What You Know, What You Own

For a nation there are very few things more important that what their citizens know and what they own. Things like how free they are, how innovative, how much they love their nation and each other tend to result in smarter, wealthier people. Things like health and happiness (on a national scale) tend to flow from knowledge and wealth.

There is no question that at this point in history the United States is the greatest, wealthiest, most productive nation on Earth. Fortunately, there are a number of nations who would like to become the greatest, wealthiest, most productive nation on Earth. I say fortunately because most of the nations that are serious threats to U.S. dominance are trying to get to the top by educating their citizens, reducing regulation, and building a better world rather than by attacking the U.S. With that being said, recently there were two stories that should be cause for alarm in the U.S.. Both of these continue long established trends, unfortunately trends that could lead to the U.S. slouching out of the #1 slot.

First, The OECD released a study showing that 15 year olds in the US are near the bottom of all students in industrialized nations in math, reading, problem solving and science. US students scored below most of their peers in all skill sets. While studies have shown US weakness in math and science for decades, weakness in problem solving and reading are especially alarming. The US faces stiff competition from all over the globe, notably from Asia in all types of jobs, increasingly in the type of high paying jobs our economy depends on. These jobs require a high level of knowledge and growing weakness in these areas may have serious negative consequences in the near future.

Second, the US current account deficit grew to $164.7 Billion in the third quarter, in the third quarter! That is equal to 5.7% of US GDP. This is an important number because the current account includes all inflows and outflows, it is a comprehensive measure of how much capital our nation sends to other nations in relation to how much they send to us. This means that from July to September we sent out $164.7 billion more than we took in. That is scary, that is the total of the trade deficit, the budget deficit, and direct investment. The highlight of the report was that direct investment into the US actually rose in the third quarter. The big picture is that this deficit results in a weaker dollar, more foreign ownership, more interest payments going to other nations, and a weaker US. This has been going on for a long time, and is a complicated issue, but long story short: it is generally not good for a nation to borrow and buy more than it earns and makes.


Timothy Burger