Tuesday, February 28, 2006


Bill Gross, Chief Investment Officer of PIMCO, writes a monthly essay, the Investment Outlook. PIMCO is a large fixed income investor and Bill's essays are wonderful reviews of economic, fiscal, and public policy.

His current essay - The Gang Who Could Not Talk Straight - is a highly critical review of the President's annual Economic Report.

In short, he argues that America's competitive position is being undermined by a collapse in our educational systems, sky rocketing health care costs, the lowest national savings rates in the developed world, and an addiction to foreign investment to cover for our inability to save. His conclusion is that these macro failings demand that investors begin to ship capital offshore to more attractive markets. His warnings, however, are important for all to hear. Hopefully, he and others like him, see Pete Peterson, will not be seen as Cassandras, but as concerned patriots helping us wake up to our daunting realities.

As investors, entrepreneurs, and technologists, we have a vital interest in functioning educational systems, health care markets, and positive net savings rates that allow for investment in the future rather than debt service payments to cover historical obligations and spending. If Gross Domestic Investment = Private Saving + Government Saving + Foreign Saving, then the low rate of private and government savings demands that we import capital. The key concerns are 1) that the debt service associated with the current borrowings drowns out the ability for net new investment or 2) foreigners stop providing us cheap capital and dollars available for investment (and hence growth) are limited.

A couple of his charts help tell the story.

1 comment:

  1. Anonymous5:13 PM

    The answer is clear in my mind.... 1) you have eliminate frictions (such as H1-B caps) for talent to come into the US and create incentives so they stay.... 2) invest in the educational system and socialization of education so it's not seen as a "burden" but rather the bastion of opportunity... 3) have parents kick their kids butts.... 4) increase the SS retirement age to match the growth in life expectancy... 5) reduce future benefits... 6) perhaps mandate certain minimum levels of science and math proficiency.... 7) put smartest kids on fast tracks.