Thursday, December 27, 2012

Why The East Rises and The West Sinks

The East Rises
As you may know, I spend a good deal of time in Thailand where taxes are low, government is small and economic freedom is high. There is a strong sense of community there.  Most people live highly connected to their many friends and families.  This is as true in villages as in the big cities.  Everyone seems to know everyone's business! Everyone in the 'village' knows everything about everyone else!

There is no governmental social safety net to speak of in Thailand.  But there IS a safety net!  If someone finds themselves with no money or job, their first thought is to find something to sell on the street, get a job or borrow money from a friend. Friends and family ARE the safety net.  The thought of assistance from anyone other then themselves, friends and family is non-existent.  If you fall down, then you must pick yourself up.

Because taxes are low, the government small and the population is young, the economy remains strong so that people have the opportunity to pick themselves up.  Even though wages are very low and most people live on the financial "edge," the people are happy. Thai people are remarkably open, honest and comfortable.  There are people to help you when needed, there's plenty of opportunity and there's plenty to eat at a low cost.

The vibrant nature of the highly competitive, entrepreneurial Thai economy keeps prices low. For most things, there is intense competition with many providers.  For the common things like food,  prices are quite stable and well-behaved. And if you can't afford new things, there are vibrant markets for used things!   

The West Sinks
Then I travel back to 'The West' where the population is aging, government is big (and getting bigger), taxes are higher and opportunities are now suddenly limited in large part due to "activist government" intervention. The financial "panic" of 2009 gave government the excuse to intervene in the economy and now the cure is killing the patient.

People were already isolated and alienated from their neighbors and family, and now fairly sizable portions of the population are dependent upon "the state."  Mental health is poor as vast numbers of people are either obese or suffer from obsessive-compulsive disorders, on medication or abusing drugs, and/or suffering from anxieties. The people most dependent on 'The State', like African Americans, feel resentful, unhappy and entitled despite some government support. The dependence doesn't work nor promote happiness.

The West, now in the hands of Keynesians and Socialists, is in a vicious downward circle of 1) increasing government interference in the economy which ruins the private, decentralized business atmosphere and blunts individual initiative, 2) more government spending and higher debt slows the economy,  3) higher debt levels reduce the efficacy of deficit spending so there is demand for even more spending and 4) eventually interest costs rise. The cycle continues with 5) higher taxes to pay for this gov't "interference" which leads to lower tax revenue and calls for yet more taxes. The tax and spend downward spiral concludes where we began: with a sick economy and 6) more excuses for further government involvement.  Our current administration loves crisis--so they can "take advantage" of it.

The population in the US (and Europe) is now so economically illiterate and/or so dependent on a gov't program that they are unable or unwilling to break the cycle.  The recent election in the US was a choice between a Leftist and a conservative candidate who MIGHT have been able to break the downward spiral with pro-growth policies.  The people voted for the downward spiral!

Please see my blog "The West Lapsing Into Totalitarian Slump."

Higher taxes, big government and onerous regulation in many Western economies, like the UK, have a tendency toward inflation (and stagnation).  Inflation is the principal reason for income inequality as the wealthy have ways of avoiding inflation loses.  The UK, in recent years, has had 5% inflation despite a slumping economy.  Government "totalitarianism" and high taxation limits entrepreneurial efforts because few people have enough after tax income and savings to take risks.  This leads to a lack of "supply" in the Supply-Demand equation.  Also, government controlled enterprises are notoriously noncompetitive (think US Postal Service) leading to rising prices.  Also, taxation of business is passed onto the consumer in the form of higher prices. Socialism leads to stagnation AND inflation!

The Downward Spiral Will Eventually End!
Charles Hughes Smith echoes many of these sentiments in his Christmas day blog article entitled "Why I'm Hopeful"

"I often mention that the U.S. has much to learn from so-called Third World countries that are poorer in resources and credit. In many of these countries, the government is the police, the school and the infrastructure of roadways and energy.  

Rather than something to be embraced and lobbied, involvement with the State is something to be avoided as a risk. In everyday life, people rarely encounter the government except in law enforcement or schooling.  As a result, people depend on their social capital and community for sustenance, support, work and connections.

This is not altruism, it is mutually beneficial.

Once a community dissolves into atomized individuals who each get a payment from the Central State, then they no longer need each other. Rather, other dependents on the State are viewed as competitors for the State's resources.

These atomized, isolated individuals have a perverse relationship with the State and what remains of the community around them: lacking the self-worth earned from work or engagement/investment in a community, then their only outlet for self-identity is consumption: what they wear, eat, drink, etc. as consumers.

This dependence on the State also serves the State's goal, which is a passive, compliant populace of dependents, and distracted, passive workers who pay their taxes. Thus dependence on the State and a hollow consumerism are ontologically bound: one feeds the other.

The era of debt-based consumption as the engine of "growth" and "prosperity" is coming to an end. Adding debt via credit no longer creates growth; it actually takes away from the economy by expanding debt service (interest payments).

The vast majority of developed-world people have had the basics of life since the late 1960s -- transport, food, shelter and utilities. The "growth" since then depended on cheap, abundant oil and a consumerist mentality in which one constantly re-defines and renews one's identity not from social investments in others or the shared community but from consumption.

Not coincidentally, this dominance of consumption as the only metric for "growth" (as opposed to, say, productive activity) has been paralleled by the dominance of the Central State.

The end of credit-based consumption will be a very positive development, as will the devolution of the Savior State. The Savior State is like oil--both are at their peaks and are starting their inevitable slide down the S-curve. The world they created was not as positive for human fulfillment and happiness as we have been told.

Indeed, study after study has found that people with the basics for life, a higher purpose that requires sacrifice and a tight-knit community are far and away happier than isolated, atomized, insecure consumers, regardless of their wealth and consumption.

This potential to re-humanize our economy is why I am hopeful."

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