America must live within its means - by Hamish McRae
There are two bits of good news here for whoever is the next president. He cannot be held responsible for the recession because it is here now, but more important, in another four years when he comes up for re-election the economy will be growing again. There is a natural economic cycle from which we don't seem able to escape, and that makes it virtually certain that the next election will be against a much more favorable background. So there will be time to fix things for the longer term. Right now the US is consuming too much of its output: more than 70 per cent in fact, compared with 65 per cent or less for most developed countries. That money is indirectly borrowed from overseas, with the US having a current account deficit equivalent to some six per cent of GDP. So American consumers have maintained their standard of living, buying cheap goods from China, but the US has become the world's largest debtor nation.
So the central challenge for the next president will to persuade the country to live within its means. That has to happen at a personal level but also at a national level. This cannot be fixed in the next four years or the next eight but a start can be made. This does however mean a slower rise in US living standards and there is no getting away from that. And that raises the biggest question of all. Is the US willing in the 21st century to cede the economic leadership that it built up in the 20th?
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