Shop 'Til We All Drop

With the Christmas buying-orgy now in full swing, it's interesting to come across this article in Newsweek's International Edition. Clyde Prestowitz, President of the Economic Strategy Institute, has some very interesting things to say about the state of globalization, and we in this country (and by extention the rest of the world, since we are all now interconnected whether we realize it or not) ignore him at our peril.

The basic point of Prestowitz' piece is that the world's globalized economy has evolved a functional but unstable status quo. In essence, the rest of the world--but particularly Asia--produces things, and we in America consume, consume, and consume some more. Consumption of the stuff that that other people produce has now become America's vital, and in some sense only, role in the world economy.

For years now Americans have held to the belief that while we may import cheap manufactured products from abroad rather than producing them ourselves, we balance that out with the world's best high-tech and technical service industry, along with a thriving agriculture sector (though not thriving for the American small farmer, but that's a subject for another time). Unfortunately, this belief no longer holds true: In under ten years we've gone from a high-tech trade surplus of $30 billion to a deficit of $40 billion. Well-educated and highly skilled workforces in China and India can now compete with the American worker on a level playing field thanks to the internet and complex transportation networks, and the fact that they require lower costs means that the decision to produce your semiconductors in New Delhi rather than Cleveland is a no-brainer. And as if that weren't already cause for concern, now a trade deficit even exists for American agricultural products for the first time in history. America's modern economy has become a giant black hole of consumption from which almost nothing of tangible value escapes.

So how, then, are we able to maintain our extravagant lifestyles despite the fact that we produce less and less of value every day? It's a simple strategy that both the country as a whole and we as individual Americans have adopted wholeheartedly: We charge it.

As Prestowitz puts it,

"For the United States, globalization has meant building its economy into a giant consumption machine. Easy consumer credit, home-equity loans with tax-deductible interest payments, markets largely open to imports, policies that emphasize growth through demand management and accommodative monetary policy, and myriad other incentives have led Americans to save nothing while both households and government borrow at record rates. This is often justly criticized as excessive. But it is important to understand that American buying drives most of the world's growth because the United States is virtually the only net consuming country in the world."

But isn't this a win-win situation? Americans borrow money like there's no tomorrow to finance lifestyles that we couldn't otherwise afford, and the world's other countries support their own economies by selling us the stuff we want. Why doesn't everyone just shut up and be happy?

Well, aside from moral issues and the spiritual vacuousness created by living in a society that exists only to consume, this system can't last forever. Oh, it functions alright for now, because the rest of the world will keep allowing us to borrow and keeps investing in the U.S. dollar. The way the system is currently set up, they NEED us to continue to buy what they produce. We are essentially the only country on earth that fulfills a very key role, namely buying much, much more than we produce. If tomorrow we wake up and stop consuming, the world economy would be in shambles. So because the rest of the world is as invested in this lopsided system as we are, things may seem to run smoothly for a time. But the party can't go on forever.

"The growing trade imbalance . . . makes the current mode of globalization unsustainable. To finance the deficit, the United States is already absorbing about 80 percent of available world savings. The value of U.S. imports is now more than double that of exports. To merely stabilize the deficit at its current rate would require that exports grow more than twice as fast as imports.

But this cannot happen if the supply side continues to move offshore. If it doesn't happen and the deficit keeps growing, world savings will eventually be insufficient and a financial crash will be inevitable."

In other words, in the end there just isn't enough money in the world to support this system as it currently exists. It won't be today, it won't be next month, but sooner or later this imbalanced system will either collapse or evolve into something else.

So what's the answer? How do we avoid calamity? Well, I think it would be a positive start for those of us living in this great consumer culture to admit that a society in which we produce so very little and buy so much is fundamentally unsound. Then we're going to have to do something that we as Americans have never been very good at; we're going to have to show some restraint. At the very least, we should consider whether borrowing money to support opulent lifestyles is really such a good idea. Our standard of living may be the envy of the world (at least among the more well-to-do segments of our society), but it isn't worthwhile if we mortgage our nation's future economic wellbeing to achieve it. And while we're at it, we're going to have to find ways to create markets overseas in order to soften the impact on the global economy of a reduced rate of U.S. consumption. And if possible, is it asking too much that we find ways to start MAKING things in America again? We used to be so good at that.

Like it or not, a global economy is what we have and we must contend with that reality. But just as over-consumption and excessive debt are no way to run a household, it's also no way to run the nation's economy. Just some food for thought this Christmas season.