America in the Post Meltdown, Upside Down World: Globalizing, Rebalancing and Innovating

Transcription

1 America in the Post Meltdown, Upside Down World: Globalizing, Rebalancing and Innovating Professor Peter Brews Kenan-Flagler Business School, University of North Carolina at Chapel Hill World View Partners Program for Wake County Public Schools 13 August 2013

2 Outline for today Globalization/Post Industrialization America in post meltdown/upside down world What must we all do? Questions 2

3 The Human Struggle for Productivity Global Output Growth Pre 1800 and for all of human history 1800 and until

4 The Human Struggle for Productivity: Eras, Population, Economics, Bases of Growth, and Status Global Output Growth Industrial Era: % of world population Manufacturing Input-led growth Followers Post Industrial Era: 1950 onwards 10% of world population Services Innovation-led growth Leaders 2013 Pre Industrial Era: Pre % of world population Subsistence agriculture No growth Failures Time 4

5 The Human Struggle for Productivity: Regional/National Positions United States Japan USSR/Russia Sub-Saharan Africa Pre to Post Industrial Eras Post Industrial Era Industrial Era Pre Industrial Era

6 Three scenarios over 21 st Century: 1. Balanced Global Growth: EU/US/J rebalance, sustain Innovation-led growth; BRICs/rest continue from Input to Innovation-led growth, convergence by Productivity based on global competitive advantage 2. Unbalanced Global Growth: EU/US/J decline, BRICs/rest sustain (Brazil/SA export commodities to PRC, PRC exports manufactures; India/PRC exchange software for manufactures), South to South main economic driver, European Exception becomes historical relic as center returns to Asia; or vice versa. Global output lower/more volatile than Scenario 1 3. Global Meltdown: EU/US/J decline and BRICs/rest fail to sustain, Global warming intervenes, North - South divide remains. Global output lower/more volatile than Scenarios 1 and 2, trending down towards end of 21 st Century 6

7 America in Post Meltdown/Upside Down World 7

8 Why Upside Down? Country Public Debt* (% GDP) World Rank** National Taxes/Govt. Revenues (% GDP)*** Budget (% GDP)*** Japan (75) -9.70(197) Greece ( 44) -9.60(196) Italy (26) -4.00(129) Singapore (190) 1.30(27) Ireland (68) -9.90(199) Portugal (33) -4.30(139) Belgium (20) -3.90(126) Canada (56) -4.70(155) France (14) -5.30(165) Great Britain (46) -8.30(190) Germany (34) -1.00(61) Spain (64) -8.50(189) United States (191) -8.70(192) Brazil (53) 3.10(18) India (210) -6.20(177) China (139) -1.20(65) South Africa (123) -3.80(122) World average (99) -4.20(134) *Only reports public debt denominated in home currencies. Private sector debt and government debt denominated in foreign currency not included. **Drawn from ranking based on 150 countries. ***Figures in parentheses indicate ranking based on 213 countries. Source: The World Factbook 2009, Washington, DC: Central Intelligence Agency, accessed 6 January Most estimates based on 2011 data. 8

9 Why Rebalancing and Innovating America out of balance, will be remedied one way or the other... While rebalancing America must innovate to resume economic growth/regain primary position in global economy 9

10 U.S. in worst shape it has been in for generations: 25 years living beyond means finally caught up; country economically out of balance, publically and privately Some core industries recently in trouble (banking, construction, retail), while important support industries face serious funding issues (healthcare, education, military ) Americans have also executed series of hospital passes: healthcare, retirement, environment 10

11 Not really credit crisis but over-consumption/living beyond means crisis: credit symptom, not cause Two propositions: Americans could cut consumption by 20% and probably wouldn t notice: 20% smaller houses, 20% smaller cars; 20% less food; 20% less clothing etc. In face of global imbalances and global competition/scramble for resources, 2006/7 American consumption levels unsustainable 11

12 U.S. Public Sector Imbalances 12

13 U.S. Federal Gross Debt as % of GDP: Source: zfacts.com 13

14 U.S. Gross Federal Debt now > 105% of U.S. GDP (net +- 70%) Source: 14

15 U.S. Real GDP Growth and Federal Outlays/Receipts Year Growth Rate (%) Fed. Receipts (% GDP) Fed. Outlays (% GDP) Surplus/Deficit (% GDP) * * * * * * Years of significant Federal tax cuts Source: GDP Growth - U.S. Bureau of Economic Analysis See: accessed 3 March Source: Federal Receipts/Outlays: accessed 5 January

16 est 2016 est 2018 est U.S. Federal Outlays/Receipts (% U.S. GDP): % of GDP Outlays - Receipts Source: Table 1.3, accessed 22 July

17 Govt. Expenditures by Major Category (% U.S. GDP): % of GDP Total Govt. Expenditure - Defense & International - State & Local - Social Security & Medicare - Other Individual Payments - Net Interest 0.0 Source: Table 15.5, accessed 22 July

18 Federal, State, Local Government Receipts (% of GDP): % of GDP Total Govt. Expenditure - Total Govt. Receipts Federal Receipts - State & Local Non- Interest Receipts 0.0 Source: Table 15.1, accessed 18 October

19 est 2015 est 2017 est U.S. Individual, Corporate, Social Security, Excise, Other Federal Taxes (% of U.S. GDP): % of GDP Individual - Corporate - Social Security - Excise - Other Source: Table 2.3, accessed 23 July

20 Gross U.S. Government Savings: January Source: Economic Research, Federal Reserve Bank of St. Louis, see accessed July

21 U.S. Private Sector Imbalances 21

22 Index or Interest Rate Population in Millions U.S. home prices, building costs, interest rates, population: 1890 early Home Prices Building Costs Population 200 Interest Rates Year Source: Robert J. Shiller, Irrational Exuberance, 2 nd ed., see 22

23 U.S. Consumption and Mortgage Equity Withdrawals as % of GDP Graph constructed by Professor Chris Lundblad, Kenan-Flagler Business School, University of North Carolina at Chapel Hill. Consumption and GDP data from the Bureau of Economic Analysis (BEA). Mortgage equity withdrawals are measured as the year-over-year change in mortgage debt (from the Federal Reserve Flow of Funds) minus 70 percent of residential investment spending (from BEA). (Source: L. Josh Bivens, Economic Policy Institute) 23

24 U.S. Personal Savings Rates: 1959 June 2013 Source: Economic Research, Federal Reserve Bank of St. Louis, see accessed July

25 U.S. adjustments needed: < 5% in U.S. consumption as % of GDP > 5% in U.S. taxes as % of GDP < 5% in U.S. entitlements as % of GDP This is my plan for America... Would you vote for me? < 20% in average U.S. body weight Consumption (C) still over 70% of GDP in

26 Data to help determine adjustments needed 26

27 Either way Americans must reduce consumption/living standards to match productivity/income; and to prepare for additional healthcare, baby boomer retirement, clean energy development costs We cannot borrow, grow, vote way out of current mess Future entitlement expenditure must be curtailed, government revenues increased There is no quick fix! 27

28 Situational check Obama Administration/Congress from stemming bleeding/ meltdown Republican President/Congress would have followed similar policy, except Healthcare 2009 federal budget deficit record US$1,413bn, 3x greater than 2008; 2010 exceeded US$1,4bn; 2011 US$1.3bn; 2012 around US$956bn Many U.S. States faced similar jeopardy; Federal govt. provided resources over past few years to balance their budgets 2011 Debt impasse/downgrade to AA acute embarrassment Imbalances taking generation to develop not be sorted out in few years; rebalancing will take until

29 What must we all do? 29

30 Why is Economic Globalization important to State/Citizens of North Carolina? 20 th century economic globalization was supply seeking enterprise for Americans 21 st century economic globalization will be more a market seeking enterprise for Americans Can producers in America offer products/services/solutions others in world want? But most important short term issue is getting America back to work: by Americans, of Americans, for Americans 30

31 Political, community, education leaders must ensure North Carolinians ready to compete in Post Industrial, globalizing, fast moving world And that NC is attractive location to live in, work in, invest in, holiday in, retire in 31

32 What must educators do? Prepare students for knowledge intensive, creative work, so they can innovate at rates faster than others replicate; high level math/science skills table stakes Instill discipline/deferred gratification into students so they learn how to THINK, problem solve, research, imagine, create, connect dots etc. Develop curricula that prepare workers for 21 st century, high value creative work, or for working with smart machines and systems delivering smart goods, services, solutions to smart consumers NC K-12 schools must give world class grounding in basic subjects across spectrum, instill strong work ethic/sensitize students to global issues and cross cultural differences All in climate of fiscal austerity 32

33 What should we do individually? Live within means/demand leaders do too Be realistic/honest about situation, realize those who have may need to contribute little more; those who want expect little less Keep perspective - though America out of balance, adjustment not that significant compared to others Good news: most in U.S. could < consumption by 20% and would probably not notice Show character/fortitude; be part of solution... 33