Tweet
The migration of money
Franklin W Knight
Wednesday, February 20, 2008
The United States has been undergoing a progressively serious economic decline in the past several years. The main indices of production, productivity, employment and money flows have been tending inexorably downward. Everywhere jobs are becoming endangered.
Franklin W Knight
Collapses of the home mortgage market and consistently disappointing news from Wall Street to Main Street have thrown a heavy pall on the normally exuberant pundits of North American progress and superiority. This year the situation is so critical that the federal government, despite consistently denying the country is in recession, is nevertheless proposing drastic measures to relieve one.
One widely debated measure constitutes the sending of an unsolicited cheque to millions of Americans among the wealthiest as well as the poorest section of the population. For a government that seems to decry any form of entitlement not directed to itself, the measure is manifestly unsatisfactory from any number of positions.
In the first place, the government proposes to give away money that it does not have. Federal revenue has been falling not only from the overall dismal economic situation, but also from the imprudent tax reduction extended to the wealthiest classes by the Bush administration a few years ago. The poorly planned and carelessly administered global war on terrorism has been seriously haemorrhaging national human and financial resources.
As a result, the US federal deficit along with the national debt has been increasing in astonishing proportions. Some sources suggest that a projected deficit of US$500 billion may be expected over the next eight years. At the same time, the national debt is already approaching the mind-boggling figure of US$9 trillion.
Economic discussions of the US economy make little sense, and the actual figures themselves may be unreliable although the overall trend is clear. The US dollar is no longer a powerful world currency because the US economy is no longer the principal motor of the world economy.
Indeed, more and more the US economy is beginning to resemble that of most developing countries. In the past, US taxpayers mainly financed the government, although after World War II public borrowing became an essential feature in balancing the federal budget. Even so, most federal borrowing was done from domestic sources.
Today most federal borrowing is done from international sources, a policy that has been extended to private sources as several major US banks have had to borrow money from places such as Kuwait and Dubai to retain their solvency. The bottom line is that the US economy is kept viable by the immigration of foreign money.
Migration of money, of course, is not a recent phenomenon. It is as old as history itself. For example, when the Spanish took over vast areas of the Americas after 1492 they spent much of their first two centuries of occupation looting and remitting back to the mother country vast amounts of gold and silver. To their great surprise that did not result in any noticeable increase in overall Spanish wealth. Instead, the money simply poured through Spain and on to other parts of Europe and Asia.
Today the migration of money plays an enormous role in the world economy. The multiple ways in which money crosses national borders makes it far more difficult to asses than illegal immigrants. Some of the money flow is by officially negotiated bilateral foreign aid. Foreign governments borrow money, just as the government of the United States, from public and private sources. Such money flows are easily documented.
Tourists also spend a lot of money in the areas where they visit and the high volume of international tourism makes that industry the largest in the world. The World Tourism Organisation estimated that a little less than 700 million tourists left approximately US$478 billion in foreign destinations in 2000.
Surprisingly close to tourist expenditures is the total sum remitted informally across national boundaries by individuals. In 2006 economic experts estimate that this informal flow amounted to about US$300 billion. Data for these flows have been produced by international agencies such as the World Bank, the International Monetary Fund, the United Nations, or non-governmental groups such as the Inter-American Dialogue and the Washington Office on Latin America.
For obvious reasons, the sources are not always consistent. After all, most of the money is sent in relatively small amounts, often less than US$300, and directed to families and acquaintances. This sort of money is carried by individuals or remitted through banks as savings deposits or credit-card transactions, or by direct money transfers through a number of commercial conduits such as Western Union.
Before the tightening of restrictions by President Bush in 2004, Western Union had nearly 200 offices across Cuba for handling money transfers.
Money transfers are big business not just for commercial companies. They play an important role in national economies.
Migrant workers in Europe, Russia, South Africa and the United States make remittances that contribute significantly to their home countries. Writing in the New York Times of November 18, 2007, Jason DeParle noted that more than 38 countries received more than 10 per cent of their gross domestic product (a measure for the size of the national economy) from worker remittances. More important, worldwide money remittances were three times global foreign aid.
Jamaica and several other Caribbean and Latin American countries get almost 20 per cent of their gross domestic product from remittances alone. If the size of the Jamaican GDP is about US$12 billion, then remittances rank above local government revenues or agricultural production in economic value. That reality leads to two important observations.
The first is that economists have not yet understood the role of remittances in national economies, and policymakers are even more poorly placed. The second observation is that discussions about migration and diaspora communities have an even greater importance than previously thought. Maybe it is time to stop thinking about brain drain and consider migrants as potential economic assets or as strategic foreign investments. Considering their attitude to human immigrants, money migration could really make Americans see red.
Franklin W Knight
Wednesday, February 20, 2008
The United States has been undergoing a progressively serious economic decline in the past several years. The main indices of production, productivity, employment and money flows have been tending inexorably downward. Everywhere jobs are becoming endangered.
Franklin W Knight
Collapses of the home mortgage market and consistently disappointing news from Wall Street to Main Street have thrown a heavy pall on the normally exuberant pundits of North American progress and superiority. This year the situation is so critical that the federal government, despite consistently denying the country is in recession, is nevertheless proposing drastic measures to relieve one.
One widely debated measure constitutes the sending of an unsolicited cheque to millions of Americans among the wealthiest as well as the poorest section of the population. For a government that seems to decry any form of entitlement not directed to itself, the measure is manifestly unsatisfactory from any number of positions.
In the first place, the government proposes to give away money that it does not have. Federal revenue has been falling not only from the overall dismal economic situation, but also from the imprudent tax reduction extended to the wealthiest classes by the Bush administration a few years ago. The poorly planned and carelessly administered global war on terrorism has been seriously haemorrhaging national human and financial resources.
As a result, the US federal deficit along with the national debt has been increasing in astonishing proportions. Some sources suggest that a projected deficit of US$500 billion may be expected over the next eight years. At the same time, the national debt is already approaching the mind-boggling figure of US$9 trillion.
Economic discussions of the US economy make little sense, and the actual figures themselves may be unreliable although the overall trend is clear. The US dollar is no longer a powerful world currency because the US economy is no longer the principal motor of the world economy.
Indeed, more and more the US economy is beginning to resemble that of most developing countries. In the past, US taxpayers mainly financed the government, although after World War II public borrowing became an essential feature in balancing the federal budget. Even so, most federal borrowing was done from domestic sources.
Today most federal borrowing is done from international sources, a policy that has been extended to private sources as several major US banks have had to borrow money from places such as Kuwait and Dubai to retain their solvency. The bottom line is that the US economy is kept viable by the immigration of foreign money.
Migration of money, of course, is not a recent phenomenon. It is as old as history itself. For example, when the Spanish took over vast areas of the Americas after 1492 they spent much of their first two centuries of occupation looting and remitting back to the mother country vast amounts of gold and silver. To their great surprise that did not result in any noticeable increase in overall Spanish wealth. Instead, the money simply poured through Spain and on to other parts of Europe and Asia.
Today the migration of money plays an enormous role in the world economy. The multiple ways in which money crosses national borders makes it far more difficult to asses than illegal immigrants. Some of the money flow is by officially negotiated bilateral foreign aid. Foreign governments borrow money, just as the government of the United States, from public and private sources. Such money flows are easily documented.
Tourists also spend a lot of money in the areas where they visit and the high volume of international tourism makes that industry the largest in the world. The World Tourism Organisation estimated that a little less than 700 million tourists left approximately US$478 billion in foreign destinations in 2000.
Surprisingly close to tourist expenditures is the total sum remitted informally across national boundaries by individuals. In 2006 economic experts estimate that this informal flow amounted to about US$300 billion. Data for these flows have been produced by international agencies such as the World Bank, the International Monetary Fund, the United Nations, or non-governmental groups such as the Inter-American Dialogue and the Washington Office on Latin America.
For obvious reasons, the sources are not always consistent. After all, most of the money is sent in relatively small amounts, often less than US$300, and directed to families and acquaintances. This sort of money is carried by individuals or remitted through banks as savings deposits or credit-card transactions, or by direct money transfers through a number of commercial conduits such as Western Union.
Before the tightening of restrictions by President Bush in 2004, Western Union had nearly 200 offices across Cuba for handling money transfers.
Money transfers are big business not just for commercial companies. They play an important role in national economies.
Migrant workers in Europe, Russia, South Africa and the United States make remittances that contribute significantly to their home countries. Writing in the New York Times of November 18, 2007, Jason DeParle noted that more than 38 countries received more than 10 per cent of their gross domestic product (a measure for the size of the national economy) from worker remittances. More important, worldwide money remittances were three times global foreign aid.
Jamaica and several other Caribbean and Latin American countries get almost 20 per cent of their gross domestic product from remittances alone. If the size of the Jamaican GDP is about US$12 billion, then remittances rank above local government revenues or agricultural production in economic value. That reality leads to two important observations.
The first is that economists have not yet understood the role of remittances in national economies, and policymakers are even more poorly placed. The second observation is that discussions about migration and diaspora communities have an even greater importance than previously thought. Maybe it is time to stop thinking about brain drain and consider migrants as potential economic assets or as strategic foreign investments. Considering their attitude to human immigrants, money migration could really make Americans see red.