The US at a watershed

Posted on: March 23, 2010 in: Uncategorized with 0 comments

My wife and I took our two boys to Washington D.C. over March break. Amazing city – incredible museums and galleries, historic and awe-inspiring buildings, great for walking and bicycling, clean (no food onboard), efficient, networked subway system. I’m not moving – I’m just saying, Wow!

The Smithsonian’s Air & Space Museum provided vivid evidence of the incredible achievements the US has and continues to make in science and technology. Their lead might be slipping but they are just so far ahead of other countries.

The irony of course is that in this incredibly advanced country, a huge portion of people still believe the Earth was created in seven days and dinosaur fossils were planted by a mischievous God. We visited a brand new exhibit on human evolution across the street at the Museum of Natural History. The curators actually tried to appease the creationists and an AP reporter asked my wife if she thought the exhibit would offend creationists! (Obnoxious parent alert – the reporter also quoted my son on the subject of wildebeests.)

Just a few days after our visit, the US Congress voted in favour of the Health Reform Bill that will eventually lead to universal health care. This bill is the biggest, most significant piece of legislation enacted since Lyndon Johnson enacted Medicare (for the old) and Medicaid (for the poor) in 1965.

For the US’ economic health, the current bill is crucial. M & M were on track to bankrupt the country in a decade. This bill, in theory, will seriously improve efficiency of the system and actually reduce total health care spending even as it extends coverage. Those two goals are not mutually exclusive if you consider the expense insurance companies incur to weed out sick people, an expense that could be spared if everyone, by default, was covered. Covering everyone, should also reduce the demand for over-priced emergency care that too many un-insured people rely on.

The more significant effect of the new legislation – the reason it will be seen as the watershed moment decades from now – is that it will begin to reverse the trend of the rich getting richer, a trend begun way back in 1980 by Reagan (and Thatcher in the UK). This was the trend to privatize and deregulate everything and give the markets a free hand. The result was that the rich got much richer while everyone else stood still or fell behind.

The US health care legislation will effectively transfer money from the plus-$250k-a-year to the sub-$90k-a-year middle class. The economic gap that has opened between the healthy and the sick will narrow. See this article in the New York Times for more on this.

The other trend I think we’ll see reverse is trade liberalization – another tenet of the Reagan-Thatcher cabal. The biggest relationship that would be affected of course is that between the US and China. The two are each others’ biggest trade partners. China’s coffers are filled to the ceilings with US Treasuries just as America’s retail shelves are overstocked with Chinese goods. US corporations are entrenched in China’s special economic zones. But this relationship is only two decades old.

Think back to the 1980’s when in place of China, there was Japan. America was begging Japan to buy its products even as the Japanese flooded the US with its home-made cars. The Japanese simply bought Rockefeller Center, Universal Studios, and Hawaii. But eventually, they relented. Now Hondas and Toyotas are made in the USA (see where that got them!) and Japan is doddering in its old age.

As its biggest creditor, China needs America to do well – at least well enough to honor its debts and well enough to be able to buy its goods. The current trend of ever-increasing Chinese exports to the US, ever-expanding Chinese USD reserves and ever-still Chinese Yuan exchange rates will end, though I can’t say when or by what mechanism. When it does, I believe the US will be the winner.

Your thoughts and comments are always welcome, especially on a subject as tricky as this one.
Regards,
Vikash
23 March 2010

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