The US economy is still very mighty

I was sent a book called “When Giants Fall” – which I am part of the way through.  It is very well written, although I have some issues about the economics type ideas in it.  Once I have finished it I will be sure to pop a review up.

One of the implicit claims in the book and among many people I’ve heard from is that the US is only ahead of everyone else because they are borrowing – once the game of musical chairs between developing nations and the US stops the US will not be the primary superpower, or even a superpower, anymore.

Now I don’t really buy this.  Lets think about the GDP of the US.  Now if the US is borrowing to buy things this wouldn’t increase GDP – as any increase in consumption or investment would be netted out by a similar increase in imports.  US GDP is currently $13.8 trillion pa (US definition of trillion 😉 also all figures are in US$ as of 2007).  The other big boys have:  Japan, $4.3 trillion pa, Germany $3.3 trillion pa, and China $3.3 trillion pa – these three produce less per year COMBINED than the US produces.  World GDP is $54.3 trillion pa – so the US accounts for about a QUARTER of world production.

Sure the US has borrowed a lot, and sure the US economy is in big big trouble at the moment, but lets keep some perspective here – the ability for the US to produce is far beyond anything that any of the rest of the world has.  Could this change over time – sure.  But I wouldn’t say that the US has solely relied on borrowing – it also makes a hell of a lot of stuff.

  • goonix

    Looks interesting, perhaps I could borrow it after you’re finished?

  • @goonix

    Definitely, definitely.

  • I still need to borrow that methodology book from you, then I can try and make intelligent sounding comments about value judgements like you do all the time:D

    Not that I’ll ever find time to read it 🙁

  • @agnitio

    You need to catch a bus to work man – that is where I find the time to read things. Did enjoy that book though – I’m sure there are pdf’s of some of the chapters online I could just email you the odd one I found good.

    The only problem is then you will realise how bad my arguments are 😛 Sometimes information asymmetries work in my favour 🙂

  • Given I live less than a 10 minute walk from work, and given traffic in Auckland, it would actually take me longer to get to work if I caught the bus:)

  • @agnitio

    Longer to read books 😀

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  • Freddy

    A big problem with the American GDP figures is the creative way in which it is calculated. Check out Peter Schiff’s book “Crash Proof: How to Profit from the Coming Economic Collapse”. He says the following and goes on to explain: “The GDP is too full of fluff to be an accurate measure of economic health and growth”.

    Also, the American government with the help of the Federal Reserve is seriously devaluing the dollar by accelerating the money printing presses. The dollar’s going to crash, and the US economy will suffer big time because of it. Of course, repaying US dollar debt will be much cheaper then, but the lenders won’t be happy…

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  • @Freddy

    Hi Freddy,

    US GDP measures exactly what it is supposed to – the volume of production. However, the prices used to denote this production may not hold anymore – because relative prices do change over time. As a result, if the US terms of trade has fallen (has it?) or if relative prices on non-tradable goods have changed (have they?) then it is possible GDP may be a bit funny.

    However, if this is the case there are other indicators of the US economy we can look at. The fact is the US economy is SUBSTANTIALLY stronger than other economies around the world – wages are much higher, productivity is much higher. It might not last forever – but the US economy is still incredibly strong, the claims out there that it relies solely on debt are exaggerations.

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