The US has dropped from first to sixth place in global competitiveness according to the latest survey from the WEF, because it runs huge budget and current account deficits which can only lead to inflation and erosion of the value of the dollar. Sorry, but that's just plain wrong. Despite conventional economic wisdom, which believes this stuff, there has been no tight correlation between interest rates/dollar strength and the twin deficits. I should know because I wrote about this for a dozen years when I ran the editorial page of Business Week.
The fact is that the innovative/entrepreneurial prowess of the US attracts as much capital is it needs from around the world and its deep capital markets allow China and others to recycle their surprlus dollars. We get their goods, they get our paper--and jobs and growth. So far, this has worked out. It could end, sure, if a political crisis occurred but it hasn't yet.
I do think that US competitiveness is eroding and it is because Brand USA is eroding. However you think about the Iraq war, it has generated the worst anti-Americanism around the world in many decades. The Pew polls show horrendously high percentages of people really mad at the US and not just in the Middle East but in major markets in Europe, Asia and Latin America. Are they likely to take our their anger in their buying decisions? You bet. In their investment decisions? You bet.
If you want really want to worry about US competitiveness, worry about our visa policy since 9/11 that keeps out many of the best and brightest students, scientists and immigrants. This is the very lifeblood of our innovative economy.
So US competitivness is taking a big hit, but it's because Brand America is in trouble.