You need to first read "Real Economics, Chapter 1" to understand this blog.
Summary, there are three segments to any economic system, (1) Extractable wealth, (2) Value add wealth, (3) Capital rental wealth.
The problem is that most economists mix these three together and thus muddle any understanding. The other thing that needs to be understood is that the weight of these three factors are not static. Their importance changes over time. Further, these three factors respond to different types of "inputs". I will try to explore each of these three in this blog.
One of the most interesting is "Extractable wealth". Extractable wealth are things related too geography. The USA has more coal, oil and good farm land than any other country in the world. Canada does well in these same areas too. Spain, Greece, Korea and Japan are countries that have very few of these extractable resources. Extractable wealth resources are "limited" which means that the pie size is limited. Given that the size of the pie is limited, the more people a country has the smaller the slice of pie per person. Is that clear? Canada has a much smaller population than the USA compared to the amount of extractable wealth so that mean Canadians get a larger slice of the extractable wealth pie than do people here in the USA. Contrast this to Japan or Korea where they both have a lot of people and a small amount of extractable wealth. Fishing is a form of extractable wealth and notice what impact both Korea and Japan are having on the population of fish in the sea. I should mention Russia here too. They have a very large amount of extractable wealth and a population of about half that of the USA. This means the average Russian will get a large slice from the extraction wealth pie.
I think that you can clearly see that counties who have a large amount of extractable wealth will have a higher quality of live than those who do not as long as they do not get over populated. More population my help to create a larger total pie, but as you can see, it makes the slice of the extraction wealth pie smaller for each person. Most of the third world countries have very little extractable wealth compared to the size of their populations and thus they will always have serious economic problems, but there is a way out.
The second economic factor is "Value added". This is the wealth that is created by the efforts or work of individuals. When the USA started out 99% of the economy was extraction and no more than 1% was value added. Over time this has changed until today they are about equal. Now, what are the inputs for growth of value added? It used to be a strong back or good eye sight, but times have changed and today, it required special skills, education and intellect. Historical workers who worked on the original Henry Ford assembly lines are now not competitive. Those low skilled jobs have been transferred to third world countries. Countries like Germany, Korea and Japan are the exception to the rule. They prosper on value added because of the very special skills including education of their work force. Isn't it clear why most third world countries will never make it economically if they will have to come up to the level of Germany, Korea and Japan.
The USA is a third world country when one looks at the lower 50% of our population. They are not part of the extraction portion of our economy. They are part of the value added segment but can not produce enough value added to pay their own way. They can only produce the same amount as most people in the third world. They drag down the quality of life for the other 50% of the population. In the case of Germany, Korea and Japan, it is my opinion that that over 75% of their populations can produce enough value added to pay their own way. Switzerland and Finland like Germany, Korea and Japan thru social pressure do not allow dead beats to free load as does the USA. I think that the USA ranks about 30th in the world in level of education which means that our value added portion of our economy per person is going to be about 30th too.
Our problem is that our simple minded economists and politicians include the extraction portion of the economy in any comparison and thus we always rank higher than we should compared to those countries who have a small extractable component. We keep patting ourselves on the back because of our extractable portion of our economy and ignore our poor performance, per capita, on value added. How much real value added do people in retail, law or medical services contribute? Remember we spend the most in the world on medical by any measure as well as legal. We also have a larger percentage of our people in jail than any other country in the world too.
I hope this blog gives you a better understanding of "Real Economics".
