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This should be manageable, unless the politicians get in the way
with too generous a bailout for the housing market and for
American consumers. Hillary Clinton’s bizarre proposal to drop the
federal tax on petrol for this summer’s holiday driving season is one
example; its main effect would be to subsidise fuel-guzzling cars
Stateside Blues
while increasing the already-swollen budget deficit.
The current proposal from the Democratic majority in Congress to
REASONS
authorize the Federal Housing Administration to insure up to $300
billion in new loans for financially strapped home-buyers looks like
another bad idea. The Bush administration has a good point when
it objects that this would reward lenders and speculators who are, in
TO BE
large part, to blame for the mortgage meltdown.
The third reason for pessimism is that the current U.S. federal budget
deficit is heading for $500 billion, and the politicians’ plans for the
(ALMOST)
future look like increasing this sharply, from the unknown extra costs
for starting a national health insurance system to the pledges of all
three candidates, Obama, Clinton and the Republican John
McCain to launch a carbon-emissions control scheme. Whatever
CHEERFUL
form it takes is unlikely to be cheap.
But then consider the reasons for optimism. The first is that the U.S. is
enjoying an export boom, with exports hitting a new record high in
each of the past twelve months. The value of U.S. exports has nearly
doubled in just over a decade, registering $1.63 trillion in 2007, a
Martin Walker in Washington says don’t write off
12.6 percent jump over the previous year. About two-thirds of that
Uncle Sam, there’s life in the old dog yet. But watch
increase, $126 billion, was in goods, with the remainder, $56 billion,
out for the politicians. in services.
There are three reasons to be pessimistic about the outlook for the U.S. The exports have been helped by the weakness of the dollar, which
economy and three reasons to be optimistic. The problem is that, in also means that American assets are much cheaper for foreigners
an election year, the reasons to be pessimistic tend to be political. to buy. Foreign direct Investment into the U.S. rose by 20 percent in
2007. That is the second reason to be cheerful. Bear in mind that
The first cause for gloom is that the political rhetoric from Senators British investment in the state of Texas alone is already higher than
Hillary Clinton and Barack Obama – assuming Mrs Clinton will still the whole of U.S. investment into China and Japan combined.
figure in the presidential race, perhaps as Obama’s vice- Wages tend to be higher and technology more advanced in
presidential candidate – has been increasingly and stridently foreign-owned firms in the U.S. so this inward investment is good for
protectionist. They have both pledged to renegotiate the North Americans and foreign investors alike.
American Free Trade agreement with Canada and Mexico and
they both talk of the need for ‘fair’ trade, which means trade that The third reason for optimism is that the U.S. remains by far the
does not lead to American unemployment or downward pressure world’s biggest market and the world’s technological leader. With
on U.S. wages. 17 of the world’s top universities it dominates the world’s
brainpower, and the American capacity to re-invent itself and
But since most of the gains from free trade involve the replacement confound the doom-sayers is extraordinary. Most of the world’s
of old and inefficient businesses by sprightly new competitors, research into nanotechnology, biotechnology and GMO foods, to
taking short-term losses in the interest of longer-term efficiency, ‘fair’ name but three technologies that are likely to shape our future, is
trade would erode the kind of benefits that NAFTA has brought for being done in the United States.
the U.S. and Mexican and Canadian economies alike.
This is no time to write the place off. Instead, it may be a place to
The second reason to be gloomy starts with the economy and ends buy while the going is so cheap – so long as a wary eye is kept on
with politics. The worst of the financial sector crisis may be over, as Ben the populist rhetoric of the politicians.
Bernanke of the Federal Reserve has been hinting and as the markets
now suggest. But there is more pain to come. Defaults on credit card Martin Walker is Senior Director of the Global Business Policy
and car loans are rising to join the troubled housing market. Council at A.T. Kearney. www.atkearney.com
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