Time to Toss the Textbook
Source: Newsweek
July 4th 2005 (Adapted)
Do we know how much the world economy affects the United States and vice versa?
Economics textbooks once described the U.S. economy as mainly self-contained. Americans sold to each other; Americans' savings were invested mostly in American investments (stocks, bonds, bank deposits). Trade was small. Globalization has shattered this model. More industries face foreign competition or depend on foreign markets. In 1960, exports and imports together totaled 9.5 percent of gross domestic product; in 2004, they were 25 percent of GDP. Savings and investments have also gone global. In 2003, Americans - mainly through pension funds, banks and other big investors - owned $3.1 trillion of foreign stocks and bonds, while foreigners owned more than $4.1 trillion of U.S. securities, says the International Monetary Fund. (Note: the $4.1 trillion excluded China.) All these factors modify the U.S. economy.
The U.S. economy
