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December 28, 2004

When To Worry

I just got off the phone with DP, the only guy I know who likes to talk economics and politics with me. Now that I don't owe him any money we'll probably talk more.

He seems convinced that the US economy is going to implode and maybe take the rest of the world with it. Why? Because we don't educate our people and everybody else is. I could buy it, but I think the problem is one with which Americans will live comfortably. How do I know? Because we don't make BMWs here. Daimler Chrysler notwithstanding, the overwhelming majority of Americans are quite capable of dealing with the fact that other nations are more capable at things we previously boasted about.

I had a bet with an intellectual associate. He guested that the price of gas would hit 6 bucks a gallon this past summer. I probably would have bet him that oil would not hit 60 bucks a barrel and he would have won, but tripling the price at the pump was inconcievable. But if there are inevitable shocks to the domination of the American economy on the world stage and millions of poor and middle class folks feel the big hurt, I say that they'll adjust. Sure there are millions of pampered poodles among us who will squeal and keel over in a squeeze, but the rest of us will get our hands dirty, tighten our belts and be happy to be middle class citizens of a second-class world power.

But none of this calamity will hit without warning. We'll have plenty of time to get used to it and, like boiling frogs, we won't notice it so much. Unlike boiling frogs, we won't become lunch. Even if 20% of the American economy is a bubble, it will pop in slow motion. What will we hear?

I think we'll see the Olympic gold medal count drop. People will stop going to football games. Marinas around the country will have slip rental rates drop and docks go empty. Lobster dinners will start costing even more. But here's the key. When McDonalds shrinks its menu and the 99 cent cheeseburger becomes a thing of the past, then it's time to worry. When people's light bill doubles, then it's time to worry.

When more sitcoms and romantic comedies start looking completely fantastic, we can worry. When small towns start filling up with ex-city slickers learning to hunt deer for food. When Americans really start to hate rich people. When street gangs overwhelm cops because cops don't get paid enough because tax revenues are too small because businesses are failing, in Chicago. When city people start buying cars that they can learn to repair themselves. When people stop putting swimming pools in their homes and buying aftermarket accessories in a variety of industries. When the two car family becomes a rarity.

These things are over the horizon of predictability. > 50 years.

Posted by mbowen at December 28, 2004 12:10 PM

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This tracks with an ongoing discussion over at Jerry Pournelle's blog, which has to do with the dumbing-down of public schools and their failure to adequately challenge the kids who should be our next generation of scientists, engineers, and genuine geniuses in the arts & humanities. He doesn't think he's going to be alive when the consequences hit either, but he worries about it on account of his children and grandchildren.

Posted by: Kevin at December 28, 2004 03:22 PM

You've pretty much hit the nail on the head. If anything, you may have understated it. It will be extremely difficult for any other country to become economically dominant in the next 50 years. No matter what countries like China can produce, or how cheaply they can produce it, there still has to be someone to buy it; and in the vast majority of the world, there is little or no middle class to serve this purpose. The size of China's population or its GDP is not nearly as important as the disposable income level of the average Chinese citizen/family. Considering that income disparities in China are as large as they are, it doesn't seem like the threat is as significant as most people think. It took the US a long time to get to were we are, and it will take just as long, or longer, for someone else to pass us up.

Posted by: Kirk at December 28, 2004 10:38 PM

I am always amused by people who tell of disaters. I grew up in NYC in the 70's the bankrupt city that inspired The warriors and escape from New York.

All I can say BFD. I love the fact that things are better now (I also miss some of the hardcore edges of hard times). But it not like the world will fall apart if Netflicks goes out of business or I can't afford gourmet cheeses.

In America even poor people have a good life. I have no fear or being poor. I don't think anyone should.

Posted by: Scott at December 29, 2004 08:49 AM

I am convinced that multiculturalism is globalism in miniature, and it's a very significant thing that it has largely been a success here in the USA. I believe that people will come from all over the world to the USA in order to parlay their skills on the global scene in a way that's simply not available to them in their home countries.

While it's true that the income gap in developing nations will allow the upper middle class American immigrant to play rich king in their own realm, I'm not sure the social appeal of that makes a difference economically. If an Indian dentist makes 5 times the median income in Cleveland but 10 times the median income in Chennai, there is a nice patriotic reason for him to take his American education back home, and an economic one too. However the absolute buying power of his salary in India will be less. At least that's my theory.

Even though growth rates would be phenomenal there, it would take a lot more than dentists to raise the Indian GDP per capita. It would take engineers of all sorts and engineers don't make dentist money. Engineering projects are capital intensive, not labor intensive. The difference is about getting the financing for huge engineering projects. Think of Boeing. Armies of engineers making 50k to 95k working with very expensive equipment for years to design and build planes. Think of the Army Corps of Engineers. Swarms of guys with brains rebuilding bridges, storm drains, etc, with government money.

Posted by: Cobb at December 29, 2004 09:13 AM


You are so right. That's exactly the other point I wanted to make. It's too deep in the American psyche to want to be number one. Any 'Sputnik Event' will get us rolling again, no matter how low we go. 9/11 was proof of that. Imagining an America that will not achieve is like imagining that we cannot produce another Ronald Reagan to bring 'Morning in America' again. It's inconceivable - at least it is outside of Berkeley.

Posted by: Cobb at December 29, 2004 09:20 AM