Tuesday, July 31, 2007

Is THIS a GREAT Economy or What?...Part II

Awhile back I had a “discussion” after claiming the recent Bush economy was “a great one.” Actually, after asking, "Is this a great economy, or what?"

“Discussion” is a polite word, considering that many of those who disagreed with me, rather quickly retreated to personal insult and invective.

No one could seem to argue over the current economic indicators (the inflation rate, unemployment rate and interest rates are all low, while productivity AND personal income are both UP and the Dow is rocking), but they took issue over the size of our national debt, which I pointed out (1) is NOT a traditional economic indicator and (2) is quite manageable considering the growth rate of our GDP. Still, one detractor compared our national debt to a home mortgaage and claimed that if any individual had the debt level of the USA, they'd "be bankrupt and facing eviction." I noted that given the 5% of the GDP that our current debt servicng accounts for, THAT is clearly not the case.

At any rate, now comes David Hale (Pictured above, Chairman of Hale Advisors, an international economic consultant) who writes in today’s Wall Street journal; “The Best Economy Ever.”

It can be found at http://online.wsj.com/article/SB118584709244782989.html?mod=opinion_main_commentaries

(Since that may only be available to subscribers, so I’ll email the text of that article to anyone who requests it – my email address is in my complete profile.)
What Hale says is that “First, the globalization process resulting from the end of the Cold War has encouraged a tremendous growth of world trade. This expansion of world trade has helped to increase competition and reduce inflation.

“Between 1990 and 2006, global imports more than tripled, rising to over $11.6 trillion from $3.5 trillion.”

As Hale notes, “Governments have also responded to the new competitive pressures by reducing tax rates on capital. Small countries in Eastern Europe such as Estonia started the process during the 1990s. But in recent years, traditionally high tax societies such as Germany have been slashing tax rates on corporate income. France will soon follow under its new president, Nicolas Sarkozy. In the U.S., Congress reduced the tax rates on capital income during 2003 to the lowest levels since the First World War.”

“In many countries the globalization process has encouraged a large increase in the profit share of gross domestic product (GDP), resulting in competitive pressures in the world economy, corporations in North America, Europe, and Japan have been striving to maximize productivity while restraining wages.

“The large rise in profits has encouraged major stock-market rallies everywhere since 2002; high profits help to bolster investment and improve productivity growth.

“Practically all countries had capital controls 25 years ago; most of those controls are now gone, while there has been a revolution in communications technology which has vastly reduced the cost of transferring money across national borders.

“Financial markets have therefore blossomed in dozens of countries; the stock market capitalization of developing countries has expanded from only a few trillion dollars 10 years ago to $15.7 trillion today -- or 26.5 percent of the global total.

“The gross value of global capital flows is now equal to 16 percent of world GDP, compared to 3 percent - 6 percent during the mid-1990s.”

Moreover, and perhaps more deliciously (at least for me) David Hale seems to support my view on the manageability of our current national debt! “Many economists have argued that the U.S. current account deficit is unsustainable. In reality, the world has an abundance of surplus savings that needs to find a home. Global investors have been happy to purchase dollar assets because they perceive that the U.S. offers both safety and competitive returns.”
OK, so I stand corrected, this is NOT merely a GREAT economy, it may very well be, as David Hale points out, The Best Economy EVER!

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