Let’s be honest, do you actually pay for HBO GO? Do you really own a Netflix subscription? I’m sure you watch HBO GO, but I’m just wondering who is paying for it. Is it the ex-boyfriend of your cousin’s old dog sitter? It’s saved on your computer, but whose HBO GO password is that anyway?
Someone, in a complex web of friends, family, coworkers, and acquaintances, is actually paying for that entire web’s ability to enjoy Game of Thrones. Someone has created real value for that web, and the rest are just riding the waves of that person’s labor straight into their 10^nth episode of Entourage.
We learn in Macroeconomics 101 about the balance of trade. We export goods and services to other countries, and we import goods and services from other countries into the U.S. The value of imports and exports, one would initially imagine, would have to be equal, because why would one country give up something for nothing? For the U.S., this is not true. We have been running massive trade deficits since the early ’90s. Last year, the deficit was about $470 billion. The only way that this relationship can work is if the other nations of the world are okay with purchasing U.S. financial assets, such as Treasury bonds, to balance out the deficit. Luckily, since the U.S. is viewed as the safest place for investment in the world, we are able to attract continuous foreign investment.
The U.S. is special, and that’s why we get to use the rest of the world’s HBO GO passwords for free. The U.S.’s debt is now more than its annual GDP. Although we are not unique in this respect among the nations of the world, we again benefit from our status as the international reserve currency in terms of borrowing rates. Despite our massive debts, we still get to borrow from the international community very cheaply, in comparison to a nation like Greece. We are still viewed as safe to lend to despite our massive, crushing debts.
My concern is that on top of our propensity to borrow, we are also a “service” economy that may be in danger.
The U.S. makes very little now, at least in terms of tangible assets. The Apple laptop on which I am writing this column was designed in the U.S., but not manufactured here, and most of the components that comprise it were not produced here, either. We, as an economy, have long been relying on the fact that we have superior knowledge that we can trade with the rest of the world for physical goods. We have a superior education system that produces the type of people who become Steve Jobs, and make beautifully designed hardware and software, and know how to run a business. All of the innovation and design that takes place in the U.S. is essential to the global economy, and it creates value globally.
But I must ask, for how long is this system sustainable? The U.S., long ago, stole manufacturing away from the UK because workers there were too expensive compared to U.S. workers. The U.S. then lost manufacturing to places like China and India, because U.S. workers had become too expensive. As nations become wealthier and wealthier through manufacturing, they begin to become accustomed to a certain type of lifestyle. As we are seeing in China and India right now, the education system improves though investment, and the economy diversifies from just a manufacturing economy to an economy that also creates services. Educated people tend to want to work in services instead of manufacturing. A problem arises, though, if a nation can’t export enough services to cover the costs of all the physical imports it needs to survive. A nation will then start to borrow heavily and live off of investment from the international financial community. At the point when China fully develops its service sector and realizes that it doesn’t need U.S. consultants anymore because it can train its own just as well, will it still invest so heavily in U.S. Treasuries, or will it see the holes beginning to form in our economy?
Manufacturing will continue to move from country to country, searching for the lowest labor costs, until the global level of wages rises to a point where it is no longer sustainable to produce somewhere else and ship goods back to a home nation. As more and more nations become service economies that borrow heavily, who is left to pay for the HBO GO?
Let’s just watch Boardwalk Empire until a crisis happens.
Featured Image by Breck Wills / Heights Editor