The American Way
To some, the American Way is right up there with Truth and Justice, just like in the intro to the old Superman TV show. ("...to fight...for truth, justice and the American Way!") But what is the American way anyway (and what does it have to do with business and economics)?
Probably the biggest part of the American way—and something that still drives us today--is the first self-evident truth stated in the Declaration of Independence on this date 235 years ago:
All men are created equal.
Of course we add women to that now.
And of course we all know that no matter how much of an article of faith that statement is, individuals do vary almost infinitely in their talents, abilities, motivations, honesty/dishonesty, etc.
But in the context of 1776, that statement was pointed straight at the heart of the basic social order of the Old World. In those days, an individual’s life was determined by his birth. If he was born into a lower class, he stayed in that lower class. If he was born into an upper class, he stayed there, even if he was a total idiot.
Many societies throughout history have been stratified in that way. But it overlooks what could be called an inconvenient truth: that people with talent, brains or “the right stuff” can come from any level of society and any race or ethnic group.
And what is the basic injustice? I would argue that it is summed up pretty simply as this: not treating a person the way he or she deserves to be treated.
If a person has talents and potentials that cannot be used because of an accident of birth, it is an injustice. Not only that, but it is a serious loss for the society as a whole. We need talented people, and we need to find them wherever they may be.
Inspired by the idea that all are created equal, we have tried to do all we can to give everybody a fair chance in life. Early on we instituted universal free public education. More recently we have created programs like Head Start to try to break down obstacles presented by extreme poverty in early childhood. We have also done our best to make a college education available to anyone who wants it. We have state universities, federal grants and loans and an extensive centralized system of evaluating financial aid applications. Individual colleges and universities also have scholarship programs to ensure that talented students from low-income backgrounds can attend their school.
The bottom line is that if any person has a desire for higher education and has a brain cell or two to rub together, it will not be a lack of money that will prevent it. Life issues may intervene, but probably not money for tuition.
We also have laws and rules against discrimination by superficial things like skin color, religion, etc.
And we have many other programs, policies, laws and crusades that militate towards the proposition that all men (and women) are created equal.
It could very well be that we overdo it at times—that we often ignore that reality that individuals vary from one to the other. But from the viewpoint of the society (and the economy), what do all these things do?
You might say that more than anything else, they stir the pot. The society needs talented people, and all these programs etc give them an opportunity to rise. This is good for the society, and for the most part (I say “the most part” because some of these efforts are counter-productive and have excessive costs), it is good for the economy.
The converse side of the American way is that clunkers have the opportunity to fall. Some people are born rich, but they don’t all stay that way. “A fool and his money are soon parted.” There are plenty of opportunities for people to blow their money, make foolish choices, fail at pet projects, etc. We don’t need people at the top who are dead weight.
Another part of the system is that even people who are born rich and stay that way by doing nothing except collecting interest and dividends, well, even they are contributing something. Their money is invested in banks and stocks, and therefore it is being used by entrepreneurs, corporations, etc, who know how to use it to make more money, create wealth, hire people and generally keep the economy buzzing.
The American Way is a complex and varied thing, and it is also part of what has made our economy the strongest in the world.
Monday, July 4, 2011
Tuesday, June 28, 2011
Did you know?
Farmers (generally) are doing well. Prices are up, loans are cheap, profits are flowing.
Science continues to make advances that make better crops, lower costs, etc.
Science continues to make advances that make better crops, lower costs, etc.
Sunday, June 19, 2011
Housing rules
A long-time rule of thumb for the US economy is that it follows, in large part, the direction of the housing industry. Recessions and recoveries often follow booms and busts in housing. Housing, in turn, would usually follow increases and decreases in interest rates. When interest rates went down, more people could afford mortgages. The demand for new houses would pick up, leading to increased employment in the building trades. New houses also meant that people needed stoves, refrigerators and a host of other durable and non-durable goods. Factories would need to hire more people to meet renewed demand, and the economy would go into an upswing.
Usually this upswing would follow a period of comparatively high interest rates, during which demand for housing had fallen. Home valuations would often stagnate during these times. Sometimes prices would even fall due to decreased demand. When the break in interest rates came, the combination of low rates and buyer-friendly real estate prices would usually lead to a brisk recovery.
The real estate boom that ended in about 2007 has been called the longest and most sustained such boom in living memory. In the aftermath, we are continuing to see weakness in the housing industry, despite the fact that about four years have gone by since the collapse.
The Federal Reserve has attempted to revive the economy by pouring money into it and by keeping interest rates at rock-bottom levels. Such measures usually work, but as noted above, the housing market has usually by this point come back down to an affordable level, and excess capacity has been used up. So far that has not happened this time. We could reach the bottom any time now, but at this point we do not know exactly when. In reality we will not know until we see the statistics reverse direction and start to move upward. We will only know about it after the fact, when all the numbers have come in and have been added up.
One funny thing about us as economic creatures is that we commonly tend to think that the current trend will go on forever. When housing prices are going up, we think they will always go up. When they go down, we fear that the decline will go on interminably. But trends do change.
In my opinion, the Federal Reserve has an interesting situation that it is continuing to deal with. The housing decline is a severe deflationary force in the economy. The actions the Fed has taken, which many people point to as alarmingly inflationary, have not stopped the deflation of that segment of the economy. Other segments of the economy show signs of inflation, but housing has continued to go down.
Since housing is such a major force in the economy, the Fed's actions are a little bit like spitting in the wind. The analogy is not perfect, because the Fed's actions have had an effect--mainly in preventing disaster. But the economy cannot recover fully until housing completes its shakeout.
Of course we have not covered here all the things that have gone wrong or been done wrong in the last few years. However, the trend of the housing industry still stands as a key indicator to watch.
Usually this upswing would follow a period of comparatively high interest rates, during which demand for housing had fallen. Home valuations would often stagnate during these times. Sometimes prices would even fall due to decreased demand. When the break in interest rates came, the combination of low rates and buyer-friendly real estate prices would usually lead to a brisk recovery.
The real estate boom that ended in about 2007 has been called the longest and most sustained such boom in living memory. In the aftermath, we are continuing to see weakness in the housing industry, despite the fact that about four years have gone by since the collapse.
The Federal Reserve has attempted to revive the economy by pouring money into it and by keeping interest rates at rock-bottom levels. Such measures usually work, but as noted above, the housing market has usually by this point come back down to an affordable level, and excess capacity has been used up. So far that has not happened this time. We could reach the bottom any time now, but at this point we do not know exactly when. In reality we will not know until we see the statistics reverse direction and start to move upward. We will only know about it after the fact, when all the numbers have come in and have been added up.
One funny thing about us as economic creatures is that we commonly tend to think that the current trend will go on forever. When housing prices are going up, we think they will always go up. When they go down, we fear that the decline will go on interminably. But trends do change.
In my opinion, the Federal Reserve has an interesting situation that it is continuing to deal with. The housing decline is a severe deflationary force in the economy. The actions the Fed has taken, which many people point to as alarmingly inflationary, have not stopped the deflation of that segment of the economy. Other segments of the economy show signs of inflation, but housing has continued to go down.
Since housing is such a major force in the economy, the Fed's actions are a little bit like spitting in the wind. The analogy is not perfect, because the Fed's actions have had an effect--mainly in preventing disaster. But the economy cannot recover fully until housing completes its shakeout.
Of course we have not covered here all the things that have gone wrong or been done wrong in the last few years. However, the trend of the housing industry still stands as a key indicator to watch.
Sunday, January 30, 2011
Smack dab in the middle
As mentioned in the previous post, the Roman Empire was centered around the Mediterranean Sea. It is interesting to note, in looking at a map, that Rome is literally near the middle of it, being on a strip of land (i.e., Italy) that sticks out into that sea.
Travel and trade by water have been extremely important in Western history, going back to the rise of the Greeks. The Mediterranean became a medium of communication that linked the ancient world into a community.
The Roman army had been superior on land for a long time, but it was not until it built a powerful navy that it was able to control the Mediterranean and complete its conquests. Its location near the middle of the Mediterranean would have been very fortunate for naval operations. Probably even more important would have been its location as a hub for trade.
It may or may not be appropriate to compare the United States to Rome, but it may be worth noting that the US is located in a fantastic trading position right in the middle between two gigantic trading areas: the Atlantic and the Pacific. As mentioned in the previous post, this is a powerful position.
It is interesting to note, also, that oceans tend to provide communication between the lands on their opposite shores, thus bringing them together as much as separating them. The people along the coasts of the oceans sometimes have more in common with each other than with people further inland on their own continent. For example, the culture and politics of Massachusetts sometimes seem more similar to Western Europe than to, say, Texas. California is obviously different from most of the rest of the US, and it is especially interesting that the California counties along the Pacific coast are politically the most different while the inland counties are more like the American heartland.
Similarly, the coastal areas of China are a little bit different from its inland areas. Prosperity has so far come mainly to the coastal areas, though it is spreading inland.
We tend to think of countries and civilizations as land based entities, but the roles played by ocean trade, travel and migration have really been far more important in western civilization. The United States is at the crossroads of the world in many respects, and as such it should continue to be a land of opportunity despite its problems.
Travel and trade by water have been extremely important in Western history, going back to the rise of the Greeks. The Mediterranean became a medium of communication that linked the ancient world into a community.
The Roman army had been superior on land for a long time, but it was not until it built a powerful navy that it was able to control the Mediterranean and complete its conquests. Its location near the middle of the Mediterranean would have been very fortunate for naval operations. Probably even more important would have been its location as a hub for trade.
It may or may not be appropriate to compare the United States to Rome, but it may be worth noting that the US is located in a fantastic trading position right in the middle between two gigantic trading areas: the Atlantic and the Pacific. As mentioned in the previous post, this is a powerful position.
It is interesting to note, also, that oceans tend to provide communication between the lands on their opposite shores, thus bringing them together as much as separating them. The people along the coasts of the oceans sometimes have more in common with each other than with people further inland on their own continent. For example, the culture and politics of Massachusetts sometimes seem more similar to Western Europe than to, say, Texas. California is obviously different from most of the rest of the US, and it is especially interesting that the California counties along the Pacific coast are politically the most different while the inland counties are more like the American heartland.
Similarly, the coastal areas of China are a little bit different from its inland areas. Prosperity has so far come mainly to the coastal areas, though it is spreading inland.
We tend to think of countries and civilizations as land based entities, but the roles played by ocean trade, travel and migration have really been far more important in western civilization. The United States is at the crossroads of the world in many respects, and as such it should continue to be a land of opportunity despite its problems.
Thursday, December 9, 2010
Oceans: Power and Prosperity
Though the United State faces many economic challenges, one thing that is unlikely to change is that America has a very advantageous geographical position in regard to world trade. It faces the North Atlantic and Europe to the east. It faces the rapidly growing Pacific Rim area to the West. For a perspective on how important this could be, let's look back in history.
Looking at maps of Western Civilization at several of its high points, one is struck by a curious fact: they seem to be centered around oceans rather than land masses. Other civilizations have grown up around great rivers: Egypt, Mesopotamia, India and China. Western civilization has grown around seas: the Aegean, the Mediterranean, the North Sea, the Baltic and the Atlantic.
One usually thinks of Greece as a land-based entity, but at the height of its power in the days of Athens and Sparta, Greek settlements spread out over the shores of Asian Minor and the shores of the northern Aegean. The Greek world was thus to a large degree centered around the Aegean Sea. (The Greeks also traded far and wide across the Mediterranean.)
Similarly, though we usually think of the Roman Empire as a land-based entity, a quick look at a map reveals a curious fact: It completely encircled the Mediterranean Sea. Indeed, until Julius Caesar conquered Gaul, there really wasn't a whole lot of land mass to the empire in comparison to all that water. In those days, the civilized world was interconnected not only by the famous Roman roads, but also by sea, and held together by trade transported on ships.
To the north, there were trading areas centering around the North Sea and the Baltic Sea.
It was much faster and easier to travel and to transport freight by water than by land. Even today, though we can now carry freight by railroad, it is still easier by ship.
In addition, it appears that as the Western World grew, power flowed to the shores of ever larger bodies of water. The Greek world of the Aegean was superceded by the Roman world of the Mediterranean. Much later, when European powers facing the Atlantic Ocean (Spain, Portugal, England, the Netherlands, France) developed trade on that ocean, those countries became the preeminent world powers. The Western world became more and more built around the Atlantic, with America taking an ever larger role.
Eventually, the United States stretched from coast to coast, and it began to trade on the Pacific, too.
Since the Pacific is by far the largest ocean on earth, by this theory it could become (if it is not already) the richest and most powerful trading area in the world.
But of course the Atlantic is still a powerful trading area. And the United States faces both these oceans. It has the most powerful navy in the world to keep trade safe. The US trades by ocean to all points on earth.
Also America's east and west coasts are linked to all points of the continent by a well-developed railroad system.
By these facts alone, the power of the US economy is likely to remain formidable for quite some time yet. Of course it can decline, and of course other powers can rise. But it is not going away just yet.
Looking at maps of Western Civilization at several of its high points, one is struck by a curious fact: they seem to be centered around oceans rather than land masses. Other civilizations have grown up around great rivers: Egypt, Mesopotamia, India and China. Western civilization has grown around seas: the Aegean, the Mediterranean, the North Sea, the Baltic and the Atlantic.
One usually thinks of Greece as a land-based entity, but at the height of its power in the days of Athens and Sparta, Greek settlements spread out over the shores of Asian Minor and the shores of the northern Aegean. The Greek world was thus to a large degree centered around the Aegean Sea. (The Greeks also traded far and wide across the Mediterranean.)
Similarly, though we usually think of the Roman Empire as a land-based entity, a quick look at a map reveals a curious fact: It completely encircled the Mediterranean Sea. Indeed, until Julius Caesar conquered Gaul, there really wasn't a whole lot of land mass to the empire in comparison to all that water. In those days, the civilized world was interconnected not only by the famous Roman roads, but also by sea, and held together by trade transported on ships.
To the north, there were trading areas centering around the North Sea and the Baltic Sea.
It was much faster and easier to travel and to transport freight by water than by land. Even today, though we can now carry freight by railroad, it is still easier by ship.
In addition, it appears that as the Western World grew, power flowed to the shores of ever larger bodies of water. The Greek world of the Aegean was superceded by the Roman world of the Mediterranean. Much later, when European powers facing the Atlantic Ocean (Spain, Portugal, England, the Netherlands, France) developed trade on that ocean, those countries became the preeminent world powers. The Western world became more and more built around the Atlantic, with America taking an ever larger role.
Eventually, the United States stretched from coast to coast, and it began to trade on the Pacific, too.
Since the Pacific is by far the largest ocean on earth, by this theory it could become (if it is not already) the richest and most powerful trading area in the world.
But of course the Atlantic is still a powerful trading area. And the United States faces both these oceans. It has the most powerful navy in the world to keep trade safe. The US trades by ocean to all points on earth.
Also America's east and west coasts are linked to all points of the continent by a well-developed railroad system.
By these facts alone, the power of the US economy is likely to remain formidable for quite some time yet. Of course it can decline, and of course other powers can rise. But it is not going away just yet.
Thursday, November 18, 2010
Asian growth
It may be that the best long-term hope for the American economy will be the growth of China and India. Just as America was the world's engine of growth in the 1980s, these two, and other emerging economies, are projected to be engines of growth during the next couple of decades. They are already growing quickly.
Thus, even if America does not solve its own internal economic problems, it could continue to muddle through as a trading partner of economies that are actually doing well.
However, since the American economy is still about twice as big as the second largest economy in the world (China), it would still be a pretty tough job for any other combination of trading partners to pull us out of a serious ditch if we were to slide back into one. Thus it would be best if we could solve our own problems and resume a leadership role.
Thus, even if America does not solve its own internal economic problems, it could continue to muddle through as a trading partner of economies that are actually doing well.
However, since the American economy is still about twice as big as the second largest economy in the world (China), it would still be a pretty tough job for any other combination of trading partners to pull us out of a serious ditch if we were to slide back into one. Thus it would be best if we could solve our own problems and resume a leadership role.
Long-term trends
1. Asian growth rates faster than Western growth rates
2. Decline of the dollar as the defacto international currency.
3. Population trends:
The United States is the only major developed country in the world that has a birth rate plus immigration rate sufficient to generate population growth. Western Europe and Japan are faced with a growing burden of elderly and retired people and with population declines down the road. In those countries the shrinking percentage of working-age people will have to support a growing percentage of retired people. Even China is facing that problem. For many years the Chinese government has imposed a limit of one child per family. Now it looks as though that policy is working to curb population growth. In fact the projection for China is population decline.
It is strange to think, after so many decades of hearing about the dangers of population growth, that the success of efforts to curb that growth could turn out to be a problem. The United States could turn out to be lucky that its population is growing, because that growth could turn out to be a solution to the problem of supporting so many Baby Boomers on Social Security. (Probably not a real solution, but perhaps an amelioration.) If we have more people entering the work force, that's more people paying into the Social Security pot. If we have enough growth, we might not go broke quite so fast. Theoretically enough growth, coupled with some reforms, could even result in our survival.
The people who are campaigning against letting more people into our country are really not doing us any favors. We need more willing and able workers. We need them not just to fund our Social Security checks. We need more dreamers of the American Dream, or simply more people with a practical conviction that they can do better here than elsewhere.
It may feel like there are too many people in the world, but that is more of an opinion than a fact. There are benefits to a growing population, not the least of which is that the alternative to growth is decline.
The supposed negative impact of immigration on the social welfare system may be exaggerated, especially in light of the potential positive impact on the Social Security equation. But in the areas in which the social welfare system is negatively impacted, the better solution would be to cut back on government-sponsored social warfare programs, not to cut immigration. If we made the availability of work (and freedom and opportunity) the main incentives for people to come here, we would obviously still get plenty of people. These things really already are the main incentives, but we could make it more so.
Our best days could still be ahead of us, not behind us.
2. Decline of the dollar as the defacto international currency.
3. Population trends:
The United States is the only major developed country in the world that has a birth rate plus immigration rate sufficient to generate population growth. Western Europe and Japan are faced with a growing burden of elderly and retired people and with population declines down the road. In those countries the shrinking percentage of working-age people will have to support a growing percentage of retired people. Even China is facing that problem. For many years the Chinese government has imposed a limit of one child per family. Now it looks as though that policy is working to curb population growth. In fact the projection for China is population decline.
It is strange to think, after so many decades of hearing about the dangers of population growth, that the success of efforts to curb that growth could turn out to be a problem. The United States could turn out to be lucky that its population is growing, because that growth could turn out to be a solution to the problem of supporting so many Baby Boomers on Social Security. (Probably not a real solution, but perhaps an amelioration.) If we have more people entering the work force, that's more people paying into the Social Security pot. If we have enough growth, we might not go broke quite so fast. Theoretically enough growth, coupled with some reforms, could even result in our survival.
The people who are campaigning against letting more people into our country are really not doing us any favors. We need more willing and able workers. We need them not just to fund our Social Security checks. We need more dreamers of the American Dream, or simply more people with a practical conviction that they can do better here than elsewhere.
It may feel like there are too many people in the world, but that is more of an opinion than a fact. There are benefits to a growing population, not the least of which is that the alternative to growth is decline.
The supposed negative impact of immigration on the social welfare system may be exaggerated, especially in light of the potential positive impact on the Social Security equation. But in the areas in which the social welfare system is negatively impacted, the better solution would be to cut back on government-sponsored social warfare programs, not to cut immigration. If we made the availability of work (and freedom and opportunity) the main incentives for people to come here, we would obviously still get plenty of people. These things really already are the main incentives, but we could make it more so.
Our best days could still be ahead of us, not behind us.
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