Faisal Islam: Could the US economy be doing too well?

🌈 Abstract

The article discusses the current economic boom in the US, its potential consequences, and the contrasting approaches between the US and the UK in addressing economic challenges.

🙋 Q&A

[01] The US Economic Boom

1. What are the key signs of the economic boom in the US?

• Rapid investment in factory construction, with monthly investment more than tripling since February 2021
• Significant increase in manufacturing of green industries and microchips, reversing the trend of outsourcing to China
• Unemployment at a 50-year low and hundreds of thousands of new workers joining the US workforce every month
• The US is on track to produce a fifth of the world's advanced microchips

2. What are the potential risks and concerns associated with the US economic boom?

• The US is borrowing heavily to fund the economic policies, which could push inflation higher again
• There are fears that the US is building up too much debt, with the annual deficit around 6% of the size of the economy
• The high government debt and interest payments could limit the government's ability to fund other priorities like defense, infrastructure, and the courts
• There are concerns that the US is undermining the confidence in the "full faith and credit" of the US government, potentially jeopardizing its status as the world's reserve currency

3. How do the economic experiences of the US and the UK differ in this context?

• The UK government and opposition have decided that the UK cannot mimic the US approach due to the lack of a reserve currency
• The UK's shadow Chancellor has cited the advice from the US Treasury Secretary about the inflationary risks of such borrowing-fueled spending without first investing in skills and easing planning laws
• The UK Chancellor has made it clear that the UK cannot afford to engage in a "distortive global subsidy race" like the US

[02] The Implications of the US Economic Boom

1. How is the US economic boom transforming the global manufacturing landscape?

• The US is reversing decades of outsourcing to the Far East, particularly China, and is now staking its claim in the global green economic transition
• The US is investing heavily in the manufacturing of green industries and microchips, which was previously seen as "made in China"

2. What are the potential long-term consequences of the US economic boom?

• The US economic policies under the Biden administration are fundamentally transforming the world economy
• The US economy is significantly outperforming the rest of the West, which could lead to a shift in the global balance of power
• The success or failure of the "Bidenomics" gamble will have a significant impact on the post-election choices facing both the US and the UK