Spending Christmas with family in Texas, I was concerned by the anaemic state of the local economy there. Vacant business premises, high unemployment, sluggish consumer demand and a depressed housing market speak of a very different reality to the soothing forecasts of return to 3-4% GDP growth next year being served up and cheerfully consumed along the Eastern Seaboard.
Moreover, this economic weakness is in a state whose wealth is built on oil and at $90 a barrel, and near zero interest rates, one would have thought that the ‘green shoots’ of recovery would be more evident, but they are as parched as the West Texas winter scrub.
As we enter 2011 it is very clear that the US economy represents both the greatest potential for pulling the global economy out of recession and the greatest threat of plunging the global economy back into a ruinous double-dip recession.
The United States represents one fifth of the global economy and half the value of global equities. The dollar represents 62% of global foreign exchange reserves and is the currency in which the vast majority of global commodities are values and traded. To be more parochial, the US is by far the UK’s largest trading partner — worth more than Germany, India and China combined.
The cause of loss of confidence and concern in the US economy stems from their failure to outline serious steps to rein in public expenditure. As a result, unlike in the UK, the budget deficit is still growing and is likely to top 11% of GDP ($1.4 trillion) this year. Capital markets which should be funding business investment and the housing market are instead being required to prop up the federal budget.
There is hope: no-one would bet against the innovation and dynamism of US enterprise, but they need to be globally competitive and need stimulating through a bold package of business tax and regulatory reduction. The midterm victory for Republicans in taking control of the House is at least stoking a serious debate about the risks inherent in the current strategy.
If the US is to fulfil its potential again in 2011 then the 44th president of the United States of America would be well served to follow the advice of the 16th. Abraham Lincoln listed what were called the ‘Cannotments’ which although addressed in the eighteenth century have an enduring wisdom extremely relevant to the twenty-first:
- You cannot bring about prosperity by discouraging thrift
- You cannot strengthen the weak by weakening the strong
- You cannot lift the wage earner by pulling down the wage payer
- You cannot help the poor by destroying the rich
- You cannot keep out of trouble by spending more than your income
- You cannot establish security by (constantly) borrowing money
- You cannot help people permanently by doing for them what they could and should do for themselves.