Comment 34302

By A Smith (anonymous) | Posted October 01, 2009 at 02:52:23

Studownunder >> do you think that they are taking the harder more expensive path because they like the challenge?

No, my point about China is that it IS possible to have robust economic growth, even though oil prices are high. Their economy uses much more oil/$GDP, yet it keeps producing ever more goods and services.

In contrast, U.S. and Canada, predominantly service based economies (79.6% and 69.6% respectively), use much less oil in the production of GDP, yet they're growing much slower than China.

Therefore, if the theory is that oil prices determine economic growth, shouldn't China be growing slower than North America? If cheap oil is the main determinant in fueling the wheels of production, China's economy, which uses far more oil to produce the same amount of GDP, should be a disaster. However, this isn't the case.

One big difference between China and North America is the level of savings. In the latest quarter, the U.S. had a negative savings rate of 3% of Gross National Income. This means that the U.S. is actually consuming more than they earn. The only other time this took place in recent history was during the Great Depression.

In contrast, during the post war boom period, the U.S. saved around 9-10% of GNI.

Even during the boom period of the late nineties, net savings only reached 7.1% of GDP. Therefore, if Obama or Harper or any other leader wants to help grow their economy, they need to invest in the future, rather than just give handouts. This requires toughness and resolve, but if they do what's right, the economy will enjoy robust economic growth and the voters will reward them with greater respect.

Here is the link for net savings/GNI...

tinyurl.com/y9sbewy

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