Your article was thought provoking and flawlessly reasoned… from a US perspective. Precisely as you claim, history indicates (proves even), that dips in the U.S. economy have a ripple effect elsewhere in the world. The current lack of liquidity in financial markets is a prime example since the ‘faults’ lay almost entirely in U.S. lending and yet here we all are paying higher interest rates. And yet, the U.S. impact is lessening as time passes and is forecast to become far less significant outside of your own shores. I speak as someone born in England, married to an American, who has lived and worked in both countries and has Transatlantic kids! It may be a balanced perspective, on the other hand it may just be incredibly confused! Nevertheless:

The U.S. economy is driven by rampant consumerism. True enough that there must be a limit to the practical price of gas or John Doe won’t be able to buy any at all, but before he reaches that point, he’ll need to shift his horizon[1] a dozen times. Each shift is where he thinks he’s reached breaking point and is forced to evaluate his lifestyle in order to survive. Having done so, he’ll have a fresh lease of life… until the next crash and shift. After six shifts he’ll be like a European, twelve would give him a third-world lifestyle.

Meanwhile, U.S. corporations may need to change their style of operation too. The U.S. economy is driven by borrowing money in reflection of the enormous national debt and (im)balance of payments. While the $ is bought as security by foreign governments, this is sustainable but sadly, that’s already coming to an end as the Euro eats in to its once dominant position. The level of return on investment earned by most U.S. companies is too small to be viable in a tougher climate. Additionally, the bigger profits available from mergers and acquisitions are increasingly hard to find as pseudo-futures business burns a larger and larger number of fingers. Companies may have to return to delivering a product or a service for a sensible profit the way Ford and GM used to but forgot how. Competition forced them into diversification, money markets and near bankruptcy and while it’s hard to ignore the entrepreneurial millionaires who still do it the quick way, most medium to long-term business models follow old-fashioned principles.

John Doe has to stop wasting cash. He needs to buy groceries and eat in which means he needs to learn how to cook using something other than a microwave. He’ll cut his food bill by a huge margin that way.

He needs to stop thinking 35mpg is good, it isn’t. We pay $11 per U.S. gallon and I expect to get high 50’s from my car as a consequence.

He needs to stop driving 1,000 miles for a vacation or 40 for a pizza and forget the idea of a flight costing half a weeks wages as these things are probably not sustainable. Most people staying in the favorite vacation destination in West Palm Beach, the Florida Keys, Puerto Vallarta, Las Vegas or Kauai don’t know half of the attractions in their own neighborhood. Once again John Doe’s horizons may shift and eventually, he may more closely resemble his great grandparents when it comes to travel.

He needs to buy electrical goods with the intention of keeping them for many, many years. The same with furniture, clothes, cars and everything else. He, his wife and their kids need to stop measuring their self-worth by the amount of ’stuff’ they have, because although this in itself isn’t terminal, the constant obsolescence, updating and replacing is the root of the problem.

Sure enough, if he becomes frugal overnight the consumer-driven economy will collapse and yes, ripples will appear on our shores (although not as big as you might expect), but this will not be an overnight revolution, it will take the twelve or so shifts in his horizon to get there. At the same time the Chinese economy will stabilize and grow and stabilize and grow and become the world’s biggest. Second will be that of a united Europe (read ‘The United States of Europe’ by T.R. Reid) and third will be the U.S. where lifestyles will be as good as those in Europe; $11 a gallon gas, small cars (1 maybe 2 per family), small houses, eating food cooked at home, fewer gadgets, stuff being made to last longer and then repaired instead of thrown in the trash.

These things are inevitable because the U.S. economy has been inflated at the expense of every other nation and it won’t last much longer. The mill owner has been paying below minimum wage to everyone else in town and now they have other jobs. They are earning more and he is finding it difficult to pay his bills. Meanwhile he gets fewer perks and favours and isn’t happy about it. He may trade in his Cadillac for a Toyota (not a piece-of-dung Prius), sell his other five cars and move out of his 4,000sq ft home and into something he can afford. As long as his life is in order, the lack of stuff won’t matter and he’ll probably end up happier.

Right now, he’s like a guy in his thirties who’s still getting big handouts from his parents. Somehow he’s become confused and thinks he earns this money himself. His parents are retiring and won’t subsidize him any longer, now he has to balance his own books as his economy finds a new level. These subsidies in world economic terms are the temporarily revenues of highly successful U.S. corporations selling overseas. The gradual decline of their success is problem #1. The weaker $ is #2. The idea that buying an endless supply of cheap and shoddy goods for next-to-nothing is a God-given right (and also a good idea) is #3.

At this moment in time, your assertions are a fair assessment of the consequences of following the current trend, but pundits here claim that’s not how it will pan out over time. The U.S. economy will not remain dominant and Americans will have to get used to higher prices as a consequence. These things have a habit of being gentler in terms of the pace of change than they seem when written down like this. No American born before 1960 could ever imagine soccer becoming popular in the U.S. but it seems that kids and teenagers are taking to it in large enough numbers for it to become significant in the next few decades. Time and a fresh generation of greener, Earth-friendly kids may rewrite the rule-book anyway.

In our lifetimes, the English have become more American in habit and outlook. What we’ll see over the next few decades is that gap closing still further, but this time from both directions. We are poorer over here in real cash terms and it isn’t great to have less, but actually it doesn’t matter either. Oscar Wilde said, “Happiness is earning 100 guineas and spending 99. Misery is earning 99 and spending 100.” Anyone who has lost a loved one or who has become seriously ill, would give up their money and possessions for a happy, healthy family.

It’s great to have it all, money, health and love, but there’s a Japanese saying, “You can have anything you want in life, you just can’t have everything.”

And one more for luck; this one’s from China, the center of a lot of what’s going on with our economies right now and even moreso in the future,

“The man who isn’t satisfied with a little, will never ne satisfied with a lot.”

Regards, Geoff

[1] To me, horizons change when something we held as certain becomes uncertain and we have to think the unthinkable only to discover that with new presuppositions to base our fresh thinking upon, a new horizon is created before us. We accept this as something concrete, ignoring that no previous horizon had ever turned out to be solid. Horizons are the limits to our current thinking, made artificially solid and permanent for reasons of comfort and in spite of all the evidence. Man makes plans and God laughs