Growth, Debt and Outsourcing

October 30th, 2008
Tags: , ,

Economic growth in the U.S. has averaged 2.7% over the past years.  Taking out personal consumption, the growth was 1.3% per year in 10 years ending in 2007.  That is the slowest growth rate since the 1950s.  U.S. consumers have run up about $3 trillion in excess borrowing and spending over the same period.  This does not match income growth.  This consumer debt translated into new homes, cars, furniture, and clothing and has pushed U.S. growth.  However, consumer debt is a symptom of a deeper problem.  Without this excess spending the growth would have been considerably lower.  The same applies to a lesser extent on a worldwide basis, but the U.S. still leads in the saving the least amount of money, by the actual individual consumers.  The global growth bubble was fueled by excess borrowing.

Consumer spending is declining, capital spending is declining by corporations, and everyone is girding their belt to tighten up spending.  The way out of this slow growth is for U.S. companies to pay more attention to sustaining productivity growth and innovation at home rather than resorting to outsourcing as their main source of cost savings.  Spending more money with non-U.S. companies does little to spark innovation and productivity within the U.S. 

The financial bailout, like it or not, is somewhat of a reality.  Any other monies spent by the government should be directed towards stimulating investment and innovation rather than consumer spending.  This will have a longer term positive affect.  By longer term—many years not a couple of quarters.

Greater investment of this kind will slowly raise wages.  Another $1,200 to each U.S. citizen sometime next year from the government will NOT invigorate the economy.  Adjusted for inflation, the weekly earnings of a worker with a bachelor’s degree have fallen by 6% since 2003.  Real wages have usually gone up in an economy with rising productivity, but this has not happened.  Outsourcing has oftentimes been seen as the result of productivity gains.  All that did was transfer more money out of the U.S., displace some work number of workers, and lowered the average earnings.