Paradigm Shift 2: Global Economy = The Tipping Point in Cost Competition

There are four facets of globalization that need to be analyzed in order to understand the magnitude of its impact on the economy of the United States:

1. The World GDP - how does the U.S. rank?
2. The financial markets, specifically the trends in the cost of money;
3. Infrastructure - the quality and availability of infrastructure determines our productivity as a country, impacts our cost of production, and therefore our competitiveness globally;
4. Labor cost - how does our cost of labor compare to the world?

World GDP

The United States currently ranks as the largest single market and represents approximately 24% of the world economy.  Only if you combine all the European countries into the European Union can you come up with an economy that is larger.  The ECU in total is almost 32% of the world economy.

Just looking at single countries, however, the second largest is Japan, which is around 8% and China, which now has grown to be almost the size of Japan, represented about 7% of the world GDP in the year 2008.

Infrastructure

The impact of infrastructure on productivity and world competitiveness is obvious if you contrast the United States with China.  Just look at one old technology, trains, and compare the two countries.

China has invested significiant sums of money in building a new rail system with bullet trains that can travel in excess of 200 miles an hour.  The United States rail system is frozen in the 1960's when the passenger side of it came under the ownership of the United States government.

The only bullet train that exists in the United States would be one whose name is "Bullet" as opposed to having the speed comparable to trains in China and Europe.  The limitation is not the ability to manufacture the engines and rail cars, it is the quality of the existing rail tracks.  More specifically, it is the lack of investment in rail tracks that could handle the bullet train speeds.

In December of 2008, the American Society of Civil Engineers estimated that the nation's infrastructure deficit, that is the roads, bridges, transit, dams, water, and utility systems which needed to be upgraded was somewhere between $1.6 Trillion and $2.2 Trillion.

For a more complete discussion and our forecast of the real estate market in 2010 and 2011, please download the presentation we made to the Board of a large community bank entitled "RE/set, RE/position and RE/start".