Posted by: Michael Mandel on June 23
Brad Setser has a very comprehensive post where he grinds through the data on foreign income, entitled “So, is Michael Mandel right? Did intangible income (dark matter) ride to the rescue in the first quarter, offsetting rising US debt? “
I’m not going to compete with Brad on number parsing, in part because I’m not sure I trust the data he is using.
Instead, I’m going to take the big picture view of dark matter and the trade deficit. I’ve written out two lists. One list includes signs of U.S. economic strength, and the other list is signs of U.S. economic weakness.
Positive statistics about the U.S. economy:
—Fast productivity growth
—High profits for U.S. companies operating abroad
—Willingness of foreign investors to put their money into the U.S
Negative statistics about the U.S. economy:
—Big trade deficit
—U.S. as big net debtor
—Slow real wage growth
Six statistics. In theory, all six can be true simultaneously. But it takes a lot of twisted reasoning to reconcile the negative stats with the positive stats. For example, if the U.S. is really such a big debtor, why are foreign investors so cheery about lending the country more money? Hard to understand. Or if the U.S. really is producing more, why did the trade deficit—net imports—jump so much?
It’s much simpler—and more reasonable—to assume that one or more of the stats are wrong or incomplete.
The ‘dark matter’ view says that the negative stats are misleading, because they leave out the flows of intangibles which are central to U.S. competitiveness and productivity growth.
On the other side, the true ‘pessimist’ view says that U.S. productivity growth has been overstated, perhaps by the housing bubble. That would explain slow real wage growth, and the large trade deficit.
I’d lay my bets on the dark matter view. But it certainly would make me feel better to see wage growth accelerate.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.