What Recovery? __ Part III, Freedom and Innovation to the Rescue?

In Part I of this “What Recovery?” series, we examined the concept of the velocity of money and how it has been declining for over two decades, which explains why most Americans are not experiencing the economic recovery that technically began in 2009. Then, in Part II, we saw how systemically high unemployment is a factor of US companies having to compete with the lower costs in emerging nations and how our Nanny Government’s fiscal policies make the situation even worse.

Today, we are going to see what well-known libertarian writer, Gary North, thinks. He sees all of what we covered in Parts I and II, yet hee sees a positive future. In fact he does not understand the pessimism of the Americans on the political right.

One of the things which I do not understand is the appalling pessimism within the American Right. I realize that a lot of promoters are cashing in on this pessimism. They get rich by preaching that everything is going to hell in a handbasket. Everything is not going to hell in a handbasket. Communism and Fabian socialism went to hell in a handbasket. Keynesianism is going to hell in a handbasket. Liberty isn’t.

What we are seeing is the greatest triumph of free-market ideas in the history of man. I have lived through it, and I am telling you, we have never seen anything like what we are seeing today. With the collapse of the Soviet Union, and the reversal of socialist economics in China a decade earlier, we have seen the complete failure of the great alternatives institutionally to the free market economy. The only really systematically communist state left in the world is North Korea, and it is visibly the poorest country in Asia.

Around the world, millions of people are entering free markets. China has made the transition from total Communism to energetic mercantilism. China has entered the Keynesian world order. There is a mixture of mercantilism with Keynesianism in the West, so it is not just a Chinese problem. The state-owned enterprises in China are still a burden on the economy, but step-by-step, they will be abandoned. It is already happening.

India has moved from Fabian socialism to something at least resembling a Western economy. There is no question in my mind that this trend is going to continue. India is going to move out of the intellectual orbit of Oxford and Cambridge of the 1930s. It is clearly experiencing massive economic growth. This is not going to be reversed.

{…}

All of the creativity that is found in any nation with ancient traditions, especially geared to mathematics and scholarship, which the elites of both of those societies have possessed for 1,000 years, is going to unleash an enormous number of technological discoveries. There is going to be invention on a massive scale coming out of both of those nations, but my guess is that India will be the major contributor. We can barely imagine the kinds of inventions that will be made available to the world over the next 20 years. When we are talking over the next 50 years, it really is inconceivable.

{…}

The United States and Canada will continue to crank out all kinds of inventions. The educational systems in both countries are better than in most other countries, and this is going to improve dramatically over the next half-century because of the rise of online education. There is going to be an exodus from the public schools in both nations, and this is going to dramatically increase both the productivity and the self-discipline in both Canada and the United States. Canada has a lot of self-discipline already. Asians have been pouring into the country for three decades.

Those trapped in public schools will fare poorly. This will not be the middle class. Digital education will overwhelm the bureaucratic educational systems in both nations.

Because the coming innovations will be primarily intellectual and technological, they will be made available to the whole world. This will make for greater competition, and therefore it is going to make for much greater wealth for the common man, all over the world.

Well, I don’t know why Mr. North is so sure that the Fabians Socialists are a thing of the past. They may be losing ground in India, but they are alive and well in the US, most of North and South America, Europe, the UK, and Australia. But, hey! Freedom, Innovation, and Digital Education….I’m all for that.  So, why am I still a pessimist?

Let me try to explain what I think I learned in this investigation.

Summary and Conclusions on “What Recovery?”

It is said that a rising tide lifts all boats. But, when  the tide is rising slowly somewhere, it will be lowering slowly somewhere else.

The economies of developed countries, like the US, have always been impacted to some degree by emerging economies due to their inherently lower costs of production. The United States survived the rise of all the so-called Asian Tigers. As the cost structures of the emerging nations becomes more like that of the US, the playing field levels. With the new emerging nations, China and India, the impact is going to be far greater than any competition America has seen before and it is going to last much longer. When the playing field does level, it could be at a much lower level for the United States. Here are a few reasons for my pessimistic outlook.

  1. While China and India are becoming more capitalistic, the US is becoming more socialistic. No matter which political party is in control, government spending keeps spiraling higher. The US government will continue to misallocate resources and compete against the private sector for those resources. Every year the Federal government will pass more laws and more regulations that raise the cost of production in the US. US companies will, in their own defense, continue to invest in the more friendly business environments of countries like China and India; thus creating more jobs in those countries instead of in the US.
  2. Prior to the information age, countries like the US could protect their technological innovation advantages for years. Today new technology, be it new products or ways to reduce cost, is almost instantly available to emerging countries like China and India.
  3. The early economic tigers from Asia were countries of small population. It didn’t take long before wage increases and regulations to improve the environments and living and working conditions for their citizens eroded their cost advantage over the US. China and India, however, have huge populations. Together they account for about a third of the world’s population. It will take decades before they erode their cost advantage.
  4. So, for decades US companies will see their profit margins squeezed on one side by the lower cost competition from China and India and on the other side by an ever more intrusive government. US companies will continue to invest in places like China and India out of the necessity to survive. This will have an ongoing negative effect on job creation in the US. As the middle class in China and India see their standard of living improving, those in the US will see their standard of living decreasing. When or if the playing field does level, it will be because the US economy has declined toward the rising economies of China and India. The question is: Will China and India continue to become more capitalistic while the US continues to become more socialistic? If that happens, China and India will continue to rise and the US will continue its decline.

Those are the opinions of your humble but pessimistic observer at Asylum Watch. He would be delighted to be convinced by sound arguments that America’s future is not so gloomy.

Well, now you know what I’m thinking. What are your thoughts?

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15 thoughts on “What Recovery? __ Part III, Freedom and Innovation to the Rescue?

  1. It is not the socialism that I fear will do us in, but rather the totalatarian state of which we are quickly becoming. Socialsim can be reveresed. Dictatorships are much more difficult.

  2. Other than your zero sum argument “when the tide is rising slowly somewhere, it will be lowering slowly somewhere else.” I agree completely.

    Even globally, the economy is not a zero sum game. All players can prosper in the right situations–i.e., prosperity where people are being productive and being paid for that productivity rather than being paid to sit home and smoke crack and watch their big screen teevees.

    Interestingly, the free market in China is not free. It is capitalism, but it’s capitalism supported by a totalitarian government. Sure they’re doing better than we are. Our capitalism is being stunted by a (wannabe) totalitarian socialist government.

    Your analysis of QE only helping the Bankers and the stock market (in Part I) was SPOT ON. Keeping interest rates low serves to prop up the stock market (and the Financial Industry). Money flows to where return is best. Investors cannot get a decent interest rate depositing money in banks, so they take a higher risk in the stock market, looking for a higher return. More investors mean higher demand for stocks equal higher stock prices.

    Small businesses looking for loans aren’t going to see QE as a boon, since they can’t borrow money that isn’t available. And it’s not available to them because it’s in the big banks, being played in the stock market. No help there.

    So when the left touts the rising stock market as evidence of a great economy, it’s not the truth. It’s QE smoke and mirrors.

    Great series, thank you!

    1. China, Russia, and Brazil all operate, to more or lessor degrees, under “State Capitalism”. The same is true here in Venezuela. China just happens to be very good at it, so far.

      Even globally, the economy is not a zero sum game.

      I totally agree. The point I wa trying to make, and obviously didn’t do very well, was that emrging nations have have a cost advantage and, therfore, attract a disproportionate share of investment capital. They also have almost the same access to new innovations and, therefore, are able to maintain their cost advantage. In thatt sense it is zero sum; i.e.’ they still have a cost advantage.

      Tahnks for thoughtful comment, Sally.

  3. Socialism is not dead. It is only dead where people have experienced its full fury. The good ole so-called capitalist USA, which has never experienced it LOVES them some socialism.

    And you know who will get the blame when our socialist system collapses? The Republicans of course. The MSM and the Democrats (but I’m being redundant) will see to that.

  4. Libertarians like Gary North live in their own world (I don’t dislike Libertarians – other that when they help elect somebody like Obama), but they are highly unpractical people. They make the good the enemy of the perfect.
    To wit, the Professor is a better economist than North.

  5. Gotta love Gary. He has profited handsomely over the years with his tales of woe yet he didn’t include himself in his opening paragraph.

    “Everything is not going to hell in a handbasket”. Didn’t see where he cited a single society that has managed to persevere over the long-term in the face of the opportunists who always want more than their share of the spoils.

    Capitalism, communism, socialism, fascism. All are social, political or economic systems created from ideology. Ideas don’t die and neither will any of these.

    But hey, it’s nice to see a guy promote a little optimism these days anyway.

    1. Usually I find North’s wit entertaining and his articles are sometimes informative. But, I have to wonder if by chance he got too close to Hllary Clinton in an airport or somewhere and caught her concussion? I’ve heard that her type of concussion can be contagious.

  6. I’m thinking that the future is not too bright at all. Great post Jim, I have enjoyed reading about this but I do not feel I know enough about this issue to comment intelligently on it, but I have enjoyed your posts and am thankful to you for helping me to understand it more.

    1. Maybe the most important thing to take away from this, Steve, is that, although the US economy may not be what is was for us, there will still be bright spots. Our children and grandchildren need help in anticipating what skill sets will be needed in the futrue so they can prepare themselves accordingly.

  7. I have a feeling that over the next four years the American electorate will change its mind about our creeping socialism. Everyone is talking about this slow growth rate being “the new normal” but I think it’s the new normal for the Dems and the MSM, however the people will tire of it quickly. The “middle class” is going to start noticing that Obama and his ilk talk a good game, but deliver nothing. Worse, they are increasingly hitting the middle class where it hurts: in the wallet. People are going to begin to notice that the rest of us are in an economy that is not in recovery, while Wall Street (supposedly an Obama enemy) is doing just fine. People are going to notice that all of the promises of Obamacare were complete bullshit and they’re not going to like the rising cost of insurance, losing their insurance to be dumped into the exchanges, and having the actually delivery of health care getting worse. People are going to start wondering why so many people are talking about the abundant energy available in this country, yet we are still paying a small fortune to fill our gas tanks and they’re going to notice that it is the government’s energy policies that are the cause o that.

    The middle class is made up of people who like their independence and rising standard of living. They won’t enjoy becoming wards of the state, especially when they notice that the state is quickly running out of money to fulfill its promises. And, they’ll also notice when inflation eventually hits and they are paying the hidden tax that allowed for Obama and the progressives to be completely irresponsible.

    How many years can we go without a budget before even center-left Democrats in the middle class start seeing that the real problem is that elected Democrats do not want to fulfill their responsibilities not only as elected leaders, but as responsible adults? I think that time is drawing near. How many jobs becoming part-time will it take before people start thinking, “You know, it’s weird… If this had happened under Bush we’d have been shouting from the rooftops at what a failure he is.” How many European countries tanking will it take before people start nudging each other and pointing out that we are following them over the cliff?

    The problem with socialism is that it just does not work. Americans will tolerate something not working for a while, but eventually we’ll rebel.

    My optimism comes from a belief that the wide swath of Americans known as the middle class are actually fiercely independent people who desire that their lives keep getting better and their children’s lives are better than theirs. It does not take all that many of these people waking up and smelling the coffee to have political sentiment switch to reducing the size of government and freeing our economy from its burdens. We’re dreamers and doers in this country. Many people may get lulled into passivity for a while, especially when being sold on a pretty picture by a smooth talker, but they will wake up. The alarms will be going off soon due to the utter failure of Obamanomics and progressive policies.

    1. Oh how I wish I could agree with you,Pat. I use to bellieve what you are saying. How does the done get undone? To roll back a decade or two of foolish laws and regulations and to fix entitlements, would require that the American electorate to elect a conservative president and enough to conservatives to control the House and sixty coservative Senators. The conservatives would need to keep that balance for at least 16 years, if not longer, to gradually unwind our nany government and start paying down the debt. Please note, Pat, that I said conservatives and not Republicans. I’m afraid that will never happen and that is why I am so pessimistic.

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