Five Years Later: “Advantage America” by Dr. Gary Shilling

Lehman collapseLehman Brothers collapsed September 15, 2008. Five years later, the world is still struggling to recover from the most serious crisis since the Great Depression. Our government seems to be in perpetual dysfunction. The media seems intent on focusing on real and potential problems. It is easy for Americans to feel pessimistic about the future.

There is another side to the story. It is presented by Dr. Gary Shilling who has become quite bullish about the future prospects of the U.S. This is particularly interesting, since Dr. Shilling has been a “confirmed bear” and may be best known as the author of The Age of Deleveraging- Investment Strategies for a Decade of Slow Growth and Deflation, originally published in late 2010.

Dr. Shilling, in his July 2013 issue of Insight, wrote that prospects are bright for a return to rapid U.S. economic growth and a resulting decline in the federal debt-to-GDP. He outlined six key areas where the U.S. is better positioned for the future than any other country- developed or developing. These include:

1.  Demographics. The U.S. fertility rate is currently 2.06 to 1. That is close to the 2.1 rate needed to sustain the population in the long run. All of Europe, and even Canada and Australia, are below the reproduction level. Japan is at 1.30 and China at 1.55. In the long run, this means our population should stay roughly constant and there should continue to be a large percentage of younger workers. This is critical for future economic growth. No other developed country has these characteristics.

2.  Entrepreneurial Spirit. “Despite perceptions of an erosion of U.S. economic vigor, America still seems way ahead of whoever is in second place,” wrote Dr. Shilling. Our educational systems encourage free inquiry and challenging the accepted doctrine. Japan and China discourage individuality and education typically is based on rote memorization and lack of inquiry. In addition, U.S. manufacturing has regained its spot as the most favorable spot for foreign direct investment, pushing China into second place.

3.  Labor Flexibility. In the last 40 years, union membership in the private sector has been reduced from 40% to 6% of the workforce. In the last five years, Americans that are out of work have accepted new jobs, many at lower pay. In the auto industry, for example, the average pay of autoworkers is now less in the U.S. than in Germany or Japan. As a result, American made vehicles are beginning to be shipped abroad in significant numbers.

4.  Declining Need for Foreign Financing. Americans are saving more. Most recognize that you cannot count on double-digit returns every year from your investment portfolio. In addition, you cannot plan on your home equity providing the funds you need for retirement. Therefore, Americans need to save more and they are doing that.

More savings means consumption will grow more slowly. In addition, when spending growth is retarded, this means buying fewer imports. The result will be, in Dr. Shilling’s estimate, a reduction in the U.S. trade and account deficits. This will put fewer U.S. dollars in foreign hands. And, it would mean that America could meet more of its financing needs internally.

5.  Strong Dollar. Despite all of the issues here in America, the U.S. dollar is not even close to being unseated as the world’s primary reserve and trading currency. We have the largest economy, deep and broad financial markets, free and open financial markets and economy, lack of substitutes and credibility in the value of the currency. No other country can boast these attributes. Hence, the U.S. dollar is the only safe haven of any size in a persistently uncertain world.

6.  Energy Independence. America is on the way to self-sufficiency in energy. There are predictions that the U.S. could be relatively free from foreign oil dependency as early as 2020.

Certainly, no one can predict the future. However, Dr. Shilling’s remarks do unmistakably outline the reasons why America is better positioned for the future than any other country in the world. With all the negative media we see, hear, and read daily, it is nice to be reminded and encouraged by positive facts foretelling a brighter future.