Sunday, January 18, 2004

The Barron's Roundtable 

The annual Barron's Roundtable is one of my small joys during the dark days of January. Each year, Barron's convenes a dozen or so famous money managers in a roundtable discussion, and publishes the results over three issues starting in the middle of January. Part I appears in the January 19 issue, which hit the stands yesterday, and it is as entertaining as always. You have to pay for it on the web, so you might as well buy the recyclable version and read it offline.

This year's Roundtable includes an exchange between Marc Faber, Art Samberg, Bill Gross, Mario Gabelli, Meryl Witmer and Oscar Schafer that elegantly frames a debate over the future of the American economy. It begins with Faber, a famous and lifelong bear:

Faber:...But's let's distinguish between real and fictitious growth. In China, there is tremendous investment in plant and equipment and infrustructure, which is real economic growth. On the other hand, it has now become fashionable, especially in the U.S., for men to have cosmetic surgery. As a result, let's say more hospitals are built. More doctors have to be hired and employment goes up. But to what extent does that create economic growth? A lot of economic growth in the U.S. is artificial, essentially transferring money from Peter's pocket to Paul's.

Samberg: That's a dangerous slope to go down, because it means quality-of-life expenditures have no economic role.

Gross: It's all well and good to have plastic surgery, or buy or sell a certain service. But we can't sell our plastic surgery to the rest of the world. To the extent we can sell our paper, or could sell our automobiles in the past, that was good. But if growth now is predicated on services that are not tradable and that the rest of the world does not want, it's a negative in terms of the trade deficit, the dollar and ultimately our standard of living.

Witmer: If the dollar is low enough, the world can get its plastic surgery here.

Gabelli: Take New York City. One of its largest employers is hospitals. Not only is the population aging, but people from around the world come here to get medical treatment. American universities are still the schools of choice. Agriculture is our largest export. Movies are our second largest export. So let's cut it out about cars. We haven't sold many cars outside the U.S. But we sell lots of corn and wheat and soybeans. And software.

Gross: You're optimistic on the U.S. economy because of our agricultural exports?

Gabelli: The Iowa corn farmer is the most productive individual in the world.

Barron's: He is also subsidized.

Gabelli: You've got $100 billion of livestock and $100 billion of commodities. There is only $20 billion of transfer payments.

Gross: You can't knock the American farmer. But in order to sell agricultural goods to the rest of the world, you need a depreciating dollar. That might be good for the farmer, but ultimately it lowers the standard of living for all Americans. That's the point most Americans don't seem to realize. As the dollar declines, it costs more to import goods.

Schafer: Imports are a small part of our GDP. Why does a weak dollar hurt?

A group of the most successful money managers in the world disagrees sharply about the relevance of such matters as our surging services sector and the value of our currency. These opinions have weight -- more weight than those of all the politicians and journalists in Iowa -- because the people who are expressing them must commit their money, and their clients' money, based on their beliefs about these matters. Yet they disagree enormously on fundamental matters. There is much food for thought in this exchange, and in the entire roundtable discussion.


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