The Strengths of the American Economy and the Ebb and Flow of Economic Change

It's easy to say that current economic policies of America may weaken it's competitive position as a producer of goods, but it would be wrong to say the economy is weak. My comments are generally that economies with weak exchange rates tend to slacken their competitive edge on the productivity side as measured by value of output per worker. It's too easy to develop behind a wall of price protectionism that does little to spur productivity or innovation. Stagnant product improvement because of price weakness does nothing to train the next stage of consumption. America paid the price of a weak exchange rate with the crises of the late 1970s and early 1980s. The Texas banking crisis was also a consequence of loosening the shoelace of competition by making money to easy to come by. Thus, weak monetary policy and weak exchange rates do not auger well for employment over the longer term as a country's manufacturing base ups and leaves when the going gets tough again. Witness American industry migration to China and India.

China does not do itself any long term favors by a weak exchange rate since this reduces the pressure in China to innovate. Sooner than expected there is overcapacity. Money driven inflation will come, wages and incomes go up, interest rates rise, money harder to come by, and Chinese firms will not be that competitive. A large internal market will be China's salvation, but it needs competitive forces to really spur it on as the public sector demands more and more.

Our reality is that not only do products themselves need to incorporate more and more price insensitive aspects to maintain or increase market size, qualitative improvement by specification of more and more market branches with derivation of scale economies. But also, the mix of products needs to be further fine tuned and technologically designed to match income growth or decline. The strength of America is it's huge internal market. This is a lesson China needs to take on board.

http://www.economist.com/blogs/freeexchange/2010/11/growth

Will not time reveal the lasting importance of friends and mutual respect? Be kind to those who think well of you and those you know and try to add positive elements to your world. Promote peace in your heart and sunshine in the minds of those around you by your own good works. Elevate the level of discussion by thinking less of the issues and more of how you can reduce the tension of stress that arises with honest disagreement. Relax by breathing more deeply and consciously.