Interesting data and argument in the long Economist survey/story “Flying on one engine.” “Since 1995 almost 60% of the cumulative growth in world output has come from America, nearly twice America’s share of world GDP... America’s disproportionate contribution to global growth reflects an extraordinary rise in American spending. Domestic demand in America has risen, on average, by 3.7% a year since 1995, twice the pace of the rest of the rich world. ... But after the stockmarket crashed in 2000, investment spending collapsed as firms tried to strengthen their balance sheets. Total spending has kept going in part because American households have yet to make that adjustment. They, too, spent beyond their means during the 1990s bubble but carried on after the bubble burst, thanks to sharp cuts in interest rates that allowed them to borrow against their homes. American consumers’ indebtedness is currently growing twice as fast as their incomes. Increasingly, America’s spending has also been fuelled by the government. The federal budget has shifted from a surplus of over 2% of GDP in 2000 to a deficit of over 4% of GDP this year. But ever bigger budget deficits will not be able to compensate forever if private spending flags.” (Sadly, only the lead article is accessible without subscription.)
