[Rhodes22-list] Economics - Gloom and Doom, NOT!

[Brad Haslett]

What timing! This is a nice article that will soon be out in Forbes.  The
author's views on SS and agribusiness subsidies you've heard before - from
me on da'list.  In fact, you've heard nearly every sentance before.  Just
read the da'list and save yourself the subscription cost.

Brad


Current Events
*The Triple Deficit Paralyzes Policy Vision*
David Malpass 01.29.07, 12:00 AM ET

 The U.S. has a powerful, growing economy, yet we pro-ject the "wrong path"
image of an aging society drowning in debt and burdening the world with
risk. This gloomy fiction distorts our domestic and international economic
policymaking. We should reject it and launch a more energetic vision of
global prosperity built on economic freedom and dynamism.

The U.S. is the world's biggest producer, exporter, seller, saver and
innovator. On average it adds 30% more to global GDP each year than does all
of Asia (45% more in 2006), with one-tenth the population. U.S. employment,
wages and profits are at record levels. We're the biggest source of foreign
aid and the only major source of its most effective component: private
donations.

Despite dire fiscal predictions the federal budget is on a trend that could
bring it into balance at the end of the decade, with a debt-to-GDP ratio
well below the Clinton Administration's average. Talk of our recklessly low
"savings rate" circles the globe yet arbitrarily excludes the economy's
trillions of dollars of compound gains. Calculated properly, U.S. households
have more financial savings--and in most years add more--than the rest of
the world combined.

The loudest hue and cry is over our trade deficit, which is blamed for
dragging down our economy, as well as everyone else's. Yet the view that our
trade deficit costs jobs and adds to global financial risk can't be
reconciled with our 4.5% unemployment rate and the eager flow of long-term,
low-cost foreign capital into U.S. investments.

*Misreading the U.S. Economy*

Fear of fiscal, trade and savings deficits has crippled domestic
policymaking. We are in desperate need of tax reform yet believe we "can't
afford" it. Both political parties should aggressively lay out their tax
visions and invite debate. To have a coherent vision they will first have to
reject Washington's stifling assumption that tax reform--no matter how well
constructed--doesn't add to economic growth or asset values.

Entitlement reform is also distorted by this mistaken image of U.S.
financial collapse. An increase in the Social Security tax burden proposed
by austerity advocates would slow the economy without adding one iota of the
external funding needed to protect retirees and add to their rate of return.
Let's shelve this "reform," which is a disguised tax increase, and instead
expand tax-preferred savings vehicles.

As gasoline prices soared in 2005 and 2006, the world held its breath,
thinking the U.S. might collapse under the weight of its debt and
dependency. Even though the economy survived easily, we are paralyzed by
Iran's encroachment into the Strait of Hormuz. We should break this choke
hold by offsetting any declines in gasoline prices with an incremental
gasoline tax. Naysayers will claim consumers can't afford it, but they
already have.

Selling our economy short may be causing even more damage to our
international economic policy. In one of the ironies of economics the U.S.
apologizes profusely for the global trade imbalance. We accept blame for
growing our economy and population faster than our trading partners (which
draws in imports) and providing more attractive investments (which brings in
foreign capital). Rather, the primary burden should be on the trade-surplus,
capital-outflow countries to enhance their economic climes, not on us to
diminish ours.

Cowed by trade-deficit phobia, we require minutely negotiated trade
agreements. These are a far cry from the sweeping liberalization that would
bring the most benefits to the U.S., the biggest trading nation by far.
Trade-policy paralysis insists on agribusiness subsidies and blocks even
small reductions in our stiff quotas and duties on the importation of sugar,
peanuts, orange juice and ethanol, even though these policies damage the
environment and impede growth in developing countries.

The world has huge economic problems. Europe's low birth-rate, high
unemployment and exodus of human capital are of bigger consequence to the
world than the U.S.' deficits, but the latter dominate the G-7's agenda and
world headlines. Japan and South Korea are still relying on corporatism
instead of economic flexibility, a global liability as their workforces
shrink. The U.S. provides heavy subsidies for large homes and expensive
health procedures but lets its infrastructure petrify. Russia's bleak hope
is to create energy monopolies fast enough to prevent the Islamic world and
China from overrunning its sparsely populated borders. Much of Latin America
and Africa are decapitalizing, running IMF-mandated fiscal and trade
surpluses (capital outflows) that have contributed to their multidecade
stagnation in per capita income.

Despite the rich global environment for economic progress, the U.S.--low on
self-esteem--has focused on China's yuan as the 21st century's economic
scourge. U.S. exports (and global growth) would get a much bigger boost if
more countries joined China in growth-promoting currency stability than if
China joins them in currency instability. Pleading with China to add to the
yuan's value at the dollar's expense parades our weak image and enhances
China's strength. At the same time, Latin America seems to have decided the
U.S. is one of the weak links in the global economy. It is reaching out to
Europe and China for investment and free-trade agreements, with the view
that those are the economic relationships of the future. This global
misreading of the U.S.' deficits is weakening our friendships and blocking
our economic vision, even as our economy enjoys its third decade of robust
expansion.

*David Malpass*, chief economist for Bear Stearns; *Paul Johnson*, eminent
British historian and author; *Lee Kuan Yew*, minister mentor of Singapore;
and *Ernesto Zedillo*, director, Yale Center for the Study of Globalization,
former president of Mexico, rotate in writing this column. To see past
Current Events columns, visit our Web site at
*www.forbes.com/currentevents<http://www.forbes.com/forbes/2007/0129/www.forbes.com/currentevents>
*.