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Additional Comment to Global Imbalances and the U.S. Economy

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PostPosted: Sun Mar 30, 2008 6:15 am    Post subject: Additional Comment to Global Imbalances and the U.S. Economy Reply with quote

There's little comparison between the U.S. economy and stock market of 2000 and 2008. In 2000, U.S. corporations were using too many inputs to produce output, after an 18 year structural bull market, where massive resources flowed into U.S. firms. So, a massive Creative-Destruction process took place, mostly between 2000-02, which resulted in U.S. firms producing more output with fewer inputs. Also, too many American workers cannot retire early. So, the stock market crash was a correcting mechanism to kept future labor supply and demand in equilibrium.

Currently, U.S. corporations have strong balance sheets and are most productive (in both quantity and quality of output), while the U.S. government was able to refinance at lower rates. U.S. household debt increased, because cheap assets and goods induced demand (e.g. through lower prices, lower interest rates, rising incomes, etc.). Americans have proven adept at maintaining autonomous consumption. So, almost all of them will attempt to at least maintain their higher living standards, while some will lose and others will gain. Consequently, U.S. labor will work longer to pay-down debt and build-up saving, which will add to future economic growth. U.S. income will be more than $160 trillion over the next 10 years, while the U.S. captured real gains in assets and goods.

It's important to understand the U.S. housing boom. Throughout the 2000s, U.S. actual output was generally below potential output. Without the U.S. housing boom, actual output would have been even lower. The NeoKeynesians believe building pyramids benefits society when output is too low. Obviously, houses are more useful.

Economies are made up of people. The U.S. is a most educated and skilled society, i.e. has enormous human capital, based on education, training, and experience. "Game Theory" in economics reveals the U.S. is in a win-win situation in the global economy, i.e. the U.S. will continue to gain more or lose less than the rest of the world
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