Interesting FT column by Satyajit Das.
Two important factoids:
- By 2008, $4-5 of US debt is required to create $1 of GDP growth; and
- China now needs $6-8 of credit to do the same.
There was a time for both countries (US in 1950s and China at end of Cold War) where $1-2 of debt would do.
Then an almost Marxian critique:
Debt became a mechanism for hiding disparities in the wealth distribution within many societies. Increased credit availabiliby allowed lower income groups to borrow and spend, encouraging housing booms, in order to deal with the underlying problem of stagnant real incomes.
A bit skewed in its causality. Credit has always been the mainstay of growth in a capitalist society. Reducing its function to "hiding disparities" is a very narrow view.
The stagnant real incomes problem is hardly universal in this current era of globalization. It is felt primarily in the West, where jobs easily cordoned off from global competition now suffer it greatly. This is the "cost" of letting so much of the world into the global party called globalization. We can decry this, but the cost of our privilieged standard of living in the past was the vast exploitation/disconnection of much of the world, or the have/have-not divide that Europe begat in its previous extension of colonial-globalization.
Is it worth to me to live in a far more just world to suffer this income stagnation?
As a Christian who believes I'm not just here to hoard and tell others to go f#$K themselves, yes, it is worth it.
Did we get addicted to cheap debt in the vast transaction strategy we ran with the world so as to spread the international liberal trade order already deeply embedded in these United States (this multinational economic union)?
We sure did.
Will we eventually run out of new sources of cheap labor in the global economy?
Absolutely. Within my life. But that will be a better problem than today's.
So where do find growth in the future?
The rise of the global middle class - the best thing to ever happen on this planet - will force magnificent resource utilization revolutions. This will dovetail with new environmental challenges (or the exacerbation of old ones). Again, these will constitute our best problems yet.
But massive adjustments must be made to protect the vulnerable amidst globalization's continued rapid expansion. And great investments must be made to bootstrap our national economy into a more realistically competitive shape for the struggles to come.
And that's why higher taxes are coming for the rich in this world. We enter a length redistributionist phase so as to avoid political tumult. It is capitalism's great genius - in combination with democracy - to recognize these moments in history and to address them head-on. Once the oncoming global progressive era works its necessary magic (and no, those ideas and leaders are - by and large - yet to emerge), such a burden for the rich will be less necessary.
But to pretend that tax cuts are the answer now, amidst the populist anger spreading across this planet and in particular this country, is to stay pointlessly dogmatic. There is no one economic theory that rules throughout time. There are seasons for each.
A foolish consistency is the hobgoblin of little minds.
- Ralph Waldo Emerson