Categories:
Macroeconomics
The only answer I can think of is for the U.S. to then become the world’s largest private-equity fund: they lend us their money, and we then invest the money back in their economies–in industries and companies that then have a very high demand for U.S. high-tech goods and for U.S. services exports.
The best of all possible worlds would be a huge shift in capital flows, with the U.S. doing more of the world’s saving and other countries becoming more reliable places to invest. We would earn high returns building up capital in India, China, and the developing countries. They would increase their demand for our goods and services.
Usually, we’re farther apart than that.
READER COMMENTS
Bob Murphy
Dec 17 2008 at 8:34pm
I like your answer much more. And just between us, when DeLong starts a sentence with, “The only answer I can think of…” I don’t exactly lean forward in anticipation.
Bob Murphy
Dec 17 2008 at 8:55pm
Oops I misread DeLong. I thought he was saying the U.S. government should become the world’s largest private equity fund. But upon rereading that’s not what he’s saying. In fact, I think he’s just repeating the “Dark Matter” argument?
El Presidente
Dec 18 2008 at 1:39am
Isn’t that a little like an empire?
How would we protect our investments?
What if they refused to buy our goods?
Lots of questions.
Kevin
Dec 18 2008 at 3:57pm
El it is definitely an empire. For capital flows like those described to take place, people have to widely hold the view that the markets into which capital flows are at least as predictable as those from which it flows. All these heretofore lenders do not have adequate history with the rule of law for that to emerge, IMHO. So it would require external enforcement, aka empire.
I think lots of folks believe this is the efficient answer (US and UK becoming savers and seeking high returns where there is low hanging fruit) but the fact is nobody trusts any other economy to deal fairly with massive foreign capital investments. That distrust is probably the only thing propping up the dollar at this point.
reason
Dec 19 2008 at 6:30am
It seems you had the advantage of having longer to think. I suspect he on reflection probably likes your answer. His own answer sounds like very wishful thinking to me.
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