The Cobbler’s Children Go Unshod
Last May 20, in “Diagnosis and Transformation of a Continent” I talked about the prospects for Latin America in the context of the expansion of Grupo Elektra throughout the continent. Today, I will write about our closest neighbor in the region, to the north.
For years —many years— under the so-called “Washington Consensus,” austerity policies were dictated to Latin American governments from the U.S. capital when those governments should have been providing basic public services to their respective populations. I agree that in general governments should be austere; government spending can distort an economy. Precisely for that reason, we should all be concerned about what is happening in the United States: Washington would do well to adopt its own consensus.
In the first place, according to data provided by the White House Office of Management Budget, the fiscal deficit has soared.
The cost of the military deployment in Iraq is one of the most widely publicized facts: official estimates of about US$300 billion do not jibe according to Joseph Stiglitz, Nobel Prize winner for economics; he estimates the total cost at almost four times that amount.
If we take Stiglitz’s total cost estimates (which came to US$1 trillion) and divide them by the country’s almost 100 million households, we get a cost per family of the war of almost US$10,000. We can then understand why the tax rebate that was just distributed, which came to only a few hundred dollars per family, barely counts for anything in the consumer’s pocketbook.
The federal government’s debt is even more crushing for U.S. households.
The total debt comes to US$9.2 trillion: it is hard to imagine this figure, but the amount is equivalent a US$92,000 debt for each of the country’s 100 million families. We should add to that the average of US$138,253 in private debt for each household, for a total of US$230,253 total for each typical family —1.65 times the annual gross domestic product per family.
In this scenario, heightened by an almost recessive situation, we can understand the devaluation of the dollar: it has lost half its value vis-à-vis the euro in the last seven years. It has depreciated almost continously since late 2001, and the worst thing is that the trend persists because the finances of the issuing government affect it directly.
It should come as no surprise that the worst enemy of middle-class pocketbooks has re-surfaced: inflation. In 2005 and 2007, inflation in the United States was higher than in Mexico.
According to the Federal Reserve’s Board of Governors, projected inflation for the United States is continously rising: last April, the estimate for 2008 was 2.5 percent; one month later, it was already 3.35 percent.
Finally, it is interesting to emphasize that according to figures from the CIA publication World Fact Book, 12 percent of the U.S. population lives under the poverty line, a number very close to Mexico’s 13.8 percent. In contrast, the United States has almost 10 million people with holdings of over one million dollars. This is not a bad thing per se, as long as the proportion of families under the poverty line does not continue to grow.
The U.S. economy is taking a dangerous path. Our economies still depend greatly on U.S. prosperity, and for a dollarized world, the dollar’s continued depreciation is a great threat.
Latin America must aspire to achieve the prosperity the United States has enjoyed, rather than watching this economy weaken. For the good of the region, we must all hope that the next U.S. president understands this great economic challenge and takes effective measures to meet it. We must aspire to a responsible development consensus for the benefit of all the countries in the hemisphere.