Tuesday, September 17, 2019

US Economy Excellent Rest of World Not So Much

I took a few economics courses in my university days: micro, macro, etc.  However I am not an economist.  But I've been thinking...

Why is the US economy doing so well and the rest of the world struggling?

Looking at the present, the US is doing well - low unemployment (3.7%), stock markets at record highs, GDP growth (2.2%) and low inflation (1.7%).  Meanwhile, the rest of the world is struggling.  The Euro area has 7.5% unemployment, GDP growth of 1.3%.  Why this divergence?

My theory is that the USA is doing well because it is running up a huge national debt - borrowing from the rest of the world and spending on cars, houses, and Iphones.

  1. The US has a natural advantage that it is the world's reserve currency.  Every business and every country needs US dollars to buy and sell and invest.  Therefore, no one will stop lending to the USA unless there is a financial catastrophe.  The US can continue to run up debt.
  2. The US is running up debt at the rate of 4.7% of GDP.  This is stimulative - it increases growth.  The Euro area is increasing debt at 1.1%, a quarter of the rate of the USA.
    1. I think of it this way.  For every $1,000 an American earns, they actually get $1,047 = $1000 + (4.7% * 1000)
    2. The European gets $1,011
    3. The extra spending based on extra earnings by the American drives growth.
  3. The US economy is 70% driven by consumers due to its low taxes and low level of government services (no health insurance, little infrastructure spending, little welfare).  This means that 70% of the national debt increase is going into people's pockets and being spent.

So the US is expanding more than other countries due to its increasing borrowing.  This money is being spent on short term consumption by consumers, not long term government investments like infrastructure or R&D.  This expansion drives employment, growth in company revenues and profits, and the stock market.  Don't ask me why inflation is so low, that one I cannot answer.

What are the implications for the future?  Again, I don't know.  There could be a catastrophe that causes the world not to lend to the USA anymore?  There could be a change in borrowing by other countries to match the USA?  There could be inflation?  Stay tuned.

All statistics from the The Economist Sept 17, 2019.  Excerpt below.

Wednesday, September 4, 2019

These Jobs I Had No Longer Exist

I realized that quite a few jobs that I had during my career no longer exist.

  1. I was a paper delivery boy.  I walked or rode my bike through the neighborhood, delivering newspapers, and collected the money from the customers.  Most people now read newspapers online and delivery is done by men driving cars, bills are paid online.
  2. Delivering telephone books.  Before you had the internet, the only ways to find a telephone number were using a telephone book about 6 inches thick or calling directory assistance.  Telephone books are almost non-existent now.
  3. Mainframe computer operator.  I collected programs on punch cards from students, ran them through the terminal to run on a remote IBM mainframe, then gave the students the printout from their program.
  4. Gas station attendant.  I pumped gas into people's cars.  Other than states like New Jersey, almost all gas stations are self service.
  5. Supervisor of drawing library.  Engineering departments used to generate lots of huge blueprint drawings that were kept in a physical library or on microfilm.  Now everything is stored online.