Someday, someone is going to ask me what happened to the United States – wasn’t it once one of the biggest economies in the world? I’ve already got my answer ready – we sold ourselves to other countries for flat-screened tvs and other plastic toys. And weirdest of all, for a long time, we actually thought we got the better of the deal.
Of course, that’s an over-simplified answer, but I think there’s enough truth in it that I can get away with it as a short answer. We can see it right now. In April, 2009, foreign purchase of dollars and related assets fell to 11.2 billion dollars – 1/5th of what it was just a month ago. And this happened just as we desperately need more and more purchases – to afford our wild deficit spending and compensate for lost tax revenue. Our credit limits are now being revoked.
So what now? As far as I can tell, the US government has two plans. Restore growth so fast and so hugely that we just don’t even notice our giant deficit. Anyone want to make bets on how likely that is? Right now, there’s the real possibility that all the growth we’ve seen so far is illusory – the Wall Street Journal posted a few days ago that the entire stock market rally seems to be based on the stimulus package. Hmmm…what will happen when that money is spent? The same could be said of housing starts and purchases…hmmmm…. The second plan clearly involves magic fairies, all the leaders of China suddenly developing brain damage and wishing really, really hard.
So where do we go from here? Nowhere good – all of the assumptions made by the Obama administration have included that idea that China needs us just as badly as we need them. We are being told, quite bluntly, that’s not true. As those foreign investments dry up and the dollar is increasingly not the currency of choice, we are facing a new world, no plan, enormous debts and little hope of growth.
What got us out of the Great Depression was a war economy and massive borrowing. The difference is that we’ve already spent more than we spent on WWII, on nothing – on keeping the ride going around one more time. We’ve already borrowed nearly as much as a percentage of GDP as we did in WWII – the difference is that we’re borrowing not from allies that need us desperately, in a position of strength, as the only untrashed major economy in the world, with the largest energy reserves available at the time, but as a begging creditor that have nothing to offer but an appetite for plastic.
The mere idea that America could flourish by becoming the best shoppers on the planet and not much more is bizarre, and yet it has held a grip on us for decades. Our job is to consume, while China and other states produce for us. The reality is that an economy based on devouring what other people produce, mine, build and make is ummm…due for a refit.
My suggestion is that we refit it voluntarily, and rapidly. It is time and well past time to begin making things in the United States again. And by making things I do not mean “asphalt paving and cars” – the private car is doomed, and none of us are made much richer by acres of highway, which only increase our dependency on foreign oil and its toxic cognates.
By making things, I mean things we actually need. I’m sure you can think of some – socks and shoes and tools and trains; beer and books and beans and bikes; hoes and hats, fiddles and fishing poles. And on a small scale, keeping fossil fuels to a minimum, near where you live and I do. Because the other choice is this – we become China’s supplier of things they want that we have – food, mostly, since we’re the biggest exporter in the world, and they can’t feed themselves. And we do it on China’s terms, at China’s prices, with all that that implies. There’s a kind of horrible justice there, since we’ve been doing that through globalization to countless poor nations – but there are better things than ironic justice.
Point me to one single piece of evidence that suggests the US will be fine if other nations stop buying our debt, please. Point me to our plan – one that doesn’t involve rapid growth or actual fairies. Otherwise, better get started making something useful.