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Monday, September 19, 2005

World Economy from an 8th Grader


This weekend I got the privilege to spend Saturday with my family out on a series of lakes near Waupaca, Wisconsin. Small talk mixed with the occasional deeper conversation, my little brother Dave and I got to shoot the breeze and he brought to the table a series of quick comments that shocked his economically infatuated brother.

His first comment was in response to a conversation me and my uncle were having about his business overseas in China. Dave, an 8th grader said,” I know a lot of other people don’t like that we get a lot of our products from China but I do because we get cheap stuff.” While not being introduced to the ideas of comparative advantage or any real economic theory yet, he does at least see how the world economy operates with production moving to lower cost labor markets. He is enthused by the fact that he can go and get a decent stereo at the nearest Wal Mart for $40 or a new 19” television from Sears for $120. The fact is that most people in consumer driven America are happy that we have low prices. They are excited that with advances in transportation, logistics, and international business that companies like Wal Mart, Best Buy, Target, Home Depot and others can deliver products at cheaper real rates than ever. While liberal critics demand tougher environmental laws, more stringent labor regulation, criticize big-box store business, and critique lower and middle class America for being selfish and unsophisticated, they fail to see how the world economy and hypercapitalism has helped in bringing prosperity to the everyday American by keeping prices low and fighting inflation. While much of the liberal commentary is valid to some degree, they do not acknowledge the benefits of overseas labor, big box stores, and the innovation of business.

His second comment was “I think it is interesting that most of our factories are moving overseas”. He did not say this with a negative or positive tone but with an unopinionated voice. Now the real fact is that we still do have a large manufacturing base in this country. A large section has been moving overseas since the 1970’s and the percentage of the US population employed in the sector is much smaller than it historically was during the middle of the 20th century. In late 1960’s the percentage was around 35% but as of 2003 the percentage was hovering around 20%. We will always have a manufacturing base in this country but economy's future is not in tangible production. Its future is in the new information economy whether that be research, creation, or facilitation of knowledge. My little brother knows this is the way our economy is headed as I do too. Yet, many people in America especially the uneducated and various liberals live for the Keynesian Welfare manufacturing state when incomes were more equal, the father worked in the factory (40 hours a week) and production was stable over time. They fear that with the need for more education in the information age, many uneducated people will be left behind and our society will continue to weaken. Their answers are often more manufacturing jobs, increased unionization, more trade restrictions, high taxes, adding social programs etc., where my answers are making education affordable, providing job training programs, and continuing neoliberal policies which spur growth (low taxes, free trade agreements, open immigration, less regulation, etc). I think if my brother understood in full these economic concepts he would agree with me. Drawing from his statements, he at least has a head start in fully understanding the world and its business structure than all the economically illiterate students of Madison.

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