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Economic Quotes

29/10/2010

29.10.2010

1. Japan is a relatively small island that used the opportunity of a weak China to grow beyond its size. The same like England, which conquered the world in the nineteenth century using a temporary technological advantage (thanks largely to James Watt and some other skilled English craftsman).

2. Demographic problems rise when a population grows to the point where there are too many children to feed or when it declines and there are too many old people to be taken care of. But I know of no country that its demographic situation is balanced. A largely elder population is a problem if they enjoy a pension system based on deficit; a young population is a problem if the country lacks the resources to educate them.

3. It is quite easy politically to turn the Chinese economy into a consumption economy. It is much harder, however, to turn the US economy into a producing and investing economy.

4. USA federal budget deficit can be easily solved: put consumption tax in the US on the same level as it is in Europe (100% tax on fuel consumption and a 15-20% VAT), that would immediately reduce to minimum the federal deficit and increase savings. The reduced consumption would balance the current account.  It is hard to say how the exporting countries will react to it.

5. The US government will probably soon put a discriminatory tax on Chinese products, which will transfer production to other Asian countries. One must not forget that Indochina, Indonesia, Bangladesh, Pakistan and India together constitute a population of at least two billion and they will be happy to take China’s place as the producers of US welfare.

6. The transfer of wealth from the US–Europe to Asia and South America is inevitable, and will come with or without the revaluation of the Chinese Yuan. The question is, what way the US-European welfare state (a high living standard without hard work) will be changed. Since there appears to be no political will to solve the problem in a planned controlled fashion, it will be done with an economic crisis deeper than the last one.

7. The Chinese are making a mistake by selling their labor cheaply to the US-Europe. It would be much wiser to use their labor force to increase the standard of living of the Chinese people.

8. Who can predict what it would mean to increase the income of Chinese people by 50 per cent (which is more or less what is needed to balance the world economy)? Who knows what it would mean to increase the consumption of 1.4 billion people by 30-40%? 300 US$ for a barrel for oil sounds reasonable enough to me.

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