British Extravagance Causes Trade Decline

There's a lot of talk in business circles about America being the ngine that pulls the world economy. A couple weeks ago, Richard Fisher, president of the Dallas Federal Reserve Bank, used a number of bad baseball analogies to say that the Fed was almost done raising rates, and more importantly, to say that American extravagance is a good thing. Fisher put on his blinders and said, "Where would the world be if Americans did not live out their proclivity to consume everything that looks good, feels good, sounds good, tastes good?." His analysis of the current account deficit is that America is providing the world a service (by continuing deeper and deeper in debt to buy the stuff they make), and he wonders where the world would be without us. I wonder where he's going to be when the world knocks on our door and presents a bill.

However, there's nothing new in the world's leading economy running up debt and living it up. A hundred years ago the British were bemoaning the situation, which was nicely summed up by a banker, Mr. Edgar Speyer of the banking firm of Speyer Brothers. Quoting from the NYT article of June 17, 1905, which was subtitled "Americans Are The Gainers - A Tax on Expensive Houses Recommended by the Banker as a Deterrent to Extravagance."

"The consequence of this general extravagance, [a greater than 50% rise in government spending over the past decade, plus private debauchery - MR] which I ventured to point out a year ago, has been that our imports have been very largely increased while our exports have remained relatively stationary. The result has been that the balance of our imports over our exports has more than doubled since the later eighties."

Sound familiar? He went on to say,

"I do not think we need to go into our fiscal system, or find any other scapegoat, for the state of things. The reason seems to me perfectly obvious. We have been spending too much money. To use a well-known expression, we have been burning the candle at both ends"

I find his imagery somewhat lacking. Here in America, we've scraped the wax off the middle of the candle where it could stand it and lit the wick in multiple spots. We're burning the candle at both ends, the middle, and at all the naked points in between. It's interesting to note that Britain was the worlds largest manufacturing economy in the 1800's, and was just losing it's place to America when this speech was made. Shame we didn't learn anything from them.