in 2004 and early into 2005, the British Broadcasting Corporation
paid for an
extensive poll of public opinion regarding the economy. It was
taken in 22 countries. About 23,000 people were interviewed. This
is a large enough sample per country to insure reasonable accuracy.
The polls were taken by GlobeScan and PIPA: the Program on International
poll was taken prior to the tsunami. In this respect, its results
for Asia were probably overly optimistic, especially in Indonesia.
results of this poll were not given much publicity. I think they
should have been. Some of the results were counter-intuitive, most
notably the high optimism of residents of South Africa and the extremely
high pessimism of residents of South Korea.
are other peculiarities of the results. People were asked about
their optimism vs. pessimism regarding three units: the world economy,
the domestic economy, and their own families. In a majority of countries,
pessimism regarding the world economy was high. Yet pessimism regarding
their own families was much less. As the author of the final report
writes, the respondents seemed to be saying, "I’m OK, but the
deals with the individual and the firm.
deals with the region, nation, and world. There is no question that
people’s information is generally more accurate regarding their
personal situation than regarding the world’s situation. Unless
some statistically improbable event bankrupts or makes rich the
opinion-holder, he knows more about what is facing him than what
is facing someone on the other side of the globe. His level of responsibility
is higher. If he incorrectly assesses the macroeconomy, there is
nothing lost, unless he is Alan Greenspan. If he misforecasts his
own family’s economic situation, it can cost him a lot, even if
he is Alan Greenspan.
respect to the world economy, Americans were in the camp of the
pessimists, but at the top of the 14 pessimistic nations: 39% optimistic,
46% pessimistic. Contrast this with South Korea: 15% optimistic,
82% pessimistic. In Japan, pessimism reigned: 12% optimism, 45%
pessimism. Also close to the bottom were Italy and France. Germany
was evenly split: 45% to 45%.
respect to their own countries’ prospects, Americans were 45% optimistic,
51% pessimistic. Among Industrial nations, South Korea was the most
optimistic, 88% pessimistic. Only Lebanon was worse: 7%
to 77%. But Italy and France were close behind.
we come to people’s expectations about their families’ prospects.
Here, Americans were decidedly optimistic: 58% to 32%. South Koreans
were low, but not at the bottom: 26% to 71%. Italy was at the bottom:
15% to 58%. Japan was second to last: 18% to 41%. South Korea was
polled in the U.S. were convinced that the world economy was heading
downhill, and so was America’s economy. But with respect to their
own families, they were upbeat.
reminds me of opinion regarding Congress. Voters think Congress
is made up of self-seeking charlatans. But with respect to their
own Congressman, who is seen as bringing money into the district,
there is confidence. The same is true for attitudes toward the tax-funded
schools. Yes, they are declining. Everyone knows this. But not the
local school where Billy Joe and Peggy Sue attend. These schools
macro opinion is correct and micro opinion is wrong. Unlike opinions
regarding family economic prospects in a competitive local market,
tax money is involved. People want to believe that they are wise
enough to get their fair share of the tax money handed back to them
after the bureaucrats skim off 50%. So, they believe in impossibilities.
It’s the Lake Wobegon phenomenon: every Congressman and every public
school is above average on the micro level.
someone is optimistic with respect to his family’s economic situation
and pessimistic regarding everyone else’s, he is probably more willing
to spend money to buy consumer goods than he is to invest. If you
think the macroeconomy is sagging but your own situation is improving,
it is wise to invest in yourself. If you don’t want to invest in
yourself — and most people don’t — then you will spend on consumer goods.
of Chinese and Indians revealed considerable optimism. With respect
to world economic conditions, China was 68/7. India was #2 at 55/30.
With respect to the national economy, it was 88/4 for China. #2
was South Africa: 62/30. India was #7: 55/40. With respect to family
conditions, China was 86/7. India was #2 at 77/14. South Africa
was #5 at 65/26.
advanced Asian countries, Japan and South Korea, were pessimistic
across the board. In fact, their pessimism was close to the bottom
among all 22 nations. Here we have two of the most productive societies
on earth, yet their people don’t see the immediate economic future
want to suggest a possible explanation for this. If I’m correct,
then you should apply my analysis to your own personal situation.
WEAR TWO HATS
can buy something only because they own something of value, either
money or a good prospect of getting money, which serves as collateral
for a loan. We consume because we have money to spend. How did we
get this money? Because we have been producers, or the heirs of
heirs of producers, or the robbers of producers.
consumers, we survey the inside of a Wal-Mart and conclude: "I
have more choices than money." The range of choices in a Wal-Mart
is immense. There are also lots of other places to shop, lots of
other product lines to buy.
importance of a price reduction for a particular product is marginal
in most cases. Most people aren’t in the market for this product.
Of those who are, most will find that it is a marginal expenditure
in their overall wealth position. This may not be true of a home,
but with interest rates low and down payment requirements low, even
a reduction of several thousand dollars in the sales price is not
a major event in any buyer’s life.
the seller, the reliability of personal income is more important
than the aggregate price level. If a seller is forced by market
conditions to cut the price by 10%, and he is selling a house, that
may be a large hit to his equity. So, in our position as sellers,
we are more threatened by a price cut than we are benefited by a
general increase in the supply of goods and services. Also, there
are all-or-nothing threats to a person’s immediate income. "You’re
fired!" There are no comparable threats from the supply side
of the market.
call such relationships asymmetric. For example, members of a special-interest
producers’ group are far more alert to government regulations of
their industry than a typical voter is. They are more alert to the
profit or loss potential of a law related to their industry than
a typical voter is. Conclusion: laws will tend to favor special-interest
groups that contribute to politicians’ re-election campaigns. Most
voters don’t care about laws relating to an industry. Members of
that industry care a great deal.
person looks at his employment situation and thinks: "Foreign
competition threatens me." He looks at his situation as a consumer
and concludes: "I am not threatened or benefited very much
by imports over the next year." He is worried about imports
in his role as a producer, but he is only marginally benefited by
imports in his role as a consumer.
in South Korea and Japan are facing tremendous competition from
China, India, and Indonesia. In their role as consumers, imports
help them, but not so much as they feel threatened as producers.
So, residents in these two nations are pessimistic about the future.
They see a potential threat to income from their jobs. Their benefits
as consumers are marginal. A man who has just been laid off is thinking
about replacing his income, not the opportunities for smart shopping.
consider a 22-year-old Chinese man who has just arrived in a city
of two million people, which had 100,000 in 2000. He has left the
farm. He is the first person in his family who has done so. He has
no money, but he has great energy. The economy is booming. He hopes
to buy a car in five years. He is poor on paper but rich mentally.
This mental attitude affects his outlook. This is not simply a Chinese
phenomenon. The BBC survey reports:
young are far more inclined to perceive economic conditions as
improving than are the old — especially in regard to their own
conditions. Worldwide, a striking 59 percent of those 18 to 29
years old see their family’s economic conditions as getting better,
but only 49 percent of those 30 to 44 see this; 41 percent of
those 45 to 59; and just 31 percent of those above 60. Where their
country is concerned, 45 percent of the youngest group are optimistic,
but only 37 percent of the oldest group; and for the world, 41
percent of those from 18 to 29 are positive, but just 28 percent
of people sixty years and older.
Europe, only in Great Britain and Germany were people optimistic
about family wealth — Germany just barely: 41/35.
France, Poland, Russia were negative.
the board, Mexicans were pessimistic. This bodes ill for border
control. Despite an economic recovery, they have not readjusted
people were pessimistic. This is understandable. Then what of India
and China, where most people are low-income farmers? The designers
of the poll do not say. But at the very end of the BBC report on
the poll, there is a brief reference to the fact that in 8 countries,
polls were taken only in urban areas. This probably explains
why the polls revealed such optimism. The overwhelmingly poor people
in rural areas were not asked.
the optimists are South Africans and Australians.
Africans and Australians are among some of the most optimistic
people surveyed. South Africans are remarkably optimistic about
their family (65%) and their country (62%) and lean positive about
the world (44%/33%). Australians are nearly as optimistic about
their family (54%) and as optimistic about their country (61%),
however they swing more negative about the world (31% getting
better, 45% getting worse) compared to South Africans.
appears that growth-oriented nations are optimistic. South Korea
and Japan are exceptions. What matters most is a combination of
youth, an export market, and recent experience of economic growth.
does not explain Australia. But Australia and South Africa are metals
exporters, and metals have been doing well for four years. This
may explain South Africa, too.
young Americans who are in competition with China and India, they
face a lifetime of competition from outsourcing. They are going
to have to add value to whatever it is they are selling. It had
better be service. Commodities are too easily imported from abroad.
oldsters who are coming to their golden years, the pressure of imports
from Asia are not a threat. Imports are a tremendous advantage.
A billion new Asian producers are arriving to serve the world economy.
Americans are beneficiaries in their role as consumers.
people worry most about their role as producers, on which so many
plans depend, the competitive pressure from China and India are
perceived as threats. For some occupations, they really are threats.
But people are flexible, especially young people. Human labor is
specific in the short run in a high division-of-labor economy, but
non-specific in the long run.
some point, America’s current account deficit of $800 billion a
year will end. The Asian central banks will no longer buy our debt
at today’s low interest rates. The dollar will fall. Long-term interest
rates will rise. Lenders want some assurance that they will be repaid
in a currency that will purchase a comparable basket of goods. The
problem is, Americans are no longer producing baskets full of goods
that Asians cannot buy cheaper from Asians. I think this realization
will hit the international capital markets before the next Presidential
the point of view of that Chinese newcomer from the farm, it makes
no difference whether an American buys what he produces or another
Asian. China’s central bank is (or was until last August) buying
American debt and creating fiat money to make the purchases. It
could as easily buy any other form of debt.
threatens that Chinese youth is the fiat-money-induced economic
boom fostered by the central bank. Also a threat are domestic price
controls, which are masking the rise in prices by means of controls-induced
boom in China will turn into a bust soon enough. I think this will
happen before or shortly after the 2008 Olympics in China. It could
opinion can turn around within a few months. But youth still has
the advantage. Youth is flexible. It also has time to adjust. Its
plans are not fixed. Plans are non-specific, like its labor.
oldsters are running out of time and flexibility. Our plans, which
in theory remain adjustable, are more expensive to change. If you
have to make a short-term change, you must pay a premium price.
That is the reality of the time-money trade-off.
Americans who have higher education, decades of experience, a willingness
to change, and a willingness to seek out new ways to serve the consumer,
the future will be tough but not disastrous, unless their health
fails. Most Americans stay healthy longer than ever before.
for the person who is not flexible, who is dependent on Social Security
or a pension from a company as shaky as General Motors, the future
is far more problematical. Economic growth will help. A rising tide
raises all ships. But it raises the ships that are positioned to
take advantage of the tide first. There is no question that China
and India are better positioned than we are. South Koreans
see this. The Japanese see it. When the terms of trade reverse in
the current accounts budget, Americans will see it.
greatest threat to our economic health as a nation is a trade war.
If the politicians start passing tariffs and quotas in response
to voters’ demands, the world economy could tank for many years.
If the voters become persuaded that low tariffs are responsible
for the effects of Asian central bankers’ unwillingness to buy more
Federal debt or American corporate debt, then the economic gains
we have seen for the last generation could end. They could even
freedom did not get us into this high-risk mess. Asian central bank
policies did. Too many of these central bankers studied in the best
American universities. They have a nave Keynesian faith in the
productivity of central bank inflation. This faith is going to be
tested soon enough by the Austrian theory of the trade cycle. Let
us pray that it is not then tested by Jude Wanniski’s theory of
worldwide depression through tariff hikes.