Sunday, April 23, 2006

Paul Krugman: Things are worse than they seem

Economist's View: Paul Krugman: CSI Trade Deficit: "Right now, forensic analysis seems to say that the U.S. trade position is worse, not better, than it looks. And the answer to the question, 'Why haven't we paid a price for our trade deficit?' is, just you wait."

Bush Administration economic policies have been singularly ill-advised. And, they will have consequences.

But, those consequences, although certainly "bad", may not be sharp, or particularly soon. And, it is difficult to anticipate what narrative may be attached. The American middle class has seen the Republicans chipping away at their income and security for decades.

There is some non-zero chance, though, that a vicious circle is about to be triggered.

Trade is a big part of that. The country is living beyond its means. In quantitative terms, the American standard of living is about 6% hot air. If the hot air passes out of the bubble slowly, it might not be much noticed. If the bubble bursts, and we lose that 6% over some short period of time, people will very much notice.

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