That's a good example of the mad U.S.American "our demand drives the economy" thinking.

Economy is about supply and demand. You need more than mere demand to increase it. An increasing share of non-productive citizens requires a changed distribution of income. The U.S. isn't exactly renowned for its readiness and competence in distributing income socially.


I wrote this in Feb 2009. Maybe it helps.

Sometimes it feels like (military-interested) U.S.Americans don't understand the (inter)national scope of the economic problems.
Old recipes (more consumption, cheap money) are still getting promoted, and the economic illness is often considered to be merely a problem of incompetent management or companies.

Bad news: The whole U.S.American economy was crap for many years - not just Wall Street.

Let's take the 2008 figures:

CIA World Factbook:

GDP:
$14.58 trillion (2008 est.)

GDP - composition by sector:
agriculture: 1.2%
industry: 19.6%
services: 79.2% (2008 est.)


$14.58 trillion times (19.6%+1.2%) means an
industrial & agricultural production of $3.03264 trillion

U.S.Bureau of Economic Analysis
(= U.S. Department of Commerce):

U.S. trade balance 2008 = $ -0.677099 trillion
(goods about -0.821, services about +0.144)

Total services export in 2008 was $ 0.551 trillion - you cannot double that quickly. There's no demand for such an expansion in the world. It's obvious that the U.S. can't balance this trade deficit with an expansion of services exports.

Exchange rate changes won't help at the necessary scale as well - one becomes always more expensive when exchange rates change; either export or imports. The crisis is global anyway - the countries can't simply pull each other out of the mess.

It's about goods; industrial products mostly (the U.S. won't be able to export an additional several hundred billion $ worth of raw materials or agricultural goods).

The industrial output is the key here.

Now let's look at the figures again; the deficit of 2008 was about 22.33 % as large as the U.S. industrial & agricultural production of 2008.

Well, it doesn't look like the U.S. industry will soon begin to expand much (albeit it will recover from the ongoing crash somehow, sometime).

Now let's look at the dimension of the problem:

The population of the USA PRODUCED ABOUT 18.25 % LESS GOODS THAN IT CONSUMED AND INVESTED in 2008.
(consumption + investment = production of 3.3264 trillion plus net import of 0.677099 trillion (and I used trade balance instead of goods trade balance - minimally less accurate, but more meaningful). 0.677099 trillion / 3.709739 trillion = .182519. I also kept the marginal carry over effects out; this is no dissertation.)

I didn't cherry-pick the sources; both are official U.S. sources (selected for convenient access for the readers). Go and check the links if you don't believe me.
It's not anti-American spin - it's official U.S. statistics (and pre-2008 statistics didn't look much different).

There's simply not enough national income to afford private consumption, public consumption and investment at the old (or even desired) levels. A compromise is necessary.

You cannot reduce the consumption of raw materials and half-finished products much without a further reduction of industrial output.
You cannot easily reduce public consumption of industrial goods for infrastructure purposes (most of them weren't imported anyway).
You cannot reduce recapitalization in the economy (that would strangle the industrial output in the medium and long term).
You CAN reduce private consumption and some public consumption, though.

In the end, we're likely talking about a reduction of about ONE FIFTH in consumption - unless an industrial miracle happens (massive expansion of U.S. industrial output) and/or a world trade miracle happens (which would be necessary to sustain the trade deficit for more than at most a few more years).

"Stimulus packages" won't help much (if at all). They can AT BEST reduce the loss of industrial output. There's not even talk about raising it beyond 2007 levels with stimulus policy.

***U.S.American readers only***
Imagine this: You can expect to buy one seventh to a quarter less in stores in 2015 than in 2007.
Something feels wrong? You're right, the U.S. economy of the past was wrong, very wrong. To borrow isn't the same as to earn - it never was.
***done***

Meanwhile, I still see discussions about how many expensive warships to buy, how many expensive fighters to buy and similar military expenses.

I have bad news for the U.S.Americans: You cannot afford it. You weren't able to afford your military/lifestyle for many, many years.

Do you want to reduce private consumption by even more than a fifth in favor of stable or rising government consumption (military spending is consumption in macro-economical terms, no matter what right-wing nuts might tell you about its economical effects)?
No? Then don't spend insanely on the military!

The Afghan cavemen and North Korean starving children won't invade you, I guarantee for that! You're allied with many of the major military spenders and military powers of the world - seriously, there's no need for going broke (even more) by spending more on the military than all other countries together!

The "can do" attitude won't help much, at least not until the problem is understood and the worthlessness of many old recipes recognized.


Maybe I should rather cry about this than to be fascinated and amused by pointless discussions - my country is in huge troubles as well due to stupid economic policies (the other extreme; too much export, not enough domestic consumption) and our public didn't get it yet, too.
Well, at least we're creditors, not debtors. That feels a bit better. For now.
The last bold emphasis was to avoid the impression that this was an anti-U.S. diatribe. It was a combination of facts and ranting against illusions and ignorance.

The trade data has slightly changed since I wrote the text.

The services balance had a stable surplus of $ 10.3 bn to $ 13.2 bn for years.
(Goods and services balance combined yield the trade balance.)


The deficit went down from $ 64.9 bn in July 08 to $ 25.8 bn in May 09 and is again on the rise; $ 40.2 bn in Dec 09.

$ 40 bn per month - that's almost $ 500 bn trade deficit per year if it became the new average (despite the trend upwards). The world trade system is not going to sustain this for more than a couple years. The next crisis is around the corner.

A full scientific study would be much larger, more accurate and have much more detail. Nevertheless, I hope the point is visible even with this rudimentary coverage: The West is in trouble because of unsustainable imbalances. It's less wealthy than it believes to be. It's at a slightly similar point as the Soviet Union was in the 80's (and we're in AFG, oh irony).


The U.S. problems are mirrored by UK Southern European problems (the latter problems are in part caused by the Euro monetary union).


The Western World still thinks that this economic crisis was about Wall Street and the "city" (London financial district). It isn't. It's the noise of the first failures of a system based on unsustainable levels of illusion, imbalance and waste.



About the thread topic: The U.S. is waging economic warfare against itself with illusion-driven economic and foreign policies in my opinion.