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What Recovery? Part III: Freedom and Innovation to the Rescue?

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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 he 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.

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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.

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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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