It's the Economy! (Stupid)

"A universally helpful and insightful book. I particularly liked the straightforward charts and summary points. It should be a reference manual for everyone interested in the US economy."

David Gamble
Former Chief Executive
British Airways Pension
Investment Management Ltd

(excerpt from the book...)

It seems almost trite to say we live in a global economy in ways we never have before. But this is, nonetheless, a fact. While there has always been a global economy, with trade being carried out around the globe, nonetheless, the level of trade and the interconnectivity through the internet, global telecommunications, and relatively inexpensive air transportation has increased the importance of the global economy, especially to America. Unfortunately, it does not always seem that America's policy-makers understand this point as will be clarified in this book.

As we all know, the US economy became the world's biggest as a result of WWII, since all its major competitors--France, UK, Germany, Italy, Soviet Union, and Japan--had their economies seriously disrupted if not destroyed. As Stalin imposed the Cold War on the world, and Mao took China out of the community of nations, the world economy was divided into: Capitalist states (free markets), communist states (command economies), and the rest of the world, which were referred to as "under-developed nations" or "less-developed nations" or "developing nations". (There were numerous economists who quite rightly drew up ways of dividing the rest of the world into these categories). But nonetheless, the total sum contribution to the global economy of these countries was very little. There was the "First World" - i.e., the capitalist countries (also known as "the free world"); then the "Second World" - i.e. the communist countries; and then the "Third World" - meaning everyone else.

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Consequently, it is vitally important moving forward that Americans understand its relative position in the new global economy and the implications. On page 14 is a list of the top 20 economies in the world ranked by GDP (see Summary Point #1 for definition). As you can see, according to the World Bank, the top 20 economies are responsible for over 80% of the economic activity of the world. Consequently, as the top 20 goes, so goes the rest of the global economy. You will see that the USA remains the #1 single country economy in the world with roughly 25% of the global economy. However, as you'll see in the chart on the bottom, the European Union has surpassed the USA, although those countries that accept the euro is still smaller than the USA.

The distinction is important since currencies are determinants of trade in the global economy. Consequently, unlike in the past up to 2002, the US dollar--and thus the US economy--now has competition of equal standing in the new global economy. The US cannot claim leadership in this regard as it has since WWII; it has to earn its leadership.

What does this mean, and why is it important? In the past, to be blunt, the USA determined terms of trade in the "global" (albeit "restricted") First World because no other economy could provide the liquidity in the form of the US dollar needed for the global economy to grow. This is now no longer the case. Now for America to remain leader in the global economy--despite the size of its economy- it has to compete in the global economy in ways it never has had to before.

(...more in the book)