Calling All Rationalists: The US's Economic Gamble

[_Kishkumen]

OK, so, I will admit right up front that I do not know a lot about the following or anything that informs it. I know next to nothing about economics, high finance, international investment, the role of governments in the above, national debt, international lending, you name it.

So, I come here with hat in hand hoping someone will correct me of the following "theory" (i.e., nagging delusion) that I have picked up from the usual half-baked unreliable sources.

Here it is:

The US has become a corrupt, high-risk-taking economy in order to attract the foreign investment and lending it needs to prop up its faltering economy, militarism, and flagging status as a world leader. In short, if we practice sensible economics, the short-term cost will be our pretense of world leadership, which is really an unsustainable Faustian bargain, not to mention the American consumption that gives other countries someone to sell to.

In the long term, we have to worry about the fate of Greece.

Let the corrections begin!

[_Res Ipsa]

Hmm, hard to know where to start. Would you please give a couple examples of both what you see as a corrupt economy and high risk-taking?

[_Kishkumen]

Hmm, hard to know where to start. Would you please give a couple examples of both what you see as a corrupt economy and high risk-taking?

The multi-billion-dollar gambles investment firms make with their client's money, or money borrowed with easy credit and almost no capital.

[_Res Ipsa]

OK, let’s start with the loans. What you’re describing there doesn’t sound like foreign investment in the U.S. When US Banks lend money to foreigners, that’s US banks investing in the foreign countries. The money goes to the foreign country and the US bank gets a return on the “invested” money.

As to the practices of investment firms, every investment has a risk-return trade off. Generally, higher return investments come with more risk. Unless foreign investors have a higher risk tolerance than US investors, there would be no reason to expect that offering higher risk investments would be necessary to attract foreign investors.

I think you have to start with why you think the current US economy is weak, what effect you think militarism and waning authority have on that economy, and then why you think that foreign investment could be used to counter those effects. I’m just not seeing the connections so far.

[_honorentheos]

Interesting question, Kish. I'm more like you, someone with questions more than answers. Looking at the graph below, for example -



It opens up the question as to what fundamental industries are driving GDP growth in the US and are they sustainable in any way? The biggest sector in the graph most years outside of those directly in the heart of the great recession is finance followed by business services.

Labor productivity per worker has been on a steady climb and likely will continue to climb -

https://tradingeconomics.com/united-states/productivity

"In the United States, the productivity of nonfarm workers is measured as the output of goods and services per hour worked. Labor productivity is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers."

Yet when we look at productivity in the US separated into durables and nondurables, we see durables climbing while nondurables have largely stagnated for decades -

http://3.bp.blogspot.com/-WZLy0DKZ3dI/T ... 00/TFP.png

That leaves me wondering why it is that at least since the Reagan era, household wealth growth, adjusted for inflation, has been anemic except for the very wealthiest -

https://www.advisorperspectives.com/dsh ... erspective

The obvious answer seems to be that it takes fewer people to produce more so unless one breaks free of being a producer of some kind one is more at risk of being left behind year-over-year.

To make up for this, household debt has been increasing as has the US debt to GDP ratio which the Trump tax-cuts and budget are predicted to only make worse while justifying cuts to government spending in areas that benefit the least wealthy and most in need of a social safety net.

https://www.forbes.com/sites/zackfriedm ... 2a94daffbf

https://www.nytimes.com/2017/12/01/us/p ... -debt.html

In effect, it seems that the average person in the US can expect to be roughly doing the same or slightly worst off year-over-year despite the economy and US productivity continuing to grow. It certainly seems like something is amiss.

[_Kishkumen]

Yes, one of the many bad jokes of our economic situation is belief that virtue is in a personal productivity that is no longer really needed or desirable. In a just world, the productivity of machines would raise the general welfare, but in our world it becomes the engine of inequality. Machines make a diminishingly small number of people exponentially wealthier while the vast masses of humanity are driven to further poverty and insecurity. The people are persuaded to invest psychologically in their own growing misery. If machines can do all the work, then the idea that people left with nothing to do should assess their personal worth by the virtue of hard work is sadistic manipulation.

[_ajax18]

Yes, one of the many bad jokes of our economic situation is belief that virtue is in a personal productivity that is no longer really needed or desirable. In a just world, the productivity of machines would raise the general welfare, but in our world it becomes the engine of inequality. Machines make a diminishingly small number of people exponentially wealthier while the vast masses of humanity are driven to further poverty and insecurity. The people are persuaded to invest psychologically in their own growing misery. If machines can do all the work, then the idea that people left with nothing to do should assess their personal worth by the virtue of hard work is sadistic manipulation.

Didn't the Jacobites try to destroy the machines during the industrial revolution?

[_cinepro]

In the long term, we have to worry about the fate of Greece.

The key difference between the USA and Greece is that Greece can't print its own money. That doesn't mean that in the long run the USA will be much better off than Greece if it makes the same mistakes, only that it has more options in trying to deal with the problem.

[_Kishkumen]

That doesn't mean that in the long run the USA will be much better off than Greece if it makes the same mistakes, only that it has more options in trying to deal with the problem.

Agreed.

[_Analytics]

I recently read the book Extreme Ownership: How Navy Seals Lead and Win by Jocko Willink and Leif Babin. It was fascinating. I watched a couple of youtube videos of the authors trying to get a better image of who these guys are--are they really as bad-ass as they seem?

In a video, Willink addresses the question about what is the best martial art for self defense. He said there is only one correct answer to that: Brazilian Jiu-Jitsu is inarguably the best martial art for self defense. He says he's gotten in arguments about this with black belts in Karate or Taekwondo, and he's said, "Let's spar and see what happens." He wins with Brazilian Jiu-Jitsu every single time. Then they go again and again and can never beat him. It's never even close. The basic situation is that all he had to do is dodge the first punch or kick, and then grab his opponent. At that point they are on the ground grappling, and the Jiu-Jitsu guy is trying to choke his opponent or use leverage to break a joint. When you are sparing and your opponent is about to break a joint or choke you unconscious, you "tap out" conceding victory. The problem for the karate guy or the Taekwondo guy is that in a grappling situation, they have absolutely no moves and can't escape.

At that point, Willink shrugs his shoulders, laughs, and says, "I'm sorry to have to tell you this, but you've wasted the last 25 years of your life studying the wrong martial art."

Which brings us back to this topic. My only disagreement with the OP is that "practicing sensible economics" is the solution to our problem. I've spent the last 25 years of my life studying Economics, and have now come to the conclusion that most of this time was wasted studying the wrong thing. The main economic problem in America isn't an economic problem. It is a culture problem. Changing tax rates, government spending, labor laws, or trade deals or whatever it means to implement "sensible economics" isn't going to fix the issue.