I have had problems with the subject of economics all of my life. We all kick around the word "economics", but who really understands economics? I have been watching the world go around for over 70 years. During that time I have lived and worked over much of the world. What I have tried to do is to make some kind of order out of what I have observed first hand and square this with what I have studied in economics in college. One of my economic professors in graduate school was the late Ted Kreps who was active in the Roosevelt administration during the great depression. Ted thought that he understood economics, but much of what he said did not square with the fact that I observed in the real world. I guess that is when and where that I started searching for "Who Understands Economics". So far, I have not found that person. What I would like to share in this blog is some of the questions that I still have.
First, let's look a China and what has been going on in their economy during the last 25 years. For years since WWII, most of the people of China have been poor and many have starved to death. Now we know that they are doing much better with a fast growing economy. It is like global warming, if we don't know what caused the ice age to come and go, how can we claim to understand global warming? Economics is the same. What caused China's economy to improve so much? Here is my take.
After WWII, China go caught up in the Communism and Socialism experiment. These concepts never have worked any place in the world in any large group. They have had some success in small village and family size groups, but not in any large group. What changed? China started giving up on Communism and Socialism and allowed individuals to take greater control and responsibility for their own welfare. What this did was to allow them to work and keep the fruits of their labor. What they noticed was that they could produce many products cheaper than could us Americans. At the same time we found that we could buy products from China cheaper than we and our companies could produce here. We were "qualified" buyers because we had a combination of net worth and good credit. It was like water flowing down hill. All China had to do was switch from Communism and Socialism to Capitalism and let the rules of Darwin and free enterprise flourish. Is this a lesson in economics? Does this sound logical? Is this really how China has progressed in terms of quality of life so rapidly? What principles of economics are revealed by the China example? It is really simple isn't it?
There is a problem with the China example however and that is that at some point China's biggest customer will run out of wealth to buy their production. This is unless America can continue to produce wealth faster than their rate of spending. We know how China did it and it was by a simple economic model or a simple lesson in basic economics. Did China do it by borrowing and printing money to "stimulate" their economy? No! Did China do it by graduating more lawyers? No! Did China graduate 4 times as many scientists and engineers? Yes! Has China progressed from those early simple labor intensive products too more and more complex and sophisticated products? Yes! There is now no product that we make that China can not also make, but they can make it cheaper.
Are you starting to see the "key" to economics? Guess? Here it is. The name of the economic game is "producing the highest value at the lowest cost". Is that too simple?
Now, how is America doing? We are borrowing about 20% of our federal government spending. We are only paying about 80% of the federal taxes that we really owe. How healthy do you think that is for the future of our country? How long do you think we can keep up something like that? GNP is the basic measure of a countries production of wealth and how are we doing on that one? The quality of life is a direct function of GNP per person. Our current quality of life is based on a "false" GNP. It needs to be adjusted to account for all the money that we are borrowing and thus do not produce. If we do that, the GNP per person goes down while the total GNP goes up slightly. This hides the fact that the quality of life here in the USA is going down.
We know what caused the economy of China to grow so much, but Obama and his gang does not want to do any of those things that have proven to work. Obama wants to "kill" the USA economy by doing many of the things that China tried with Communism and Socialism. I forgot to mention that Obama is a "Judas" who is out to get even with the USA for what we did to Blacks under slavery. Do you think that is why Obama has not adopted any of the things that caused China's economy to grow so much so fast? Maybe, Obama is really the one "Who Understands Economics" after all!!
