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July 09, 2004

Killing the Golden Arch

The US trade imbalance and what used to be called back in the quaint old days, "the dollar overhang", have been pet subjects here at DW. You might ask why we are so obsessed with a situation that seems, after all, to work pretty well. In short, the American consumer gets to borrow and do what he does best, consume; the Asians make and service, OPEC pumps oil, and the dollars get recycled back in the form of direct investment and government notes.

What's the alternative?, you might ask. All this global economic activity is pretty good, isn't it? and prices for goods and services are holding pretty steady, aren't they? You're not suggesting some sort of protectionism, are you?

The answer, of course, is that we have no belief in building artificial barriers whether it is around the trade of goods and services or the movement of bits and bytes. It's as if we had just discovered that two wrongs don't make a right or some other profound old saw. How about, "if it ain't broke why fix it?" We say, ask Ken Lay! Just because it ain't collapsed don't mean it won't collapse.

Here's the scary thought in our mind: everybody acknowledges that the present economy rests on the shoulders of the American consumer. Great news, you say, why just last month the university that measures such things noted that consumer confidence was up! Having borrowed against her house, maxed out her plastic, this gal was coming back for more. She can even get a new SUV with nothing down and 0% interest. GM is even offering $5,000 back on some of its more macho models. In other words, it's a dream come true, it's almost like, like... you get paid for buying. Who wouldn't have confidence?

And so the Fed prints more dollars even as it bumps up interest rates a quarter of a point. And the world continues to buy our notes.

Here's the way it is supposed to work: with advances in technology the children of farm workers move to the factories and then on to cubicles. The business of America becomes intellectual property, brainpower combined with know-how resting on a base of demand for bigger, faster, more complex systems. In this scenario, information becomes the only real currency. Forget about shiny metal, black liquid and fiat currencies, she who knows how, wins. As they might edit the sign on the bridge across the Delaware River going into Trenton: from Trenton Makes and The World Takes to The World Makes and Trenton Thinks

Sounds good, n'est-ce-pas? So how does that reconcile with a public education system that has lost the confidence of middle class families in the cities and the suburbs? How does it reconcile with a world order in which growing masses of left-behind peoples reject edgy angst-ridden "entertainment" --a major export of the "knowledge" society-- for a return to the relative security of a pre-Galilean world view? Of course, to put it mildly, there is no shortage of contradictions.

Perhaps you can run ever greater trade deficits year after year. Perhaps the world will never tire of taking more newly minted greenbacks. Perhaps Trenton will take and take and take ad infinitum. And so with our dominance we can pretty much get what we want. If you feel that way there is little to worry about.

As for us, we're a little more old fashioned. We actually think there may come a day when investors and government bankers around the world start taking a harder look at all those dollars accumulating in their vaults. So here's a thought, instead of concentrating on imports that fill our need for tchotckes; we might note that only half the current accounts balance is based on imports, the other half registers in a countervailing manner, exports. In other words, if we can get exports up to all those newly minted Chinese and Indian shoppers not to mention all those Europeans we can offset rising imports.

Now let's look at what is certain highly valuable US intellectual property, our brand names. Here's some rhetorical questions we will pose to the current administration: does dropping out of highly charged international conventions like the Kyoto Treaty help or enhance US brands abroad, does rejecting the rule of the World Bank over US behavior, does unilateral US foreign policy, rejection of the role of the UN, insults to old allies, a cavalier attitude that looks like bullying, etc. enhance the world view of US brands? Fade left as we imagine that shining city on the hill topped by giant golden arches.

US foreign corporate earnings have been somewhat masked in the last couple of years by a falling dollar that quite automatically boosts incoming profits denominated in Yen and Euros on US corporate balance sheets. If the real cutting edge of US business is measured in the extension of US brands into the new and old countries whose goods we buy, can we count on government and corporate decision-makers in these countries purchasing proprietary mission-critical systems from companies like Oracle, Cisco and Microsoft whose intellectual property has now become, along with Hollywood's, not only key to our prosperity but also a major concern of Congress?

One of the reasons we have put a major focus on the debates raging around Open Systems and digital rights management (DRM) here at DW has a lot to do with the above. After all, as Microsoft has itself acknowledged in its Trustworthy Computing initiative, it all comes down to Trust, doesn't it? And Trust is in mighty short supply these days.

Posted by dymaxion at 03:47 PM

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