One World Economy

I just read this article, The Global Imbalances Myth, in this morning's Wall Street Journal. The author addresses the current rhetoric that we are in trouble because the world economy is "structurally imbalanced", the idea that if America consumes everything and China makes everything, the result will be economic disaster. This is an idea that I do not believe in, as I think the best way to look at the world is as one interconnected global economy.

The issues of what will happen economically over the next several years, what role China will play, what will happen with the mounting US debt, etc.. are all important, and our views one these issues will shape how we manage our clients financial and investment plans. Here is a quote from the above referenced article that sums up my thinking on these issues:

"Today's consensus sounds very much like the orthodoxy of yesteryear - let each nation be its own system in equilibrium, interacting with other systems to create one mega-balanced system. Yet such balance has only existed in theory and only ever will."

It is highly unlikely that the increased economic and social interconnectedness we have undergone over the past decades will change course. Like it or not we are all part of one global economy. It is important that we understand this as we think about how the future may play out.

Fed Will Make Profit on Bailout

How about that!

Same Share of a Bigger Pie

The graph below comes from this blog post by Professor Mark Perry:

What the graph shows is that the US share of global GDP has remained remarkably constant over the past half century, during a time when global output increased by more than three times. This is evidence that debunks the myth that gains in places like China and India come at the expense of the US. The global economy is not a zero sum game. Professor Perry sums it up perfectly:

"Because of advances in technology, innovation, and significant improvements in U.S. productivity, America's share of total world output has remained remarkably constant at a little more than 25%, despite the significant increases in output around the world, especially in Asia."