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Mullah Ron Paul

Creative destruction felt good in the United States as long as the rest of the world parked its savings in our real estate market -- a total of $6 trillion flowed in from overseas between 1998 and 2007, the equivalent of a whole year's output of the U.S. economy. And as long as America was swimming on foreign savings, and home prices were rising, Americans saw no need to save. Our good fortune, to be sure, did not derive from an economic accident, but rather from the fact that America's political system and free markets made us the world's best venue for investments. Now we have competition. We're no longer the only game in town.

Americans stopped saving as long as home prices rose. And the smart kids quit engineering and physics and got an MBA instead. It was a lot easier and paid a lot better.

Household real estate assets vs personal savings rate

China's boom gave us cheap goods at Wal-Mart, and whoever lost a job in manufacturing found a job on the periphery of the home price bubble -- not always at the same pay, but everyone was working. And Americans got the idea that we ought to be paid just for being Americans. The quarter-century Reagan economic boom, the longest and most consistent in American history, turned into a bubble in last few years.

Americans have the mother of all hangovers. Only five years ago, a community college dropout could get a real estate or mortgage broker's license and make reasonably good money, and buy a McMansion with a liar's loan. Now the Boomers are facing retirement on a fraction of the home equity that used to form their nest eggs. Ron Paul speaks not to the highways and the hedges, but to the subdivisions and shopping malls, the spawn of Chinese savings and cheap Chinese consumer goods, monuments to America's dependence on the world economy -- and he preaches isolationism.

America has the capacity to come back, and the proof is that the sector of the American economy that is most engaged with the world -- the S&P 500 corporations -- is showing strong gains in employment, sales, productivity and profits. Cutting taxes and rolling back regulation will restore economic growth, although the benefits may not be as broadly felt as during past recoveries. Meanwhile the rate of innovation redoubles, and brings us into uncharted territory. A friend called my attention to this video prepared by Sony for its 2009 shareholders' meeting, which is worth viewing as a reminder.

We have to roll up our sleeves and compete in the world economy. If we try to wall the world off, we will be poor, miserable, and ultimately insecure, as nuclear weapons work their way into terrorist hands.  And we will deserve what we get.