Hughesair (Inflection Point)

Retired physician and air taxi operator, science writer and part time assistant professor, these editorials cover a wide range of topics. Mostly non political, mostly true, I write more from experience than from research and more from science than convention. Subjects cover medicine, Alaska aviation, economics, technology and an occasional book review. The Floatplane book is out there. I am currently working on Hippocrates a History of Medicine and Globalism. Enjoy!

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Saturday, June 13, 2015

The Economy

Economists dwell on formulas and the statistics seeking ever more precise numbers in a classic example of not seeing the forest for the trees. An example might be the elaborate formulas seeking to precisely predict the effect of interest rates, or the elaborate calculus communication companies use to fix prices in order to maximize income. This compulsion for statistics is good up to the point of ignoring the flow of trillions of dollars in the macro economy, for instance the trade deficit.

What drives economic growth? A simple question, you would think there might be a well understood answer, but outside of political dogma, have you ever heard a well supported answer? There are an abundance of failed philosophies. Carl Marx comes to mind, Merkintilism, Colonialism, the list goes on. History gives us a clue. Agriculture, given good climate, abundant inexpensive land with rich soil and cheap labor. From this, one can see that the abundance of a cheap exploitable resource provides opportunity.

History also shows spectacular examples of exploiting such resource, often with spectacular long term failiors from a lack of sustainability of such resource, the most fundamental example being simple pillage and plunder. There was simply not enough wealth to sustain the plunder over the long term; nonetheless, pillage and plunder sustained great ancient cultures such as Greece, Macadonia, Rome, even the British Empire. Sooner or later, the resource gives out, or the exploited get tired of being robed. We must therefore add sustainability to abundant, cheap, exploitable, along with capital, labor and entrepreneurs to grow the multiple enterprises, the velocity, the excitement and in a word the churn that drives the multiplier that compounds the GDP.

What are we doing wrong, or more precisely, what are we doing right at our own detriment? We have abundant free or nearly free capital. The interest rates are low, but more significantly we have a venture capital resource like no other, backed by a concentration of wealth in the hands of savey investors, all too few of them, however. We are exploiting cheap, abundant, labor on a vast scale and it is sustainable in the near and mid term resulting in vast revenue and vast productivity.

What's wrong with this picture? The jobs, the salaries velocity of money goes to the developing country at our own expense from a productivity stand point. Good exploitation, but we bypas our own labor force with dire sociological, cultural, health and nutritional consequences. Furthermore, revenue remains overseas or returns to the super wealthy "one percent" investment banking class in the form of foreign investment, while middle class America supplies the market for the goods and services produced by others. Thus the money pump that drains wealth from the middle class by way of purchasing cheaper outsourced goods and services feeds back to the super wealthy investment banking class by way of those developing countries not all of whom are our friends. Is this sustainable? I think not. No wonder the people, by way of congress stomped on the president's Pacific trade deal; it may have been good for foreign policy but a further disaster for the people.

One must ask, is globalization like colonialism, wherein multinational corporations exploit the colonies and sell the products at the expense of the US economy? The president told Elizabeth Warren, the horse was already out of the barn, he should know, but does that make it right to further squander the people's wealth for an ideal or for the sake of expedient foreign policy? Jaime Diamond suggested that Warren might not comprehend international banking. I would suggest that Diamond does not comprehend the damage international banking is doing to the American people. The Republicans of old once understood the wisdom of tarif laws to protect against unbalanced trade partners. Even Adem Smith insisted that free trade be fair trade. Sadly, few people have actually read Adam Smith. Blind idealism can be nearly as damaging as greed.

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