Monday, August 18, 2008

A sobering article ...

... not one I like to think about all that much. The United States is being bought out from underneath us.
We used to measure the economy in terms of GNP, which is the amount of income produced by U.S. citizens. But now we measure it by GDP, the income that is actually produced in America. The distinction becomes important, says Stiglitz, when an increasing proportion of the country is owned abroad. "If you were to look at America Inc. as a company, it's like owning a company and you own a smaller and smaller fraction of it. So the fraction of America Inc. owned by Americans is diminishing," says Stiglitz.

That means that when the economy recovers, there will be less wealth left in the country to reinvest in it. But then returning to the original question--Why is the American yard sale not setting off alarms?--Stiglitz explains that the alternative is even worse. "There isn't an outcry," he says, "because the focus right now is the weakness of the American economy, and anything to keep our economy going is welcome." That's why no one really objected to Citibank's becoming a Middle Eastern--financed bank, because it's better than Citi's becoming a dead bank. "But clearly we're worse off as a country," he says.

1 comment:

LVTfan said...

I'm always in favor of more precise thinking and language. So I think it is worth exploring further what is so troubling about foreign ownership.

There are three factors to production -- land, labor and capital. The returns to them are rent, wages and interest. I have no problem with foreign labor keeping its rightful wages, or foreign capital claiming its interest and taking it back overseas. But land is different, and it seems to me we have no business permitting the rent -- the economic value of land -- to leave the country.

Land includes not only the value of sites -- particularly urban land, an acre of which can be worth a hundred thousand times what an acre of good agricultural land is worth (an acre of ag land might be worth $4,000; there is a single block, about an acre, in midtown Manhattan which is said to be worth between $400,000,000 and $1 billion -- just for the land, which happens to be owned by a foreign airline company). It also includes such things as nonrenewable natural resources -- oil, gas, gold, other minerals; electromagnetic spectrum (the airwaves, which we say belong to the American people); water (Nestle owns Poland Spring and many others; MacQuarrie owns my local water utility, etc.); airport landing slots, which the USDOT now says belong to the American people, not the airline -- to name a few examples.

I would go a step further and say that not only should foreigners not be permitted to privatize the value of these things -- the economic rent from them -- but American individuals and entities shouldn't be permitted to privatize them either. That economic value rightly belongs to all of us.

In Alaska, some of the value of the oil -- royalties -- is used to fund state government spending, and another chunk of it is invested in the Alaska Permanent Fund, which provides an annual income to every man, woman and child in Alaska, in the form of dividends from the investment of that revenue. For a while there was talk that part of what we were fighting for in Iraq was for the right of individual Iraqis to share in the revenue from Iraqi oil. Haven't heard it for a while -- maybe someone thought about why we're fighting for a right for others which we don't have for ourselves, and thought it unwise to ask American lives to be sacrificed for it.

The classical economists distinguished land as being separate from capital. Most of today's economics students don't get the benefit of much exposure to this radical and important distinction, or its ramifications. Every economics textbook devotes a few appreciative pages to these ideas, and then recovers and moves on, without another nod.

"Investing in land" is inert. Dollars one pays to the previous landholder are dollars that don't produce anything new; they simply enrich the seller. They can't be used to buy inventory, or pay wages, or invest in machinery, or cash registers, or anything that will make the business more efficient or effective.

I'm happy to have foreigners invest their capital in the US -- but we mustn't let them, or anyone else, privatize the value of our natural resources. Those are ours! And we mustn't claim anyone else's as ours, either. Isn't that what most wars are about?

You might take a look at,, and for more about these ideas.