American Consequences - June 2019

There is a dirty little secret in economics today: The United States has benefited – and continues to benefit – from the global slump. The U.S. economy is humming along, even while protesters in the United Kingdom hurl milkshakes at Brexiteers, French President Emmanuel Macron confronts nihilist yellow-vested marchers, and Chinese tech firms such as Huawei fear being frozen out of foreign markets.

Last year, the U.S. economy grew by 2.9%, while the eurozone expanded by just 1.8%, giving President Donald Trump even more confidence in his confrontational style. But relatively strong U.S. growth amid sluggishness elsewhere is not what economics textbooks would predict. Whatever happened to the tightly integrated world economy that the International Monetary Fund and the World Bank have been advocating – and more recently extolling – since World War II? The U.S. economy is in a temporary but potent phase in which weakness abroad lifts spirits at home. But this economic euphoria has nothing to do with Trump-era spite and malice, and much to do with interest rates. Borrowing costs are currently lower than at any time since the founding of the U.S. Federal Reserve in 1913, or in the U.K.’s case since the Bank of England was established

in 1694. The 10-year U.S. Treasury bond is yielding about 2.123%, and in April, the streaming service Netflix issued junk bonds at a rate of just 5.4%. If a Rip Van Winkle economist were to wake up today after a decadeslong sleep and see only those numbers, he or she would assume that one-fifth of Americans were unemployed and standing in lines outside soup kitchens. Instead, the U.S. jobless rate is at its lowest level since Neil Armstrong took his famous first step onto the moon’s surface 50 years ago. The idea that the U.S. wins in a global slump might sound like the sardonic musing of some unreconstructed Marxist in the dingy corner of a faculty lounge. But such a view is not ideological. Rather, global interest rates are scraping the floor because GDP growth outside the U.S. is so sluggish.

By Todd G. Buchholz OMY'S DIRTY SECRET

American Consequences

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