A brief note on the American economy

America's economy is recovering, thanks to the swiftness of our policy response (Obama gets much of the credit, but George Bush and Ben Bernanke also deserve their share) and the flexibility of our businesses.

However, a huge debt overhang, combined with rising interest rates (a mathematical certainty given that rates are currently at their theoretical minimum), will cause the American consumer to underperform for a long time. Which means we must export more in order to fully recover. A lot more.

What can we do to spur exports? To start with, a lot of structural things. We can invest more in infrastructure. We can invest more in research. We can shift taxes from corporate to personal income taxes. We can end the employer-based health insurance system. We could even establish an export-promotion agency, similar to those used by other rich countries.

Note that China could help us a LOT by appreciating their currency. They won't, of course. But if they did, it would not only increase our exports in the short term, it would cause inflation in the U.S., which would help to erode that massive overhang and get the U.S. consumer back on her feet (which, incidentally, would help Chinese exporters in the long run too).

But even if we can't or won't pressure China into appreciating their currency, we can and should focus on boosting American exports.


PS - From the comments: Inflation = good??? You may have heard that inflation is BAD. Well, inflation has costs associated with it. Also, inflation is dangerous, since it can spark an "inflationary spiral", where inflation and inflation expectations feed off each other until the Fed causes an intentional recession just to stop the madness (see: early 80s). But given the massive debt we're in, we need some inflation to help us pay it down...