The worldview that Daniel Griswold is expressing in
his latest article happens to be the popular view among most of those who write
about the economy these days.
I do not squabble about the “facts” or “figures” laid
out by Griswold; and I do not question what he says will be their short-term
impact on the economy. My concern is focused on the way that the American
economy is developing for the long run, where it is going, and what the result will
be when all is said and done.
The best way I can explain my worldview is to give a
fictitious example. So, imagine you are given a magic wand, which you use to
create a country of 10 million people, complete with modern amenities such as
retail outlets that sell all kinds of products, a job for everyone that wants
to work, a school desk for every child, a hospital bed for every sick person,
hospices for the elderly, welfare offices to help those who cannot help
themselves, a modern transit system and just about everything you can think of
as services outside financial services. You call that country the Services
Nirvana or “Servana” for short.
As to the financial services, you design the system in
two parts to serve two purposes. One part is based on the use of a local
currency that falls under the responsibility of the central bank. This part of
the economy will function as economies do in any normal country. The other part
consists of a trillion-dollar line of credit extended to Servana by foreign countries.
The stipulation is that Servana will not produce any
kind of goods locally. There will be no fishing, no agriculture, no mining and
no manufacturing. Servana will use a hundred billion dollars a year of its
trillion-dollar line of credit to buy all the goods it needs from abroad. This
means that for the next ten years, the population of Servana will have what it
needs from perishable goods to big ticket durable items. But what happens after
ten years?
Servana may have enough food stored in warehouses to
feed the population for two weeks or so after the line of credit will have been
used up. Rationing may stretch the period to three weeks or a month but no
more. The next crisis will hit in the fuel department, which will impact
transportation and the production of power. Even if the world will take pity on
the population of Servana and start donating food and fuel, the other items
(ranging from clothing to home appliances to cars and buses to hospital
equipment and so on) will age and deteriorate in time.
And so, despite the fact that Servana may still have
the best doctors in the world, the most dedicated teachers on the planet, the
greatest retailers ever to grace a shopping center, and the most imaginative
group of public servants –– despite all of this, the country's service-based
economy, will begin to look like a primitive Third World economy.
The moral of this story is that an economy cannot live
by services alone; it needs the goods that people live by and cannot do
without. Take away the medicine, the gadgets used by doctors and nurses, the
instruments used by hospitals, and what you'll end up with are doctors who
speak the language of modern medicine, but have the abilities that match only
those of a witch doctor. Likewise, the other services in Servana, from
education to transit, will be affected in a similar fashion.
Look now what Daniel Griswold says about manufacturing
in America:
“The US economy has lost a net 5 million jobs in the
manufacturing sector since 1990, but those job losses have been more than
offset by the creation of almost 20 million net new jobs in service sectors
such as professional and technical services, finance, health care,
computer-systems design, and management and technical-consulting services. In
addition, another 1.5 million net jobs have been created primarily in the
electrical, plumbing, and heating, ventilation, and air-conditioning
industries”.
As can be seen, when Griswold says that gains were
made in the service sectors, he means sectors that service industrial products
such as computers, electrical gadgets, plumbing pipes, heating furnaces,
ventilators and air-conditioners. But these gadgets and machines have to be
made in the first place before they can be serviced. If a country does not make
them, it ends up looking like Servana.
In fact, this is my point. America has increasingly
grown reliant on imported manufactured products. To offset what this does to
the balance of payment, the Americans have been calling on other countries to
increase their purchases of American services; most important of these being
financial services.
America was beginning to make progress in this regard
when politics intruded into the economic sphere. It is that America began to
use its economic clout to pressure other countries, be they friends or foes, to
toe the line. Also, America began to weaponize the dominant position it has on
the institutions of international settlements to force political change on
other countries.