American Consequences - June 2019

That is true – especially when combined with China’s new tariffs on American goods and a strong dollar, which makes U.S. exports more expensive internationally. Still, exports make up only 12% of the U.S. economy, and nearly one-third of them go to Canada and Mexico, whose economies have been doing ok. Moreover, many of the most valuable U.S. exports are “must have” items (or oligopolistic goods made by only a few companies), such as Boeing jets, Qualcomm chips, or Apple iPhones. It is hard even for dejected Frenchmen or angst-ridden Germans to do without these. The buoyancy of the U.S. economy worries policymakers in other countries. They would prefer if the U.S. stumbled along beside them and was forced to concoct cooperative ways of boosting global growth. Instead, Trump needles rather than wheedles for trade deals, and happily pockets the benefits to the U.S. economy which result from doldrums abroad. No one knows when Trump’s trade needling will stop, of course. But as long as inflation remains a distant specter, America’s economy will continue to enjoy this unusual type of growth. Todd G. Buchholz has served as director of economic policy under President George H.W. Bush and as managing director of the Tiger hedge fund. He was awarded Harvard University’s Allyn Young Teaching Prize in economics and is the author of New Ideas from Dead Economists and The Price of Prosperity. © Project Syndicate

Persistently low interest rates and weak inflation bring multiple benefits to the U.S. economy. For starters, American consumers, whose real (inflation-adjusted) wages are finally increasing after decades of stagnation, are seeing all sorts of bargains. When I visited an Apple store a few days ago, an employee at the repair counter told me that I could finance a new iPhone at 0% interest. Car dealers are offering zero-interest financing, too. Moreover, the U.S. stock market has soared because yields on bank certificates of deposit (CDs) look so puny. When I was a kid in the 1970s, my mother placed our family savings in a bank and received not only a 6% return, but also a blender. Today, a six-month bank CD might pay only one-third of a percentage point. And my mother can no longer expect a blender or even a lollipop from the bank in return for parking her money there.

Persistently low interest rates and weak inflation bring multiple benefits to the U.S. economy.

Finally, low interest rates mean that U.S. businesses can obtain nearly free financing when they purchase equipment. As a result of low borrowing costs and new tax write- offs, the U.S. economy added 215,000 new machine manufacturing jobs in 2018. And foreign investors realize that new equipment will make U.S. companies more competitive. But surely, the textbooks insist, a hobbled global economy will squeeze U.S. exports.


June 2019

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