Will Hutton is a well-known commentator on the British left and a prominent advocate for the UK’s deeper integration within the EU. He was, recently, a co-author of a pamphlet (foreword by, strangely, Paul Volcker, not a man usually associated with economic illiteracy) making the case for Britain signing up for the Euro. Like many such folk, his attachment to the idea of a European super state runs alongside a barely disguised anti-Americanism. Here he is on the US economy – and why it could represent a weak link in any run up to an invasion of Iraq.
To suggest that all is well with the American economy would be optimistic in the extreme, but the picture that Hutton paints (with barely restrained glee) of an enfeebled, crumbling structure bears so little resemblance to reality that it’s impossible to know where to begin.
Let’s just look at one paragraph. Hutton is discussing America’s current account deficit:
“To finance the…deficit, a reflection of the lack of saving, the US relies on foreigners supplying it with the foreign currency it can’t earn itself, The Old Europe that Donald Rumsfeld mocked last week has been helping prop up the US economy, buying shares and bonds on Wall Street, taking over American companies and investing in real estate, compensating for the saving that Americans aren’t doing themselves.”
Well, he is right that Americans do need to save more (tax-free dividends will help) but he misses (or chooses to ignore) one critical point. These foreign investors have invested in the supposedly sclerotic US (and it is these capital flows that boost the dollar, something that plays no small part in explaining the problems faced by US exporters) because they believe that returns here will be better, and given the alternative who can blame them? Strangely, Hutton chooses not to discuss the current state of Euroland, and given the problems in Germany, its supposed motor, that might be wise.
Or perhaps he would just rather talk about Japan.
Hmm, maybe not that either.