We Don’t Export Enough!
|October 13, 2010||Posted by Roshawn Watson under Uncategorized|
Recently, the United States and western nations have gone through a lot of soul-searching about what went wrong with the economy. All paths point to overleverage as the blame. For example, the sub-prime mortgage debacle would not have been so dire if our economy had not been in so much debt. Consider that one of the primary reasons for the halt in economic growth was that so many companies use debt as their working capital for daily operations! Consumers are leveraged too with mortgages, car loans, balances on their credit cards, and student loans. Unfortunately, we are confronted with a far bigger problem today, which is that the US economy has a negative cash flow. We run a persistent trade deficit. In other words, we import more than we export. It’s like we are spending more than we are making. This has been going on forever. How can this be?
Well, the simple answer answer is that the US Dollar is the currency of international trade. This happened after the World War 2 when the United States became the world’s superpower. The US Dollar is used in international trade. Since international trade is conducted in our currency, countries who have trade surpluses with us (those that export more than they import) have excess savings. These savings are in the US Dollar. They need to reinvest these dollars somewhere, and their preferred investment choice are the US Treasury bills and bonds, which are deemed the safest investments. Consequently, we are able to continually import more than we export thereby allowing us to keep running budget deficits!
However, the recent financial crisis has exposed a flaw to the way the U.S. economy has developed over the last few decades. We are now facing a “jobless slow recovery”. Why?
We Do Not Export Enough
The answer is really simple. We have stopped being an exporting nation. Our economy for the past couple of decades has been based on consumption fueled by our increased indebtedness. Since we run an inflationary policy (2% inflation thereabouts is tolerated), our cost structure continually goes up. It goes up slowly and is not noticeable at first. However, over the years, it results in higher wages. Consequently, we are hit with a double whammy. Our exporters have shifted our jobs overseas because of cheaper labor cost, and the bulk of our economy is based on consumption by consumers. We now consume products made overseas that used to be made by us. Together with cheap leverage, our economy became “service-based.” We became a nation of real estate brokers, attorneys, restaurant owners, financial engineers. Even in our export industries, we hire “Ph.Ds” to invent more swanky Nike shoes (high tech!) and we hire MBAs to market and sell them. These are “phantom” innovations in my opinion.
Now that credit has dried up, we face real difficulties in recovering because we cannot keep consuming anymore without dealing with our economic problems. Becoming a manufacturing nation again doesn’t appear to be a viable option now that jobs have been shifted overseas. One reason is it is hard to be competitive with rock bottom prices available for labor in other markets.
Passive Income Syndrome
Additionally, we have become a nation that simply wants to earn “passive income”. We do not want to get our hands dirty anymore. We try network marketing, making money with blogs and online, and all kinds of other “stuff”. We search for all kinds of “business opportunities” to free ourselves from our “jobs”. We subscribe to franchise magazines or small business magazines and look for opportunities and ideas. However, the problem is that these do not help solve our national problem, which is we do not export enough!
Pick up any small business opportunity magazine and I bet you cannot find a single idea about inventing products and selling overseas. All you see is “franchise opportunities” and other “US based ideas”.
Are you in a “Service-based Job”?
I think a more important implication is that if you are in a “service-based job” that depends on the domestic economy, you are likely (on average) to see slow growth (if any) in your industry for the next few years. That is because the whole economy is deleveraging and demand would be tepid at best.
Beyond Passive Income and Getting Rich
And if you are thinking about going into business yourself, perhaps you should ask yourself if your product or idea will have worldwide demand: In other words, can this product be exported? If you could, you are likely to do better than most domestic businesses that focus exclusively on the U.S. consumer. You will also be helping the nation. If you are thinking about changing careers, perhaps you should consider moving to an industry that sells their products overseas as well.
I do realize that many of you who read personal finance blogs love the concept of passive income, being your own boss, and being a freelancer. However, if you are seriously thinking about switching careers, I suggest returning to the basics and asking if you can start a business that sells a product overseas (potentially). Our economy is in dire need of such businesses and these are businesses that are likely to be more successful rather than service-based industries that just services local or domestic businesses.
So here is a question for you readers:
Does Your Company Export?
If you are an entrepreneur, is their demand for your products abroad?
Deleverage Your Life
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.