Brian Reading, noted economist and director of Lombard Street Research, once observed that "A most confusing aspect of macroeconomics is the single fact that cause and effect can and do reverse roles as opposed to maintaining a fixed relationship as is commonplace in most forms of analysis." Certainly, this describes the perilous state of the American economy today. Over the last 30 years, a growing global trade deficit and sharp decline in our domestic manufacturing sector has seriously damaged job growth. As a result, federal governments and U.S. households have borrowed and spent beyond their means, generating a dangerous cycle in which continuing credit abuses limit the ability of American businesses to develop a strong, production-oriented, middle-class workforce.
In the words of legendary economist John Maynard Keynes, "A favourable [trade] balance, provided it is not too large, will prove extremely stimulating; whilst an unfavourable balance may soon produce a state of persistent depression." The ongoing underemployment in America and the deep social and political unrest we see around the globe are not flukes that the global economy can naturally cycle through. The world is changing, and we are presiding over the moment when America loses its place as its leader. There is no one solution to our economic ailments. Any prescription for relief must address a dual mandate: put our people back to work and close the trade deficit.