A Way Forward in Post-Stockholm America

by David Deutsch

In my last story, I discussed how Americans seem to suffer from Stockholm Syndrome, where we have become captives of the ultra-elite, gladly giving away money to the powerful. To contrast that somewhat depressing article, I’d like to present an optimistic view of post-economic crisis America that does not involve being slaves to our would-be overlords. In a nutshell, we must find a way to stop being an unsustainable consumption-based economy and identify a sustainable growth model for the future.

Let me explain my meta-theory on how we got into this mess in a way that goes beyond blaming politicians, political parties and other parasites. I believe America has been acting like global monopolists since the fall of the Soviet Union, largely because we had no competitive pressure to improve. Let’s look at Microsoft as an analogy. Remember how Microsoft used to consistently put out crappy products? Windows 3.1, 95, 98 and XP all more or less sucked, crashing every fifteen minutes, destroying our data and threatening our sanity. Microsoft got away with this because they had no competition, and therefore had no real incentive to improve. Microsoft only started improving when Apple and Google began offering alternative platforms. Sensing the pressure, Microsoft released Windows 7, a more secure, stable and user-friendly operating system than any previous Windows incarnation. And they made major improvements to the MS Office suite and other applications. Competition is probably the single greatest motivator for companies to run lean, mean and smart.

America has been behaving like the Microsoft of the world. For the past twenty years or so, we’ve been the only superpower, with an economy that dwarfed any other by a long shot. As such, we behaved just like any other monopolist: we got lazy and arrogant. We engaged in foreign military ventures which drained our treasury, not to mention thousands of American lives. And we bought more and more stuff, largely on credit, so that we actually had a negative savings rate. So our entire economy has been based on Americans acquiring more and more every year forever, even as real wages stagnated or declined, leading to the current economic crisis. Clearly being a consumption-based economy is not a sustainable path to growth, a realization which came a bit too late.

As America’s economy shrinks in a post-crisis world, we will likely end up as a power equal to such areas as the European Union, China and Brazil. This global competition will force the U.S. to be lean, mean and competitive, just like post-Google Microsoft. So the consumption-based America as we have come to know it will likely come to an end.

But if we cannot be a consumption-based economy, what can we do to grow and compete with other countries? To understand this, we must first understand how Gross Domestic Product, or GDP, is calculated. GDP is defined as the total cost of final goods and services a country produces in a year. The formula for calculating GDP is pretty straightforward:

C + I + G + (EX - IM)

The variables are defined as:

• C = Consumption
• I = Investment (investments are not financial investments such as stocks and bonds, but rather firms investing in things like capital, equipment and warehousing.)
• G = Government spending
• EX = Exports
• IM = Imports

For the U.S. economy to grow, this equation must be positive. (Note that economic growth is the only way economists determine whether or not we are in a recession; poverty, employment and the stock market are not reflected in GDP calculations.)

While an increase in government spending is probably a good idea to get us out of the current economic mess, this is not a long-term solution for the U.S. economy, since we cannot simply spend money we don’t have forever. Investment cannot take place unless firms are producing stuff, and they won’t make investments if there is no long-term cash flow.

So if we can no longer be a consumption-based economy, and government spending is not a long-term solution, and investment can only happen if people are buying stuff, what are we left with? To chart a new course, America must mimic successful economies such as Taiwan, Hong Kong and South Korea and become export oriented.

exports by country, in millions of dollars (data from the CIA)

But what can we export? For one thing, we can export our knowledge and innovation. America is unique in our entrepreneurism, optimism and general economic creativity. The majority of the game-changing innovations in the past 100 years—from vaccines to the Internet, from televisions to the telephone—have originated in America. Sure, China and Japan can take what we have and implement it with an enviable laser-like focus. But can you name the last real invention that came out of China? The last one I know of is gunpowder, and maybe the printing press and the compass. But that’s about it, and that was some 2,000 years ago.

Also, America could expand tourism, which is considered an export. Even in these tough times, America remains a mystical and magical place for many people around the world. They are deeply curious about the American experience, which is something we could and should capitalize on. We also have some of the most spectacular and well-preserved natural resources in the world. Surely people crowded in pollution-choked cities around the world would be enticed to visit the Grand Canyon or Yosemite.

By no means am I the first person to suggest this, and there are certainly better educated and more eloquent writers out there who could explain export orientation far better than I can. In fact, Adam Smith had the same basic idea in his classic book The Wealth of Nations in 1776. In addition to being a powerful sedative, Smith’s point over 200 years ago holds true today: specialization trade is the best path for economic growth. (As a side note, Smith did not believe in blanket deregulation; in fact, he had a deep mistrust of consolidated power and believed that competition could only come from a well-regulated economy.)

In the short run, we will probably need more government spending to circulate money in the economy again. But in the long run, if we become a lean, mean and dynamic export-oriented economy, we will probably end up better than most people can currently imagine. While economist John Maynard Keynes famously said “In the long run, we are all dead,” I don’t see another way for America to survive in a post-Stockholm Syndrome world.

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