Monday, May 15, 2006

Malthusian Paranoia

The headline of the front page LA Times article read: Emerging Nations Powering Global Economic Boom. I take it as really good news that not one of the 60 nations tracked by the study is in recession, the first such instance since 1969. Then, in the subtitle, we learn some really bad news, the flip side of the zero-sum-game logic: But many U.S. workers are left behind. Lord have mercy, the emerging nations are leaving us behind.

Behind what, you ask? Further down the story we find out that the soaring economies of China, India, Russia, Brazil and other emerging nations are setting the pace, overshadowing the slower growth of the United States, Europe and Japan, where the benefits of the expansion have eluded many workers. Whoa there! Do you mean the people of China have more than two cars per household? Are 80% of the living spaces in India air conditioned? Does Russia have a color TV-VCR in every home, and do more than 70% of Brazilian families own their own home? Oh no - that’s America. So what is it that those devilish developing countries have on us?

Even further down the story I found out the ugly truth: The simplest yardstick of economic success is a country's growth in real gross domestic product, or how fast its total output of goods and services is rising after inflation. For the developing world, that growth is expected to be 6.9% this year — more than double the 3% pace of the developed world. Now if that doesn’t make you feel sorry for your sorry American self, I don’t know what will. Perhaps we can find a way out of this economic pickle by looking hard at the data – that’s plural for datum, because there’s a lot of the stuff.

From the Economist Magazine, 2006 World in Figures, I found that the GDP growth from 1993 to 2003 was 8.9% in China, 6.8% in Cambodia and 6.2% in India, compared to the paltry 3.3% in America, 2.0% in France, 1.4% in Germany and 1.3% in Japan. Point - to the LA Times! It appears that China is leaving us in the dust. But wait just a minute, we here in the good old USA seem to be coasting, not in a panic. Perhaps it’s because we have a multiple mile lead on the Chinese in this marathon race. In 2004, the US GDP per person was $37,200 while China’s was $1,100, only 3% of ours.

So what about that GDP growth discrepancy? Is that going to bite us in the rear? For argument’s sake, let’s allow the Chinese economy to continue growing at 9% indefinitely (an impossibility) and let the US grow at 3% annually (we’re actually doing 4%) and calculate how many years before the Chinese rabbit catches up to the US turtle. First consider the initial year when the Chinese GDP per person grows by $199 (9% growth) while the US GDP per person grows by $1,116 (3% growth) more than the entire Chinese GDP/pp last year. This divergence in our favor will continue for some time until the higher Chinese compound growth rate causes a convergence. To get the answer, I'll pull out my trusty slide rule, do some logs and find that in 62 years, ie. in 2068, the Chinese will finally catch us if the assumptions remain valid. By then we will be making $230,000 per person per year and feeling no pain.

Of course the reality is that the Chinese economy will slow down from 8.9% growth to 7% then 5.5% then 4% over the course of a decade or so while their economy matures. That’s the way it works. History provides many examples. The last Asian rabbit was Japan whose GDP grew at a rate 6.8% higher than the US in the 1960s, 1.7% higher in the 1970s and 1.5% higher in the 1980s, but behind the US in the 1990s and thus far in the 2000s. Meanwhile, the US economy is the marvel of the developed world and will likely continue growing at 3 percent for a long time. We’ll be ensconced in the next ice age before China, India, Russia or any of the other developing countries (or the Europeans, for that matter) ever catch up with us.

Lest we succumb to the temptation of self pity (clearly the motive of the LA Times story) it is sobering to consider the plight of the developing countries. Among the countries with the fastest GDP growth, the GDP per person is just $1100 in China, $560 in India, $300 in Cambodia and $90 in Ethiopia. Thus the Chinese are living (before taxes) on $3 per day, the Indians on $1.53 per day, the Cambodians on $0.82/day and the Ethiopians on $0.25/day (that’s a Quarter!). Helping to raise their living standards by purchasing their products seems to be a humane act. What are the Times writers worrying about?

The GDP of our neighbors in Mexico is $6,000 per person or $16 per person per day, rich by comparison to the Asians but poor compared to America.

And lest we succumb to the temptation that socialism works best for the poor (another motivation of the liberal press) consider the example of Venezuela. A country rich in natural resources, most especially oil, has a GDP per person of $3,300 and it has been decreasing for 15 years. Thank you, Hugo Chavez.

The dilemma is why the richest country in the history of the world worries about competition from the third world. One reason is human nature as described in The Progress Paradox by Gregg Easterbrook. The other reason is a sort of collapse anxiety, a fear that people are about to exhaust the world’s resources and that economic progress in developing nations will hasten this outcome. The population theory put forward by Thomas Malthus was turned into a popular prognostication of global tragedy by Paul Erlich in the 1960s. It’s nonsense of course, but still is vigorously promoted by environmental paranoia and elite hubris.


Blogger Ralph said...

Don't forget the Club of Rome. We were supposed to be starving in caves by now.

11:48 AM  
Anonymous Anonymous said...

Interesting that the Times figures it can provoke American workers with this kind of story, and a week or so later, provoke the same workers by reminding them that a 5% raise for a janitor making $25,000/year is only $1,750, whereas the same 5% raise for the CEO making $1 million is $50,000.


12:07 PM  
Anonymous Anonymous said...

SUPURB piece!!! I’ll print this out and include it in my “How the liberal mainstream media prints their editorials and agendas disguised as news” file.

Keep up the great work!


12:07 PM  
Anonymous Anonymous said...

Bill — Very interesting but there is a much less complicated way of calculating which country’s workers/citizens are better off. First, do not use US Dollars for comparison. Use the local currency in each country. Then, take the basics of life: food, clothes, shelter, transportation, etc., and build a “typical” home and calculate how long (days, months, years) the typical worker would have to work to earn the money to pay for each component in that “typical” home. For example, earn the money to buy one of the lowest priced new cars in the market, the typical U.S. secretary would have to work 4 months (three months before taxes). In many South American countries that secretary would have to work at least three YEARS.

Go down the list of items --- plasma TV, sirloin steak, man’s dress suit, whatever. Do the same calculation of “how long to work to earn the money to buy it.”

Americans are so far ahead it is laughable to propose otherwise.


12:08 PM  

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