The world economy was imbalanced upon a falsehood. The West took and the East delivered. Growing up in the West the only idea we (as children) experienced of the East was the familiar “Made in Hong Kong” on every little plastic toy that broke or was discarded with no love given. The little collapsible cows, small plastic animals, pick up sticks – these toys were adequately made, more entertaining than they inherently should have been. Many of the expensive luxuries we enjoyed as children were not made in the East, these toys were somehow less “defining” – they demanded less imagination than the simple little disposable objects which must now populate land fills in the West. Disposability was an economic doctrine of sorts that seems to have existed in the wealthy sixties and when the seventies came around politicians started trying to engineer economics with notorious measures such as wage and price freezes. The net result of this was to hide inflation from the voters.
Economics is a bit like baking a pie. There is no single right way to get a result, but there are many ways to destroy it. The pie must be heated at the correct rate, or near enough to it, so that it cooks the inside before it starts to burn the outside. When the pie is correctly cooked you feed your family with it. Next year your family is a little larger. So the pie is no longer enough for them. This creates demand.
To satisfy demand (which in economics is more a life/death calculation) more pies are required than the ones you are able to bake. The demand translates from hunger to shortages of shortening and pie filler. Pastry become rare again, no longer a commodity but something people will walk hundreds of miles to find. Pies become more expensive and traveling to find them becomes common place so the 30 or so rickshaws employed to ferry pastry cooks around are all constantly busy. The ceiling on delivery is reached quickly and that stunts future growth in pie making. An economic boom may cause imbalances to exist. A smart rickshaw driver sees the opportunity and trains another 30 drivers.
To soak up the demand for pies, the Government decides to import extra pastry. Governments are run by individuals who over estimate things (power is intoxicating, hence it follows that politicians are intoxicated). Now there is a glut of pastry and 30 extra rickshaw drivers ensures that all rickshaw drivers get paid less. The pie makers make many many more pies but nobody can afford to buy them. Government interventions distort natural exchange regulators. So rickshaw driver wages drop and the business no longer maintains its vehicles.
Then along comes a clever banker who sees that if future delivery of pastry is predictable then businesses are able to project and make decisions that make sense. The banker funds many businesses that work in this way, producing not much more than was required to satisfy demand. Then along comes a smarter banker who invests in the first banker and many others. Then sells the future expected earning potential to the people who make the pastry. As the market starts to lose, the pastry cook modulates their production. As the market grows, they can invest in improved productivity.
Now money is making the world turn. We have an industrial revolution, turning out productivity at a much greater and more consistent rate than before.
In theory it sounds very much like the artificial world of a computer game. The pie makers can accumulate so many pies or resources that they become bigger and more powerful than the government. Their decisions/needs are no longer externally modulated. They gobble up other industries. Their successful behaviours are exported. Now they are a conglomerate. Now their fortunes are more important to the economy in which they live. They go around saying that their assets are more valuable now, so they control the prices.
We have these things called “countries” that exist as economic competitors. Economic take over is mediated through international finance. It used to be mediated by war. We had to find a less destructive way to share.
War can be viewed as an economic activity. Where inflation wears away at the value of the economic clout of savings, war makes money far more valuable. It is often the result of excessive inflation that a bankrupt government can no longer control. Theft is the easiest way to get wealth. If the government is so poor it can not invade and steal from a neighbor, it attacks its own citizens and this internal war is the worst economic medicine – look at Zimbabwe. A civil war has no real winner.
The current world situation is not dissimilar. The world has lived off inflation for so long that it forgets to produce pies. The current economic recovery could fail if the economic drivers behind productivity are not understood.
In America, the move to sustainable energy consumption is not just vital for the environment, it is intrinsically linked to replacing the unsustainable wealth with economic activity.
