"There's a lot of ruin in a nation." - Part 1

Posted On: Monday - November 13th 2017 12:05PM MST
In Topics: 
  Global Financial Stupidity  China  Economics  Americans

As to witnessing economic destruction by government, this guy was just a piker.

Peak Stupidity has presented before this quote from the great Scottish late 18th-century economist Adam Smith, author of "The Wealth of Nations". Mr. Smith's point is described here in an Adam Smith blog (Hey, even 250-year-ago Scottish economists have got blogs now!) in this quote of another blogger:
It was Adam Smith, the great economist, who put it best. “There is a great deal of ruin in a nation”, he once explained, seeking to reassure a panicky young interlocutor. Smith’s point was immensely powerful: it is very hard even for the most misguided, most economically illiterate of politicians to destroy a country’s economy. It takes years, a lot of effort and pretty extreme policies to erode a large stock of human and physical capital built up over a long period of time. A few unusually destructive governments have pulled it off, of course, but it takes some doing, especially when an economy reaches a certain critical threshold in terms of GDP, education, infrastructure and large private sector companies. Capitalism is an extraordinarily resilient system.(My BOLD)
Yeah, well, that sounded good at the time, Adam Smith, but you could have never imagined the type of destructive governments that would come about 200-odd years after your writings. They are managing to pull this off as we (well me, anyway) blog right this minute.

The wealth creating ability and summation of wealth over the years of the free-market American economy were also something beyond Adam Smith's imagination. Just think of the history of this nation, and go back to 1960, say, just before the creation of the modern American welfare state, and well before the selling off of our manufacturing might a few decades later. Back in that time, America manufactured for most of the free world, say half the world, as the Commie half built their crap products that were able to be forced only on their own populations. This meant loads of blue collar and white collar jobs for most any American who knew how to work for a living.

We've come a long way, baby, from those times. It's beyond the scope of this post to get into all the details of this decline, but my idea here is more to warn of the unsustainability of the economics of modern day American. (There's that word "sustainability" that the lefties LOVE, but they use if for any old thing.). I mean that this is not a steady-state system that we have. Engineers speak of "control volumes" with inputs, outputs, internal generation, and I'd like to put some figures in a follow-up post to this one. Let me describe this: We wealth generation in America via resource extraction (mining, lumbering, agriculture), and much less than we used to in manufacturing. We export some wealth in the form of lots of raw products (as colonies used to do - think about that) and some products (Boeing aircraft), yet import much more wealth in the form of all of the consumer goods and many industrial products too, mostly from China, elsewhere in the Orient.

Where's my stuff?! Example of a minor reduction in our trade deficit:

The numbers don't look so good. We've been exporting just about 2 1/4 Trillion dollars worth yearly (but this counts services, keep in mind) and importing closer to 2 3/4 Trillion dollars worth, generally leaving a gap, or the trade deficit, of 1/2 a Trilliion. The disparity between exports and imports (decent article here) is not as wide as I would have thought, but again, it counts "services" which could mean anything from lobbying to lawyering - some of it is not truly wealth transfer at all. That's another subject, but that 1/2 Trillion dollar gap each year adds up to a lot of wealth transfered to (mostly) China. What does that mean?

China, meaning their government and businessmen over there, has a lot of US dollars in the form of numbers in accounts and Treasury Bonds. They have to put the money they receive for all the goods somewhere, so the Bonds are the form of "storage". It's been stated here before that it'd be nice to just tell the Chinese, "Hey, about the $2 Trillion we owe ya', you'd be speaking Japanese if we hadn't fought the Japs in the Pacific and far East, so let's just call it even. Listen, you fucked up - you trusted us!". Hey, all truth there, but this money if what you call "fungible"; it's not just in the from of one big note, like a mortgage. It can't work like that. Secondly, remember we are still accumulating a debt to the Chinese yearly in the form of 1/2 a Trillion dollars give or take $200,000,000,000, yearly, so 4 years later, we would be at the same level of indebtedness. Of course, that wouldn't continue if we really were able to blow off the debt, but that would mean a default of the US dollar. That would be a really bad thing, but pretty much the best way out of the mess we're in.

OK, I'm not even at the stuff I wanted to write about, so we'll continue tomorrow.

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