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Will the Global Economy Save the U.S.?

Posted by: Michael Mandel on August 14

Richard Berner of Morgan Stanley writes:

Strong global growth, paced by improving overseas domestic demand, will sustainably boost US net exports for the first time in two decades, in my view. That external lift will also contribute to improved US job and income gains, powerfully offsetting the effects of the coming contraction in housing and the deceleration in home prices.

This is the rosy scenario. I’m not sure if I believe it.

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Reader Comments

Brandon W

August 15, 2006 09:36 AM

This cheerleading nonsense is the sort of thing that keeps CNBC on the air because it makes the perpetual bulls all warm and fuzzy. If the US truly produced the world's best of most things, we might see a scenario where globalisation makes everyone richer so they can rush out to buy US made products. But this is an ethnocentric view that presumes the rest of the world is standing still. Look at Toyota and the rise of Hyundai as Ford and GM decline. The wealthy around the world drive Mercedes, not Cadillac. Our televisions and computers are made in southeast Asia (Dell's MRU assembly line notwithstanding), and the most innovative phones are coming out of Nokia and Samsung. These are but a few examples. The US is not the most innovative, and it is not the best. Rising globalism will - in this so-called "free market" economy - benefit the most innovative nations that are producing the best products. We have a long way to catch up to just be on an even playing field with the best of southeast Asia and Europe. We better hope that intellectual property law holds up, because it's the only thing we seem to have a competitive advantage in (a begrudging nod to Mandel's "dark matter"). Beyond that, it is my suspicion that most of the rest of our GDP growth has been financial smoke and mirrors.

What challenges do we have to overcome?
- Rising oil prices. Seriously people, Hubbert's Peak is real. We won't "run out", but supply absolutely will start declining sooner rather than later, and demand (due to the aforementioned globalisation) is exploding. Simple economics dictate what will happen to the price. Our economy is too entrenched in oil to make a shift to *anything* quickly enough to head this off.
- Failure to educate enough engineers and designers. Failure to build innovation into our corporations. Innovation is the key. If we aren't the best at it, we're falling behind and no amount of global income growth will help us.
- A growing income gap. A strong middle class is what has made this country what it is. Aristotle said 2300 years ago that a democracy can not function without a strong middle class. But then, I suspect the wealthy would rather the shift to an oligarchy continue. When Wal-Mart has to start providing housing because its employees can not afford it, otherwise, we'll know we've made the last big step back toward feudalism.
- Fiscal crisis. No amount of number fudging (or hedonics) is able to cover the enormous government deficits, our trade deficits, badly inflated real estate markets in our key cities (and most everywhere else), or the fact that the Genuine Cost of Living is going up faster than incomes. I don't know how we fix this; I think the fiscal irresponsibility of the past 25 years is so monumental that we may not be able to recover.

Until we fix these issues we can not be globally competitive. As long as we are not globally competitive, Berner's rosy scenario is merely bull cheerleading which can, at best, only be laughed at, and at worst can exacerbate an already dangerous economic delusion.


August 15, 2006 01:13 PM

I wouldn't believe it. What do we have to export? Some natural resources, food although we are net importers, chemicals, and airplanes. That is woefully small to compensate for ~25% of the economy.

Mike Mandel

August 15, 2006 01:59 PM

We are globally competitive in lots of key industries, including finance, biotech, logistics, and retailing.

These exports don't show up in the numbers...hence the dark matter.


August 16, 2006 12:16 PM

Response to Mike M.

Logistics & Retail dont 'create' wealth. Biotech is a very high risk game of limited returns. Finance is generally 'Asset manipulation' smoke & mirrors.

Mike Mandel

August 16, 2006 12:57 PM

Do you really believe that logistics and retail don't create wealth? Production does you no good if you can't get it to where people need it. In today's economy, most of the value is created downstream.


August 22, 2006 10:04 AM

I earned my BSBA in May 2005, but could only find a $9.50/hour retail sales position (inadequate to pay student loans or even purchase a car) on account of little or no opportunities to get in the door leading to a real career that provides adequate and sustainable level of employment. Professional career positions require experience that traditional college grads lack; even with an internship while mid to senior level professional positions abound.

My advice: Do not take out $40,000 debt to get a bachelor's degree; go to a 2 year tech or trade school if you want to have a chance at improving your economic future.

Mike Reardon

August 26, 2006 11:26 PM

Creative consumer demand, drives creative supply worldwide. Does anyone else feel there is an agreement not to let this balance fail, that the finance to sustain the trade balance is in place, and will keep being reinforced to hold up world trade and globalisation. I have 'not a clue how', only they the bankers and capitalists, get to change the rules to make it work if need be.

andrew sellers, mba,clu

October 2, 2006 08:45 AM

We've lots of exporters - caterpillar, boeing, zippo, etc - smaller, specialty manufacturers that can thrive, along with agricultural and commodities powerhouses. Obviously, our era of dominance in consumer goods like tv's and autos is over. but america has always been a safe place for overseas capital - we've been politically stable for over 200 years.
and no, we don't grow a lot of engineers and scientists (though we certainly welcome quite a few of them to study or work here - this also adds value for us) but most americans can read, write, and perform basic math - which isn't the case in most emerging market/developing countries, where illiteracy & a lack of education is more prevalent.


October 2, 2008 12:48 PM

America has to borrow and tax more, just to pay off the interest on the money we already (over) borrowed. If you cut through the crap, and go back to simple basics, all economists agree that the first thing an individual should do to get their finances back into the black, is to pay off their credit cards, and get out from under paying the interest each month. The U.S. is no different. Instead of solving the problem by borrowing hundreds of Billions more, and assuming Billions more in interest, our first priority should be to pay off our loans, and stop paying all that interest on loans !!!

Thank you for your interest. This blog is no longer active.



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.

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