HOW'D THIS SNEAK INTO ASIA TIMES:

The good ship US Economy ... and why it won't sink (Marc Erikson, 3/05/04, Asia Times)

At an average 6 percent GDP growth rate in the second half of 2003, the US economy grew at a rate 30 (!) times the eurozone's. Without such fast US growth, which Europeans can only dream about (most likely forever) and which drew in huge exports from the eurozone and Asia, eurozone growth would have been negative, much-admired Chinese growth zero, and recently picking up Japanese growth 1.3 percent instead of the reported 2.7 percent. A few simple calculations prove the point: The eurozone's 2003 trade surplus with the US was $75 billion or 0.85 percent of GDP, more than double the eurozone's 0.4 percent GDP growth. China's trade surplus with the US was $124 billion or 10.4 percent of GDP - slightly higher than GDP growth. Japan's trade surplus with the US was $66 billion or 1.4 percent of GDP - about half of GDP growth. [...]

What makes me most confident that the US economy has entered a sustainable expansion phase is the extraordinary increase in productivity experienced in this recovery. Productivity, labor and capital are the three factors that define an economy's growth potential. Capital and labor have generally been in ample supply in the US economy at reasonable cost. But profits and reinvestment, which delimit growth, rise with productivity. The much-maligned information-technology revolution and a labor force well prepared to make the most of the new-fangled tools at its disposal have boosted productivity to levels never seen before over an extended period. Between 1995 and 2001, annual US productivity growth averaged 2.7 percent. From 2001 to date, it has jumped to an astonishing 5.6 percent. [...]

Current account deficits? Budget deficits? Low savings? One nation's current account deficit is another's capital account surplus. As things stand, Asian exporters and public and private investors are demonstrably prepared and eager to invest their surpluses where they find the best markets and best risk rewards - the United States. Capital inflows to the US well exceed, and increasingly so, the trade and current account deficits.

The budget deficit, like any debt, is more easily financed and built down in a fast-growing economy. The Congressional Budget Office (CBO) estimates that this year's deficit will come in at $477 billion. Were GDP to grow by 5 percent to $11.815 trillion in 2004, the deficit would be about 4 percent of GDP, roughly in line with the deficits of the major eurozone economies. The CBO also estimates that the deficit will be nearly cut in half in three years' time to $242 billion. With continuing moderate economic growth, the deficit will be below 2 percent of GDP by 2007 - another number Europeans can only dream about.

Last, low savings: Americans don't save much, but they invest. Fifty percent of households own stock; as of the fourth quarter of 2003, 68.6 percent of US families were homeowners. In a growing economy, such assets grow in value and usually grow a whole lot faster than money in savings accounts. It's riskier to own such assets rather than cash under the mattress, but risk-taking is precisely what's made the US economy the dynamic one it is.

Funny how if you take a pause from bashing the U.S. you're forced to recognize its unusual strengths.

Posted by Orrin Judd at March 5, 2004 9:39 AM