Bad Money

That’s the new book by Kevin Phillips.  He concludes:

The thirty- to forty-year tumble from national preeminence that made life more glum for most folk in seventeenth-century Spain, and eighteenth-century Holland, and the Britain from the 1910s to the 1950s may be somewhat moderated for the United States because of a position as a North American continental economic power with a large resource and population base…

Boo hoo, I say; I’ll be crying all the way to Rio.  Overall this book is a catalog of the usual arguments about the financial problems of the United States, peak oil, the potential weakness of the dollar, and related worries.  Phillips doesn’t seem to think that finance is much of a productive economic sector.  He is keen on the "inflation is larger than we realize" line, citing high growth rates for M3 (he doesn’t realize how much the different aggregates can move around and differ from each other) and then the Fed’s discontinuation of that statistic.  But who has been tricked?  Either the current market estimate of inflation is the best estimate available, or you know that it is wrong and you will be a very rich man.  I find the former scenario more plausible.

If there’s anything wrong with gdp statistics, it’s either environmental problems or that we don’t have good measures of the productivity of government itself.  Those problems are built into how the number is calculated and there is no conspiracy to make America look much richer than it really is.

There is remarkably little on future expected productivity growth or whether America will solve the problem of educating its non-upwardly-mobile, which are both (the?) major issues for our economic future.  The author should spend a week locked in a room with the Solow model.  There is also precious little recognition that America in twenty years’ time will almost certainly be a good bit wealthier than today.  Given that no other country is about to take us over, does relative international status really matter so much for the happiness of Americans?  I don’t think so.  The richer the Chinese get, the more I feel good about living in the world’s first country to be a true product of The Enlightenment.  If only Phillips could feel the same way.


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