Getting Used to The ChangED World

I am still surprised to find my “cool” music available only on oldies 100. We perceive the world we first knew as normal and have trouble with change. Actually we handle change just fine. We cannot get a grip on is changED. (This disability is not limited to old guys. Thirty-year-olds are most out of touch. Without teenage kids to set them straight still think THEY are the young generation.) Developments blindside us.

For example, the emerging markets of my youth (underdeveloped countries to those a bit older) HAVE emerged. The economic landscape is virtually unrecognizable.

Sure, we all talk easily about the phenomenal growth of China or India. We acknowledge that market reforms in Brazil are making that perpetual "country of the future" into a economic power of today. But we really don't feel it. When we think of economic power, we still revert to the G-8, which does not include China or India. How about the UN? France and the UK still wield veto power. Is their weight in the world so much greater than Japan, India or Brazil (or closer to home, even Germany?)

We Americans should get used to living in a world where we are not predominant. Some of us are there rhetorically, but what we say in words does not match what we feel in our heart. We still mistake global trends for something particularly American. For example, rise in housing prices has been a trend worldwide and so might a fall. Median wage growth has slowed in all developed countries as labor markets have globalized. The prices of commodities such as steel, cement and oil have been rising because of demand in China or India. Most of the growth in wealth over the next decades will come from developing countries and so will most of the new pollution (China already "boasts" 17 of the 20 most polluted cities in the world).

The U.S. is still the most important country in the world, but we no longer enjoy the option of making decisions w/o regard to the world and we have to recognize that not everything is under our control. It is a dynamic, game theory situation, not one where we move and everything depends on that alone. For example, the U.S. has a huge trade deficit because Americans save too little. But that deficit enables emerging markets such as China to grow. They invest in U.S. Treasuries partly as a strategy to keep their currency low so as to be able to export more. Americans benefiting from cheaper goods buy more of them. If we saved more, prices might rise. You get the picture.

I personally would prefer a world that was a bit more predictable. I would like it better if we could just determine that Americans would get paid more and have cheaper products. But we cannot isolate ourselves from the world. We have to adapt. The world is not zero sum. Increased wealth in China or India makes us ALL richer, but our relative place may change. It is also true that not everyone will benefit equally. These are troubling challenges. Since I was talking about China, let's look where we can benefit from the Chinese example.

When the British tried to open trade with China in 1793, the emperor told them that China was not interested in British products. They had no need for the goods or services these barbarians could provide. The Chinese thought they could go the isolationist route. They would not have had the statistics to back it up, but they understood that their economy was by far the biggest in the world. Modern researchers reckon that China has seven times the economic strength of the British in 1793. What happened? What was the result of isolation? Things changED fast. There seems little chance we will become as isolated as they did, but we have to resist the idea of shutting ourselves off.


BTW - "The Economist" has a really good survey on emerging markets.

Posted by Jack at September 18, 2006 6:25 PM
Comments
Comment #182417

Very nice article, Jack.

Posted by: Trent at September 18, 2006 8:25 PM
Comment #182423

Yeah, we get cheaper goods. And they’re not only cheaper in price. The quality is cheaper also.
So while we might be able to buy a pair of jeans $20 to $30 cheaper than US made we end up buying 3 to 4 pair of Chinese jeans to 1 of American. Some savings.

Posted by: Ron Brown at September 18, 2006 8:52 PM
Comment #182424

Thanks for such an educational post Jack. One question, as I understand it, to sell products in China you need to produce than in China. That would seem to have a degree of isolationism to it. Do you agree and what effect does this have on the concept of isolationism? Should we require them to manufacture their products here?

Posted by: mark at September 18, 2006 8:53 PM
Comment #182436

Actually, with the rise of large Chinese and Indian middle classes, China and India are unlikely to enjoy forever their chief advantage— seemingly limitless cheap labor.

Eventually they’ll have to go through the same cycles that their western counterparts have gone through. As living conditions rise, the middle class and ascendent lower classes are going to start demanding goods, services, and decent lifestyles. They’ll also demand a lot more from their governments as far as health care, education, and social services go. Taxes will rise, the entire national energy won’t be able to go into producing cheap consumer goods for foreigners any more, and both countries are eventually going to have invest in infrastructure on a massive scale.

At present rates of growth, China could equal the size of the US economy around 2055. The likelihood, though, of China being able to do this as they undergo the political and social demands of a rising midde class is very small.

What this all means is that the American economy is likely going to be predominant for all of our lifetimes.

Posted by: Pilsner at September 18, 2006 10:05 PM
Comment #182459

Trent

Thanks

Pilsner

I think the U.S. will continue to be the dominant economy for our lifetimes. But NOT predominant as we are today (and have been). Sine WWII we have been able to call most of the shots re our own economy. The Soviet Union was a military competitor, but not strong in the economic or cultural sense. The EU is currently a peer economically. If we add China and India, and assume a continuing strong Japan and maybe new countrie such as Brazil or even Mexico, we have a much more diverse world.

The other big fact is the “developing world” has more or less come on line. China and India are still abymally poor and they will demand more domestically as they develop, but the Idea that some countries are permanent basket cases is gone.

Even Africa, home to many of the world’s worst economies, is showing some signs of improvement. Of course, we have the political probelms holding back large parts of Africa and the Middle East and litte tip pots such as Hugo Chavez could pull there own countries back from the bring of prosperity.

The biggest challenge will not be economics or politics but environment.

Mark

I am not an expert, but I understand that the Chinese market is still very difficult. Many people when they try to profit from the Chinese market, do not invest in China itself, since they do not trust the system there, but rather I try to invest in firms that sell to China.

China has come a long way - an unbelievable progress, but there is still a long way to go. Even if China “catches up” with the U.S. in 2050, given population differences that will still mean that the average American is about four times as productive as the average Chinese.

Posted by: Jack at September 19, 2006 1:57 AM
Comment #182477

You mean the Beatles aren’t cool anymore? Good Post.

Posted by: gergle at September 19, 2006 5:17 AM
Comment #182490

My Name Is Roger

JACK: I have a question, maybe you can help me.

What does it mean when I receive a message
[ ERROR OCCURRED ]

No such entry ‘4210’

I have tried to respond to the last two post, and keep receiveing that message.

Am I doing something wrong, or is someone trying to tell me not to respond to post any more.

I have seen that there have been more responces after I tried to respond, but it will not let me respond.

Do you have a suggestion and answer to why I am getting this message.

ROGER A Conservative Christian Rupublican

Posted by: ROGER at September 19, 2006 6:52 AM
Comment #182509

Jack,

What do you mean “we”. Other than that, a good post :-) a decent argument against isolationism.
But the symbiotic cash flow relationship has a tremendous cost against our authority as the largest market by creating the dependency you refered to. I would rather keep the authority at a reduced growth rate.
Although wealth generation is not zero sum we have to remember that “wealth” is simply created as place holders in the economy game. There is no such thing as “money”, it’s only what people believe it to be: “full faith and credit…” and the amount floated is carefully titrated. Losing our influence decreases the perceived value of our currency. Giving China billions of dollars a year is simply self defeating as it strengthens our greatest opponent in world politics.

Posted by: Dave1-20-09 at September 19, 2006 9:58 AM
Comment #182516

That without us what else can work but now what is manufactured is imported not only cheaper from over there but just as good.

Posted by: Gem Hudson at September 19, 2006 10:46 AM
Comment #182578

Jack

Thank you for the thoughtful and provocative article. You have outlined the problem concisely and accurately in my humble opinion. The world is undergoing an economic revolution, with so many facets and implications that no one person can keep up with them all. We are all, in whatever country we choose to live, going to feel the impact, and the most notable effects will fall on the lower end of the economic spectrum. Some will have their standards of living rise dramatically, others fall. Many of the latter live in the US; many of the former fall into that group we are trying to exclude from the US. I think our focus as a society and as a world citizen should be to dampen the negative effects and spread around the positive effects to the extent possible. We need to dispose of ideologies based on the old paradigms and try to figure out what works in the new paradigm. If we don’t, I can guarantee sudden and violent repercussions even for the most economically insulated among us.

Again, you put together a well written article. Kudos.

Posted by: mental wimp at September 19, 2006 4:13 PM
Comment #183287

Roger,
Don’t feel picked on - I think that maybe that error appears when too many posts are being submited. I’m gotten it as well. Just wait a while and post it again.

Posted by: Linda H. at September 22, 2006 7:34 PM
Comment #183406

Two comments.

First of all and most obvious, we are still the worlds only super power economicaly and militarialy and we still dominate. So don’t be so quick to write of our demise.

Secondly, the world has not changed enough. The real threats to America are coming from hell holes like N. korea, Afghanastan, Somalia, Syria, etc etc that are still impoverished and disconnected from the global economy. It is these dark spots on the world that need to be brought into the 21st century, into the global economy that are our threat because they are the breeding ground for our enemies.

I view globalism as a very good thing. It turned Russia into a customer. China is a customer of ours and we are a customer of theirs. Do we really worry that China is about to nuke the US? Of course not, they want our money more than they want to see us dead. They want us to be their number one customer forever. And that’s the power of globalism!

So don’t write Ameirca off yet. Hold on to that will power that says we are still number one and we can stand up to our enemies…we don’t have to be cowards and roll over like the French.

Posted by: Stephen at September 23, 2006 4:43 AM
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