
just gives me a bunch of modern essays about how bad America is, and including that quote. That’s not to say it’s not authentic, but when that’s the only context you see it in, it makes you wonder.
America isn’t doomed–but it is destined to change, and lose a lot of its power. My guess is that it will take another 100 years or more
Think of England --150 years ago, it was the strongest country on the planet, both militarily and economically. It’s culture was the most widespread. It was respected and looked at enviously for its greatness(by western nations),; by its colonial subjects, it was respected grudgingly (because they had no choice), and looked at enviously for its wealth
It took Enland only about 25 years to lose it all, and return to being a simple country with no global ambitions. And most Brits today are not upset about it.
My guess is that America will also do something similar. China will become a HUGE power in another 100 years or so.The days of military conquests are over–(the Iraq war will never be repeated.In 10 years, both Korea and Iran will have nukes, and in 25 years they will have sold nukes to 50 other countries)
So world leadership will be determined by economics. 1.5 billion people is one huge market, and as they gradually join the developed world, the center of gravity will change.
Gradually, America will become as (un-) important as England is today–just one of many countries all approximately equal in strength. And I have a feeling that most Americans will not be too upset about it.
(the analogy with England isn’t quite correct, because England held its power through colonial conquest . England lost its position as world leader very quickly, by simply deciding to pack up and leave when circumstances changed. Thus in one day they lowered the British Flag, the locals hoisted their own flag, and England reverted to being a nation, not an empire. America will not change so dramatically–it will just gradually lose economic clout, and revert to being one of many countries, all approximately equal in strength
Indeed Dogface indeed. Thank you for explaining rather succinctly what I stuggled with earlier. Over the last 3 decades I’m told that such is the scale of investment of foreign funds into US Dollars and Bonds that if a major devaluation of the US Dollar were to take place that many countries around the world would lose massive amounts of those investments. Ergo, there is a huge amount of foreign pressure to keep the US Dollar stable.
As for the arguement of total isolationist US self sufficiency? I’m not so sure about that… certainly her resources are extraordinary - no doubt - but I’m also pretty sure that the US currently imports 35% of your daily consumption of hydro-carbons - possibly the figure is higher. Most importantly, the size of America’s export trade is still a huge, huge amount - regardless that her imports are even higher. If the USA was to go totally isolationist tomorrow, those export markets would stop and a massive blow would take place to the employment of millions of US citizens. This, coupled with the already historic high levels of personal debt would cause probably another depression rivalled by the 1930’s I suspect.
I maintain Spogga that your assertions are still flawed because you aren’t allowing for the current extraordinary levels of personal debt held by US citizens which require export trade to service that debt through earnings.
Wealth and Democracy by Kevin Phillips describes the nigh-identical arc of empire of Spain, Holland, England, which the U.S. is almost undoubtedly following.
It’s hard to summarize such a massive, data-rich book in three sentences, so I won’t try. Here are a few of his more germaine points:
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Extreme accumulation of wealth leads to extreme accumulation of power, which is toxic to democracy.
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All empires arise because they can exploit unique technology and/or resources. As technology spreads and resources are depleted, the Golden Age ends.
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The last stage of an empire is the “financier stage,” where capital investment flows overseas and domestic production whithers (hey, Britons: sound familiar?). The final result is a tiny overclass of ultrawealthy international investors and a lot of proles rootin’ through the rubble.
Of course, Britain solved this problem by transferring the wealth back to the rest of society with punishing taxes- the opposite of the Bush plan. Is America doomed? Yes, but we’ve still got 50 years of the high life, and we’re in excellent company.
Don’t agree? Read the book. Remeber, that’s Wealth and Democracy by Kevin Phillips.
BTW, Kevin Phillips is the prophet who wrote The Emerging Republican Majority IN 1969.
Boo Boo Foo, there’s a current account deficit that is offset by a capital account surplus.
The former isn’t necessarily always bad, depending on how it’s financed by the latter. The method of financing it depends closely on the profits that foreigners figure on making in the U.S. by doing business here.
The capital account surplus is the financing, and is broken down into two broad categories: foreign direct investment, which is comprised of purchases of capital like companies buying other companies, or building factories, warehouses, and office buildings, or purchasing these, and purchases of financial assets, like stocks and bonds. The former is better than the latter. Up until 2002, the current account deficit was mostly financed by foreign direct investment, which arguably increases the long term capacity of the U.S. economy to grow. Figures for foreign direct investment (FDI) follow:
1999: $283,376 million
2000: $314,007
2001: $143,980
2002: $30,032
2003: $43,708 (first two quarters)
Source: http://www.bea.doc.gov/bea/di/fdi21web.htm
As you can see, this varies wildly, depending on the percieved profit potential of the U.S.
The balance has to be financed by purchases of securities, and increasingly Japan and China have been doing the purchasing, according to what feels like a zillion articles I’ve read so far this year.
If the current recovery is for real, FDI can be expected to pick up again. As FDI carries with it no obligation to pay any money back, it doesn’t usually result in much of a crisis. This is why the U.S. can run a far larger current account deficit than most countries and get away with it: absent the obligation to pay the money back, there is no necessary transfer of large blocks of wealth outside of the country. Couple that with the high confidence of domestic investors in the U.S. dollar, which means no capital flight a la Russia or Mexico, and you get the relatively stable situation the U.S. finds itself in.
But nothing lasts forever, and so the current account deficit will one day cause a major problem. But don’t bet on it happening any time soon, because far too many people are expecting it to happen. Major problems pop up when you least expect it, not when you’re looking for them to happen.
Any mistakes in the above I’m sure will be corrected by our resident passel of economists, assuming one of them shows up here. Most of what I just spouted back at you I learned from them.
Thanks Pantom. Excellent post.
Yes, that’s what I was trying to get across to Spogga. The amounts of Foreign Direct Investment into the USA in the last few decades has been so massive that if the US were to all of a sudden try and go isolationist you’d get huge problems - incredible problems. Accordingly, the assertion that the US is totally self sufficient and capable of surviving without trading with any other country is well, just ridiculous actually.
Actually, a democratic system that hasn’t simply got rid of its monarch in the last 225 years is rather laughable to me, but I do take your point.
I realized fairly soon after I posted that I had no idea how long elective parliament had existed in England (shame on me, I just visited last August), and if anyone took the time to respond to my post, I would correct myself. Thanks for your link.
It is quite clear from resources at the Parliament website that a democratic system ran England effectively for a very long time prior to our Constitution.
All the more reason to reject the simplistic musings of Tyler. Not to mention Olsen.
Well done Scott. And forgive me if I was too strident.
In a way, we don’t have democracy. We have mediacracy.
I’ve listened to news anchors laugh about many Americans thinking that Iraq having something to do with 9/11. We are bombarded with distorted information and media polls of Americans thinking distorted things based on the distorted information.
It is impossible to tell who is getting what info via the internet.
There is no previous comparison in history to a television saturated society. How do people react when they get info on the internet which they can then verify and notice it is NEVER mentioned on television. Media disonance.
When was the last time you heard planned obsolescence mentioned on television? 1978, CONNECTIONS by James Burke.
We are doomed but like no way in previous history. Man made global warming and 6 billion people. We are off the scale of history.
Dal Timgar
Posted by Captain Amazing:
So it appears that this whole thread is, more likely than not, based on a literary/scholarly fraud. And even if Professor Tytler’s quote is authentic, it is still a canard. Democracies do not decay or fall in the way he describes. The Athenian democracy did not fall in that way, the Roman Republic did not, and over the whole course of human history, no democracy ever has. If America is doomed, it’s not because we’ve been too generous with the welfare. In fact, the strongest democracies in the world right now are the welfare-state countries of Europe. Say what you will about their economic performance, but as democracies they are much stronger than the U.S., with higher voter turnout and a wider range of viewpoints represented in public councils. This thread is predicated on nonsence, and probably dishonest nonsense, too.
again?