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(Excerpt from Harvard Magazine...)

'Consumerism is as American as cherry pie. Plasma TVs, iPods, granite countertops: you name it, we’ll buy it. To finance the national pastime, Americans have been borrowing from abroad on an increasingly stunning scale. In 2006, the infusion of foreign cash required to close the gap between American incomes and consumption reached nearly 7 percent of gross domestic product (GDP), leaving the United States with a deficit in its current account (an annual measure of capital flows to and from the rest of the world) of more than $850 billion. In other words, the quantity of goods and services that Americans consumed last year in excess of what we produced was close to the entire annual output of Brazil. “Brazil is the tenth largest economy on the planet,” points out Laura Alfaro, an associate professor of business administration who teaches a class on the current account deficit at Harvard Business School (HBS). “That is what the U.S. is eating up every year—a Brazil or a Mexico.”'


( 5 comments — Leave a comment )
Aug. 20th, 2007 06:11 pm (UTC)
How Big Is Brazil?
When I hear large numbers like "850 billion", it helps to reduce them to percentages. So, out of our current GDP of $13,755.9 billion, it means that 6.17% of it is capital flow to the rest of the world. And, considering the size of the market in the rest of the world, that looks a bit small. I would hope they are using it well, though that really isn't my affair. Brazil is bigger geographically than economically, which I would treat as its own interesting problem.

It's sort of like the question of national debt: the point is what it is used for and whether it should be bigger given the structure of the economy it is attached to.
Aug. 20th, 2007 06:56 pm (UTC)
Re: How Big Is Brazil?
Forgot this, which remains relevant.

The percentage was calculated, if a bit high, in the article.
Aug. 22nd, 2007 02:56 am (UTC)
Re: How Big Is Brazil?
Excellent references, as always! Hopefully, political considerations won't intervene to affect Mr. Levy's forecast, which I find that I agree with -- provided that one assumes that economic rationality will continue to rule the game, rather than other considerations. I'm not personally thrilled by the idea of Americans being subjected to the sort of painful recession and restructuring that Canadians experienced in the 1990's as a result of a debt crunch that was exacerbated by a downgrading of the federal govt's sovereign debt rating. Believe you me, it was not a fun time!
Aug. 22nd, 2007 03:17 am (UTC)
Re: How Big Is Brazil?
It has always been a good idea to assume rationality, and find the reasons. Which has led to some interesting articles. However, your current enterprise has a 12% real rate of return after taxes, so it is rational to continue. Fortunately, we don't compute returns for certain other parts of life.
Aug. 22nd, 2007 03:56 am (UTC)
Re: How Big Is Brazil?
While rationality is the general rule among human beings, I think that Mr. Levy makes the mistake of equating rationality with liberal-capitalist rationality. There are, however, different systems of rationalism in effect in the world, even today, that won't necessarily jibe with the scenarios he draws. The Chinese Communist Party, for instance, may have an order of priorities that do not give pre-eminence to global economic stability over the long run.

While classical liberals may take in for granted that the goal of economic rationalism is a utilitarian "greatest good for the greatest number" (however one might define that), I would actually be surprised if that were the economic goal of the CCP. I'd be rather more inclined to think that economics and trade are, for the CCP, only another geo-political weapon -- though a more subtle one than an ICBM. Would the Chinese gov't ever intentionally disrupt the American economy through use of it's massive current accounts surplus? Probably not. But, unlike Mr. Levy, I'd only say that such an inaction is highly improbable, not impossible...
( 5 comments — Leave a comment )

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