LK had a thought provoking piece that the future of the U.S. is pretty bright going forward. This has been my view for a few reasons.
1). While our recovery has been slow, unlike Britain and Europe we haven't double dipped.
2). We have some of the same natural advantages in the the spacious land that we've always had; despite all our hundreds of millions of people we remain overall quite sparsely populated.
3). A major advantage we have over both Japan and Europe is population growth due to much more immigration. The likely passage of landmark immigration reform will increase this advantage exponentially. While we too have a declining birth rate, immigration makes up for this.
However, LK documents two other advantages the U.S. may have going forward.
(1) the news that the US may become an exporter of energy and have energy independence in the coming decades, perhaps even with an era of cheap energy for the US itself; and
(2) the revolution in automation and robotics, and the return of manufacturing to the West from East Asia.
"The cheap energy will also feed into and reinforce the second factor above: the return and invigoration of domestic manufacturing, which will be effected by the increasingly cheap and effective forms of industrial automation, especially robotics."
"For one, how can China be a superpower with a domestic currency functioning as a reserve currency when its financial and real asset markets are severely closed off to outside investors? Why hold RMBs, if you do not have a wide range of assets to buy with them, in order to get a return, and to repatriate your money quickly and easily?"
"The strength of the US is precisely its relatively free and vast financial and real asset markets that provide resting places for savings held in US dollars."
"And here is the paradox: if China allows a highly liberalised capital account, liberalised asset markets, and deregulated finance sector, it could be digging its own grave, for the tight control of these things is actually the foundation of its economic stability."
"In trying its hand at superpower status, a country like China could be setting itself up as new “lost decade” Japan."
1). While our recovery has been slow, unlike Britain and Europe we haven't double dipped.
2). We have some of the same natural advantages in the the spacious land that we've always had; despite all our hundreds of millions of people we remain overall quite sparsely populated.
3). A major advantage we have over both Japan and Europe is population growth due to much more immigration. The likely passage of landmark immigration reform will increase this advantage exponentially. While we too have a declining birth rate, immigration makes up for this.
However, LK documents two other advantages the U.S. may have going forward.
(1) the news that the US may become an exporter of energy and have energy independence in the coming decades, perhaps even with an era of cheap energy for the US itself; and
(2) the revolution in automation and robotics, and the return of manufacturing to the West from East Asia.
The idea that the U.S. could have energy independence is rather startling. It's so long been believed-starting from the early 70s-that the U.S. will be suffering from a dearth of the oil needed to keep it's huge economy humming.
"That also means that the US trade deficit will fall significantly."
"The cheap energy will also feed into and reinforce the second factor above: the return and invigoration of domestic manufacturing, which will be effected by the increasingly cheap and effective forms of industrial automation, especially robotics."
Regarding LK's number 2, the phenomenon of "reshoring" has been discussed quite a bit. It seems that the advantages of offshoring are somewhat receding in some industries. With reshoring, LK suggests it may not be inevitable that China will replace the U.S. as the next superpower as is commonly believed.
"It has got to the point now that the idea that China is somehow destined to be the world’s new superpower is assumed by many people when discussing this issue. The RMB is touted as soon to be the world’s new reserve currency, and so on. But there is no inevitability about any of this, and there are many reasons to be rather sceptical."
"For one, how can China be a superpower with a domestic currency functioning as a reserve currency when its financial and real asset markets are severely closed off to outside investors? Why hold RMBs, if you do not have a wide range of assets to buy with them, in order to get a return, and to repatriate your money quickly and easily?"
"The strength of the US is precisely its relatively free and vast financial and real asset markets that provide resting places for savings held in US dollars."
"And here is the paradox: if China allows a highly liberalised capital account, liberalised asset markets, and deregulated finance sector, it could be digging its own grave, for the tight control of these things is actually the foundation of its economic stability."
"In trying its hand at superpower status, a country like China could be setting itself up as new “lost decade” Japan."
It's funny how quick perceptions change. In 2008, the future surely didn't look to run through the U.S. It was hoped that China could keep booming to keep the world economy humming. Now it's the U.S. which is called the "little engine that must."
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