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> your average Indian became an arbitrageur overnight.
A question from one such Indian villager...
> THE ECONOMY IS GROWING TOO DARN FAST!
>
> Does anyone really believe that with the economy
> growing at 7.3% in the 4th Quarter, that it will slow down
> enough to prevent a surge in inflation?
>
> If the FED would like the economy to grow at no more than
> 3.5-4.0% rate,
What's wrong with the US economy growing at 7%? Why would one want to trade
an economy that grows 7% for an economy that grows 4%?
Follow me on this one: The way I look at it,
At the micro level
a/ High growth = high employment, better wealth and wealth distribution, =
lesser poverty,
b/ High employment = more net saving and/or higher consumption expendture
c/ More saving = more investment - by sequential elimination from
unproductive - to the most productive assets
d/ More productive assets = better quality of life.
e/ More consumption expenditure = more employment = go back to "a".
f/ Better quality of life = the goal for each individual.
At the macro level
a/ Better quality of life = higher demand for that kind of quality of life
b/ Higher demand for quality of life = more focus on investment in the most
productive assets
c/ Higher investment = higher employment, stronger currency, stronger
savings base, more investable capital.
d/ Higher all this = better quality of life.
So if a higher growth rate of the economic system makes all this possible,
WHY CHANGE IT?
I mean, I know the effect of more money chasing constant consumables or
assets, aka inflation. But we live in a largely market driven economy. Price
takes care of itself through the balance of demand and supply.
Doesn't it?
People prefer SUVs, so price of gasoline goes up. What's wrong with that?
People prefer tech stocks, so tech stock prices go up. What's wrong with
that?
People don't prefer Coke growing at a stable 6%, so price of Coke stock goes
down. What's wrong with that?
People don't like uncertain investments in remote Timbuctoo, so price of
that currency goes down. Nothing wrong with that.
People feel investing in stocks, bonds, gold, silver, blah blah ain't
enough, so a market springs up for derivatives of those assets. What's wrong
with that?
People want more diamonds and HDTV, but they want to pay less for toilet
paper. So Wal Mart's profits grow but PnG's profits fall. What's wrong with
that?
People prefer growth.
Think about it.
Would you, regardless of whether your compensation was a function of growth,
choose to work for a company that grew 3% or a company that grew 7%?
If the company that hired you couldn't continually grow faster than
competition, what would your chances be of sustained employment in that
company?
If you the employee became a victim of technology's obsolescence, wouldn't
you the employee learn to adapt, acquire new skills or find another company
that needs your skills and grow from one job to the next?
To me, the choice one makes between keeping my job, having a raise, working
in a company that grows faster than competition AND paying more for a gallon
of gasoline and a box of cereal VERSUS being unemployed, poor and
unmotivated = a no-brainer.
So why bother interfering with a good thing?
Do we seriously believe that governments, or quasi-government agencies like
the Fed, can control a larger marketplace? The message from the currency
markets has time and again proven that these effects are marginal, and short
term at best.
Do we seriously think that commodity prices would remain at lifetime lows
for decades together when population grew locally, nationally and
internationally?
Do we seriously believe that buying $1 billion worth of debt back can change
the entire structure of the yield curve that gets computed for $6 Trillion
(not a typo) of debt?
Do we seriously believe that oil would remain at $10 when throughout the
past 100 years its average cost was $25?
Do we seriously believe the numbers that told us inflation is low, when oil
was $10, CRB was 25% below here, and population induced demand was unchanged
or higher back then?
Money flows where assets grow. If the costs of that asset growth start
rising, the price of the asset reflects that.
Assets grow when there is more demand for those assets than supply. If
something becomes too expensive, either people pay up or look for
alternatives and the demand-supply equation takes new shapes for that new
asset class.
This is how free markets work.
Growth is an inherent feature of these free markets. We have already learned
that from history.
People go where they see growth.
They buy growing currencies, they sell falling currencies.
They buy growing companies, they sell stagnating companies.
They prefer to work for growing companies, or they risk losing their jobs
They prefer to increase their quality of life, or they end up being
statistics in the "social problems" column.
In other words, growth is good, and more growth is better.
More growth brings prosperity. Less growth brings problems.
Growth keeps us busy. If we get too much growth we find ways to cope with
it - by subcontracting, or by eliminating the activity that takes up more
time at the margin.
Less growth creates "empty minds = devil's workshop" setups.
When "growth is good", I am not talking about "rampant speculation" or
"asset price inflation" or "internet bubble" etc.
Those are excesses, and even excesses get fixed in the free market.
Just ask anybody that bought biotechs, B2Bs, or any other 4 letter bad word
on margin. The forces of the market took care of it without general
dislocation for the entire system.
We, the people make up that entire system and that free market.
So why fix something that ain't broke?
What's wrong with 7% growth?
Given a choice between total employment and thus less crime, I choose total
employment.
Given a choice between people worldwide preferring my currency and people
looking me in my face and telling me to get somebody else's currency, I
choose my currency.
Given a choice between having a job plus high gasoline bills, versus having
no job and no need for gasoline coz I can't afford a car anyway, I prefer to
choose jobs.
If unemployment is low and that is a problem, the solution possibly lies in
- faulty immigration policy that does not take into account global
demographic trends that take decades to change. The real world has already
taken care of that by exporting jobs but keeping consumption here.
- faulty compensation policies - the real world has already taken care of
that by creating a scarcity of workers at $5 an hour but an abundance at $50
an hour.
- faulty assumptions about the "free" in free markets.
- faulty accounting of employment.
After all, we do import goods/services and consume them here in America.
Not just apparel and software and televisions and cars, but also services
like tech support call centers. Don't look now, but chances are that your
next tech support call to a General Electric might just get answered by
another Indian female villager in a small town working her night shift.
Whowouldathunkit: An Indian villager, female at that, working a night shift
so that someone on the other side of the planet could figure out how to fix
a broken microwave oven... and once she's done with her shift, she transfers
the call to someone in Hawaii so that the next caller from Australia can
figure out the problem Qantas has with the 747 engine built in Connecticut.
Yup, she's on GE's payroll. She and about 100,000 others like her from the
340,000 that work for GE.
But they're not on the government's employment head count.
Why don't we count those people overseas as being employed by us? What sort
of lopsided two faced accounting policy is that?
But I digress.
If we believe that we live in the free markets, then growth is an inherently
objective - and a desirable outcome of that free market.
Growth is good.
Stagnation is bad. For the micro level, or the human being - and thus for
the economy, which is nothing but an agglomeration of such human beings and
their productive pursuit to a better quality of life.
If 7% growth is an excess, the market will take care of it - just as the
brokerages took care of "rampant bubble mania biotech/B2B/Pick your own
B-Word speculation" at the risk of losing their asset base. Just as the
internet took care of software monopolies, and the competing cartel that
chose to overthrow that monopoly. Just as the market took care of oil prices
in the face of tha cartel that is now supposedly the culprit behind rising
oil prices (it is amusing to see that nobody came to that cartel's rescue at
$10/barrel).
So why 7% growth is bad compared to 4% growth beats me.
Someone, care to explain?
Gitanshu
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