Economist Gary Shilling has well-established reputation for being one of the more bearish U.S. economists in finance.
But compared to the rest of the world, Shilling is convinced the U.S. is number one.
Writing for Bloomberg View, Shilling says a combination of demographics, education, the advantages of the dollar and energy production will allow America to emerge from the current moment of economic uncertainty on top of the world.
Here’s our summary of Shilling’s reasons and analysis:
By 2040, the U.S. ratio of working age to total population will be the highest for all developed nations, at 60.3%. And China’s ratio is expected to fall to 63.1% from 72.4% in 2010.
A naturally expanding workforce.
We need to add 1.44 million a year to keep our productivity growth rate at a steady 2.5%, Shilling says. BLS data indicates the working-age population will rise about 2.2 million a year. At a labour participation rate of 63.3 per cent, we should be able to meet the 1.44 million figure.
America’s education system is still better than anyone else’s, not least because American students are encouraged to think more independently than their counterparts abroad. He also observes that for all its growth, much Chinese industry remains tied to “inefficient, state-owned enterprises.”
Unions are dead or dying.
Declining wages are bad for the individual worker, but on balance yield a more competitive labour force. Shilling notes that after getting bailed out, U.S. automakers were able to shift the pay rate for new workers to $US14/hour, half that of veterans.
The savings rate.
Shilling forecasts a rise in the household savings rate to more than 10% once deleveraging is completed. “Americans have little choice but to save more,” he writes. “They no longer trust their stock portfolios to substitute for saving out of current income to educate their kids and finance early retirement.”
A vanishing trade deficit.
As we consume less, foreign exporters will see fewer U.S. dollar flows, and America can regain some control over its own finances.
The dollar emerged from the recession largely unscathed, while China’s and Japan’s currencies face the same structural problems and Europe is still reeling.
The U.S. can now flex its muscle in the Middle East without triggering an extreme spike in oil prices.