Global Crisis/Innovation Blog

Would You Buy a Used America from This Man?

Or, Is America Bankrupt?

By Shlomo Maital

 

 Mary Meeker

In our book Global Risk/Global Opportunity, my colleague Seshadri and I argue that a country is a business, and should be evaluated on the same basis used to do due diligence prior to an acquisition.  A new 468-page study by Mary Meeker, from the leading venture capital firm Kleiner Perkins, claims that as a business, well, you would not want to invest in America.  *

      “Our review finds serious challenges in USA Inc.’s financials,” she writes. “The ‘management team’ has created incentives to spend on healthcare, housing, and current consumption. At the margin, investing in productive capital, education, and technology – the very tools needed to compete in the global marketplace – has stagnated.”  “In effect, USA Inc. is maxing out its credit card. It has fallen into a pattern of spending more than it earns and is issuing debt at nearly every turn.”

     Using standard business tools for evaluating businesses, Meeker finds that America’s current net worth is minus 44 trillion dollars (three times its GDP).  Negative net worth means you owe more than you own. When the amount is huge, it means you are broke.

   The introduction to Meeker’s report is signed by such knowledgeable, luminary economists and business leaders as George Schultz, Paul Volcker and Michael Blumberg.

   Meeker does not simply claim America is broke. She offers a solution.   “Technology plus infrastructure plus education investments drove 90% of labor productivity growth for past 30 years,” she writes.    America will emerge from bankruptcy when it returns to investing in those three areas that proved so productive in the past.  But where will the resources come from?

    A tiny item from Associated Press today notes that last month’s tax cut gave U.S. consumers the biggest jump in their incomes in nearly two years.  What did the American people do with the tax cut? Did they spend it,  as they did the Reagan tax cut (1981-85)? No, they mostly saved it. Consumer spending adjusted for inflation actually declined 0.1 per cent in January.    The American people get it. They realize the road out of bankruptcy is paved with savings that fund investment.

       But do their leaders understand?  And, by the way, would you buy a used economy from Obama?  

* http://www.businessinsider.com/mary-meeker-usa-inc-tech-2011-2#ixzz1FL5sQ06w