Why the USA is losing its economic greatness 
As its manufacturing industry declines due to poor economic understanding

The Economy section of the United States entry in the CIA World “Factbook” describes the 2013 US economy as “the largest and most technologically powerful economy in the world with a per capita GDP of $49,800.” Yet the United States has been steadily losing its position of manufacturing power — although the USA it is still a great centre of invention it is no longer a great manufacturing centre because its economists do not understand economic growth, despite the fact America’s total GDP is $16.72 trillion at purchasing power parities (PPP), currently the largest in the world. (All figures that follow refer to 2013, unless otherwise stared, and come from the “CIA World Factbook.” )

All great and commanding economies have been founded upon an inventive people and a large and innovative industrial and manufacturing sector. The industrial sector in the US economy is a mere 19.5% of GDP, equal to about $3.26tr. If an economy is to stay advanced, it needs to invest a great deal to ensure the plant and equipment in its factories are continually updated, and to convert inventions into factory-floor innovations. “Gross National Saving” in the USA is only 13.5% of GDP. So the rate of economic growth in 2013 is a mere 1.3%, and US growth was 2.8% in 2012 and 1.8% in 2011.

The Chinese economy provides an interesting contrast to these figures. The industrial sector in China is 43.9% of its $13.39 GDP, or about $5.87 tr — about 80% larger than America’s. What the CIA calls “Gross National Saving” — much of which is not saving at all, but investment credits created at the People’s Bank of China — is said to be 50% of GDP, 3.7 times higher than the USA rate of 13.5%. So the Chinese economic growth rate was 7.7% in 2013, 7.7% in 2012, and 9.3% in 2011.

The CIA commentary relating to China is mainly right, especially in the light of the Confucian comment “Each has given the right answer, according to their understanding.” But the CIA does not understand Shimomuran economics and like many another of the US-dominated groups (the IMF, the World Bank, the OECD visiting teams) appears to have no wish to learn about it. The result is a summary of events without any appropriate understanding of the financial drivers which underwrite the rapid industrialisation and development of China. The first sentence in the “Economy- Overview” should be “After the Nixon-inspired Rapprochement of 29 September 1972, many Chinese delegations visited Tokyo and the Chinese visitors begged their Japanese counterparts to share with them the secrets of economic growth. This they did, based upon the insights and works of Japan’s most influential economist, Dr Osamu Shimomura, and the Chinese applied these understandings and their economic miracle resulted.”

As an aside, the population below the poverty line is CIA-reported as 6.2% in China, 15.2% in the USA, 15.5% in Germany and 16.2% in the UK. The city-building of the “Chinese Dream” has created the highest rate of home ownership in the world — China is the only place in the world where 90% of households are home owners and 15% of households own a second home in 2010 (see the Forbes article below). Most of the people in the world would think it would be great to be that poor and that rich, in the only country in the world where legislation has had to be passed to stop some Chinese billionaires from buying an extra home in nearly every new city. And the great increase in Chinese land values is due to cheap land being sold for development, then sold on later with skyscrapers on it. A bit like what happened with Rockefeller on Manhattan Island. And all that has only become possible because of Shimomuran economics. See
http://www.forbes.com/.../in-china-theres-not-one-city.../

American economic decline is not inevitable. The USA would only need to adopt the Shimomuran understandings about how wealth creation actually operates and provide once more the FED-funded investment credits as long term funds to manufacturing industry (as the FDR adminstration did during 1938-44) to enable the rapid recovery of the economy on the basis of a more up to date plant and machinery and product line.

But perhaps I should provide the details for that proposal.

© George Tait Edwards 2014.

Note: George Tait Edwards has published a book about “Shimomuran Economics” at http://www.lulu.com/shop/george-tait-edwards/shimomuran-economics/paperback/product-21688864.html and much else elsewhere during the last four decades.