Balancing the unbalanced

Since the 70’s, we’ve been loosing ground: buying more from our international trading partners than we sell. We know we need the dollar turnover that mandates a consumer society, but have we gone too far in the wrong direction?

The chart on the left is the US balance of payments between us and the rest of the world from 1960-2007. In continual decline since 1990, we are now importing over $700 Billion more than we are exporting. As Paul Krugman noted in a recent NY Times article, it is this imbalance of payments that is one of the biggest hurdles to a truly sustainable economy.

There has been hope that our service industry might provide the needed counterweight. Early on (the 60’s), the US actually purchased more services than we exported, while exporting more goods. But that changed in the mid 70’s. Now, we export more services, but that doesn’t begin to come close to balancing the goods we import.

As President Bush pointed out some months ago, we did see a slight uplift in 2007-2008, likely due to the strong dollar. Our goods were cheaper abroad, so more people wanted to buy them. But the uplift isn’t nearly enough to fundamentally alter the picture.

So the question is, what are the steps we can take that will encourage the industries-manufacturing-that will help us start to import less, and hopefully export more? There’s some light on the horizon. The new administration’s ambitious agenda for 3M jobs (up from 2.5M a few weeks ago) bodes well for an increased pressure to make things and to make things in the US. The rising costs of resources (oil is cheap right now, but we can safely assume that will change). If it starts costing too much to make it there and ship it here, then we will find ourselves forced to make more here. There’s also a broad spectrum of resources-plastics, glass-that started to become more valuable to reuse and/or recycle until the economic downturn gave us a real surplus of material that we were recycling. But that too is likely to change as the economy turns to find new growth opportunities. Finally, the companies that are currently manufacturing, tend to be more focused on finding innovative ways to keep workers instead of firing them, because optimistic management knows that skills are too valuable to lose. Caterpillar, for example, recently cut executive salaries by as much as 50% and senior executive salaries by up to $35%, in order to reduce the line workers they would have to let go to manage the downturn. For all these reasons, a return to focusing on real value-that which can be counted, measured, bartered-may well be not only an key step in creating a sustainable economy, but also much more attractive than finding the next, big, bubble.