US WATCH: ECONOMY’S REAL VALUE

Erle Frayne  Argonza y Delago

 

Great and mighty is America’s economy! America can buy the whole earth and feed all the world’s people! Americans are the world’s wealthiest, they can buy any and all guys outside the borders!

 

What delusional arrogance from some demonic Pied Pipers! The USA’s GDP ended up at $12.5 Trillion last year, though some indicator massage could yield a higher figure of $13.5 Trillion (using Purchasing Power Parity or PPP). Measure this against the Gross World Product of GWP of $59 Trillion more or less, end of 2007. Estimates by experts is that the US contributes to 22% of the GWP, and ditto for the EU.

 

That figure of $12.5 Trillion, fellows, is simply the ‘nominal value’ of the US economy. Nominal and real are two different categories in economics. Granting that the ‘virtual economy’ based on financial speculation has been the one that raised values of commodities and services in the USA, the ‘nominal value’ is actually inflated, rendering the ‘real value’ at a much lower level.

 

Do recall when the stock market crashed in 2001. At that time, the psychological benchmark was 10,000 points at the Dow Jones. Each point in the Dow Jones then was approximately $1 Billion worth. A decline of 100 points means $100 Billion pared off from the economy, or at least the virtual economy. The stock market eventually crashed down to 7900+, which made my own hair rise with horror all over my body.

 

The stock market then stayed for a time at the 7,900-8,300 points, for couples of months, before it again steadily climbed. For simplification, let us use the figure of 8,000 points as the lowest level that the economy can crash down to, the rock bottom. That is around 77% of the 10,000+ benchmark more or less.

 

That figure, fellows, is the rough estimate of the ‘real value’ of the US economy. If we multiply 0.77 by $12.5 Billion, this yields $9.63 Billion. That’s the real figure, the real value, the real score of the US economy. If we convert this to PPP, this will rise a bit to $9.8 Billion more or less. The remaining balance of $3 Billion, to complete the $13.5B –PPP, is all ‘casino economy’ value, all speculative value and nothing more.

 

So now, going back to a previous question, where and how will the USA get funds to pay for $50 Trillion worth of debts? Do the electoral bigwigs in America possess with them the proper framework to comprehend and recommend practicable solutions to America’s ailing debt crisis and overall economic malaise?

 

I wish you American voters will do your own deep inquiries about the depth of your problems. The health of the global economy is being endangered by the impending US economic collapse, a fire that can easily burn out the EU as well (this fire had already begun there in fact). When both the EU and USA are in economic collapse or ‘fire function’, the entire global economy will catastrophically fall in deep quagmires.

 

[Writ 05 June 2008, Quezon City, Metromanila]

US WATCH: THE ‘VIRTUAL ECONOMY’ WRECKED UNCLE SAM

Erle Frayne Argonza

So, fellows out there, whatever happened that the once mighty US economy—once contributing to 40% of Gross World Product (GWP)—is now drifting downwards, producing now just 22% of GWP?  That the EU would itself catch up with the USA and equally produces 22% of GWP, though EU’s money is bloodily mightier than Uncle Sam’s once mythical Dollar?

 

As a matter of realistic forecasting, if trends today would continue across the globe, Asia would overshadow both the US and EU, as follows: China will overtake each one of them by 2015; India, by 2022; ASEAN, by 2030.

 

While the US ‘real economy’ keeps on contracting (and the EU’s stagnates), the Asian economies are still expanding. 100 years ago the Western thinkers Oswald Spengler and Arnold Toynbee already forecast so sharply the ‘decline of the West’, while Daniel Bell foresaw in the 1950s-60s the rise of Asia-Pacific and its overtaking of the US 60 years hence (2005-2015 period). No one listened to them.

 

If we all recall, in the 1930s the great statesman Franklin Delano Roosevelt launched the ambitious New Deal. This program initiated gigantic growths in the ‘real economy’, solved unemployment, and led to high-growth and high-wage trends for sustained periods. By ‘real’ is meant the most productive sectors, namely: manufacturing/industry, agriculture, infrastructures, S&T, and transportation & communications.

 

By 1971, with enormous pressures from the financial cartels, the famed ‘gold standard’ was junked, the fixed exchange rate system was likewise junked in favor of ‘floating rate’, and after which serial liberalization of economic sectors and the bureaucracy went on in very radical fashion. This led eventually to the rise of the ‘virtual economy’ led by predatory finance, featuring hedge fund operations and ‘vulture funds’ to salve crisis-ridden financial enclaves more so overseas.

 

The ‘gambling economy’ based on speculation, conceit, lies, rather than based on the real value of consumable articles of trade, became the dominant modality in the USA. Debts and more debts piled up, since having no debt was moralized as bad behavior. Debs quadrupled in just a few decades, resulting to $5 Trillion worth of debts today.

 

How can an economy that churns out merely $12+ Trillion a year pay up for debts worth 4 times the GDP? It’s madness, blatant madness! The US economy is largely now a bubble, so gigantic that when it bursts, it can reveal the real flaws behind the ailments, and the weakness of the ‘real economy’ altogether.

 

The message to the next President & VP of the USA is to take down that ‘gambling economy’ or ‘virtual economy’ and quickly bring back the powerful ‘real economy’ in place. Failing to do that, Uncle Sam will be faced with many mass out-migrations beyond 2010, as true-blue Americans leave for more stable and promising jobs and businesses offshore. They’ve already began doing that in fact.

 

[Writ 05 June 2008, Quezon City, MetroManila]

DOMAIN OF WEALTH OF NATIONS: BOTH DOMESTIC & OVERSEAS

Erle Frayne Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

 

The antiquated debate regarding which domain should be the main source of national wealth—whether domestic or overseas—is still alive today. In the article of New Nationalism, I argued that in the emerging context of post-industrialism, this debate has become futile and unproductive. Instead of stressing a domestic versus international mindset, I argued for a both/and frame.

 

Admittedly, the overseas domain as a source of wealth is as palatable as it used to be during the era yet of the city-states of Northern Italy (Venice, Florence). This has become the backbone of mercantilism, which in turn became the backbone of nationalist economics. Old Nationalism henceforth carried the pro-mercantilist banner of seeking wealth primarily from international operations. But this time around, this position has to be revised in the light of import-substitution success.

 

In the Philippine case, we have been having it both ways. On the one hand, our manufacturing sector’s products are largely consumed 86% of the time for the domestic market, indicating the optimization of the import-substitution aspect of our development efforts. On the other hand, our overseas employment and investments have been churning out a whopping Net Factor Income from Abroad or NFIA worth 11% of the GDP.

 

New Nationalism, to my mind, should rather have it both ways, as culled from this and other parallel experiences in emerging markets. At this time particularly, Foreign Direct Investments or FDIs by Philippine-owned or controlled companies has begun to take off and contribute to our national coffers. Add to this our exports worth 40% of GDP, and remittances from labor export of worth 10% of GDP, and one can see the broad picture of the potency of the overseas domain as source of national income.

 

Below is the entire subsection on the domains of wealth production culled from the New Nationalism article.

 

Generate wealth from both external and domestic markets.

 

Various stakeholders in the past were divided along the question of what should be the driver of growth & development (demand-side discourse): the external, or internal market? The followers of the ‘externalists’ were the ones behind the export-oriented development strategy, whose rationalizations for massive exports were quite poor recycles of the mercantilist contention that wealth should be produced more from out of the external markets (colonies during the time of empires). The ‘internalists’ were the ones behind import-substitution strategies, whose rationalizations were poor photocopies of Keynesian demand-side formulations.

 

In today’s context, it is wiser to view both the external and domestic markets as synergistic spheres for accumulating national wealth and meeting head-on the demands for delivering welfare. The external market discourse can work only in circumstances where a domestic demand has failed to develop, which in our case was the pre-1990s economy. By the late 1990s, it was clear that a significant change had taken place on the demand side of our economy, as folks were buying a lot of articles of commerce at a time of crisis. The middle class population is rising relative to the entire population, whose households’ needs have become more differentiated and have leaped beyond the bounds of ‘rice-and-galunggong’ expenditures. Today, Filipino families purchase around fifty-three percentum (53%) of their household needs from supermarkets, malls and large retail centers, even as the wet markets and sari-sari stores are declining in importance. These changes are real, and we cannot be blind to them by continuing to harp on an export-driven growth.

 

We must then fast-track large-scale redistribution schemes, such as to witness the rise in purchasing powers of our own people. This cannot be done outright during the next three (3) years, as we face a fiscal dilemma of crisis proportions. But beyond 2007 lies new opportunity fields. The fiscal route to stabilization will have been solidly achieved by then, and the nation can embark on more ambitious endeavors aimed at increasing incomes, reducing unemployment and poverty and increasing domestic consumption.

 

As the domestic market catches up in stabilizing the economy and producing national wealth, stakeholders shouldn’t be remiss in improving the competitiveness of our export products. Our great advantage is that we have ample supplies of skilled labor, with wages still relatively low. The power sector is also quite rich in supply of electricity, even as new projects are now being planned to neutralize possible supply problems in the short run. Hopefully, power supply would stabilize and electricity cost would decrease, contributing thus to rendering our exportable articles more competitive enough. Save for capital goods and petroleum, large volumes of which our producers continue to import, the other factors of production are within our hands to control and manipulate, inclusive of rent and interest rate. It is hereby argued that, with such factors controllable enough, we can optimize conditions for rendering our exportable articles maximally competitive and continue to permit the external market to be a source of substantial wealth. What more if we produce all of our essential capital goods, thus further bringing down the cost of production, given that the price of other factor inputs also go down?