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...)

The one thing that truly distinguishes the new global economy is trade. Since the fall of the Wall in 1989, global trade has defined economic growth. There is simply no way to compete economically without competing on trade. Trade means competing and in ways that the USA has never understood before. As much as some people seem to argue against "globalization" the fact is we have no choice as Americans. Either we understand this fundamental truth, pull up our straps, and get out into the global market and sell more American products or our national economic security will be even more imperiled than it already is. It simply does no good to bemoan some of the displacement effects of globalization; these effects are with us and the only way to counter them is to compete even harder in the new global economy.

In the early 80s, as some may recall, America was awash with fear-mongering about the "Japanese Challenge". Back then the prospect of Japan surpassing the USA actually unified Americans--especially American business--and we rose to the challenge and turned it back decidedly. Now, however, there doesn't seem to be any sense of urgency either by the federal government--Congress and the Administration--or American businesses to rise to this new global challenge and compete aggressively. This is surprising considering the verve with which capitalist America supposedly embraces competition. Yet the facts don't lie as you will see from the charts in this chapter.

America's trade deficit from 1976 up to 1999 remained under 3% of GDP. Since US economic growth--including productivity gains--outstripped this deficit, it was viewed with benign neglect and generally drew a big yawn from policy-makers. But something happened in 1999: Our trade deficit went from 1.8% the previous year to 2.8%, and it hasn't stopped growing since. By 2006, our trade deficit had grown to over 6% of GDP, surpassing American economic development. Simply put, this means 6% of America's economy is walking out the backdoor each year and no one is paying any attention! Can you imagine the response if an employee were stealing 6% of a store's stock out the back door? Yet that's what's happening to the US economy with our trade deficit but our government is doing nothing about it!

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OVERSEAS AMERICANS:
Why Our Trade Deficit is Our Own Fault

In 1962, the Kennedy administration was convinced that movie-stars and millionaires were living outside of the U.S. to avoid taxation. Despite this having never been proved either then or since, it hasn't stopped the US government from instituting a myriad of legislation to effectively punish any private citizen from leaving America's shores to pursue any opportunity abroad, especially increasing US exports.
This includes instituting a taxation regime based on nationality instead of territoriality--the only industrial country in the world to do so. What this means is all Americans--not just millionaires--are required to file a tax return on his/her worldwide income no matter where they live, and pay US tax liability on any income not taxed according to the rules of the IRS. The government is "kind" enough to grant a tax credit for any income tax a US citizen pays to the local government, but requires the overseas American to make up any difference between comparable local taxes and any hypothetical US tax liability. In practice this means that if an overseas American lives in a country with little or no income tax comparable to US taxes, he/she is required to pay taxes to the US government on their income as if he/she never left America. But, of course, not all countries in the world use income taxes similar to America to fund themselves. As far as the US government is concerned this is just too bad for the individual and he/she faces an increased tax liability to the IRS. Of course, the Federal government never understands that overseas Americans do not receive any of the benefits that the US government provides citizens and other residents in the USA, but they are nonetheless required to act fiscally as if they never left. The concept and practice is simply absurd--moreso now when we need more and more Americans going overseas to increase our exports!

(...more in the book)