March 2, 2009

Why does the US have difficulty paying for oil imports?

This is really asking: why isn't the US competitive in it's exports, so that it can pay for imports?

The US has several major problems: a persistent negative balance of trade with oil exporting countries; another persistent negative balance of trade with Asia; loss of manufacturing jobs; bubbles in the financial and real estate sectors; and slowing economic growth.

Economic growth slowed in the 70's and 80's; sped up in 90's; and crashed recently.

The US doesn't have enough engineers (civil, manufacturing, software, etc) - we have to import students from other countries, something which has gotten a bit harder lately, as reverse brain drains send talented engineeers and scientists back to India and China.

What's the common thread?

Military spending: half of all US engineers work directly (West Point is an engineering school) or indirectly (Boeing, etc) for the military. Sometimes we get indirect benefits, spinoffs like the Internet (developed by the Defense Advanced Research Projects Administration to make military communications more resilient), but a lot is classified, and at best ends up in domestic products that can't be exported.

In the 90's the US reduced the military, and growth took off (and we had our first budget surpluses in decades). In the 00's we took the military option: innovative energy strategies like the PNGV program (the US hybrid program which sparked Japan's Prius) were ended, and we chose a military invasion of the M.E to guarantee oil supplies.

Now this administration is pushing investment into innovative energy strategies, and (slowly)winding down the Iraq war. Are we on the right track at last? Can we sustain it?

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