Yesterday I mused that there was something odd about Paul Krugman’s numbers on private personal accounts for Social Security reform. I also posited that Jim Glass would work out what that screwiness was. I was right.
Krugman the international economist follows the model of Dean Baker that limits growth in future investment returns available to Americans by the 2% domestic GDP growth speed limit.
Why?
That’s
my one question. Why does he think that domestic GDP growth limits the
profit growth of companies — domestic and foreign — that are and will
be available for US citizens to invest in?
Note that through most of the 20th Century it was
indeed difficult to invest abroad due to the various problems we may
remember from history books as well as capital controls that lasted
into the 1970s. But in today’s world, if investment markets aren’t
globalized then nothing is.
There are more than 4
billion mostly young people in Asia, South America and Eastern Europe
who fully expect to experience growth rates far above 2% — who will need
to do so to obtain the level of welfare we have in our western world,
so we must hope they succeed. And they are going to need one heck of a
lot of capital and investment from abroad to do so.
US
corporations won’t be able to invest in these places? US investors
won’t be able to invest abroad? Investment opportunities among nations
of 4 billion people growing at 5%, 6%, 8%, annually won’t possibly be
able to lift the future profit growth rate available to US investors (a
subset of 300 million) from 2% to 3%?
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