A Trend Continues Until It Doesn’t

In the 1860's, a mathematician warned that, if something wasn't done about the growing horse population in London, the streets would be eight feet deep in horse droppings by 1940. As we know, that didn't happen. There are many other examples of trends that unexpectedly ended. It is risky to push trends far into the future. Something unexpected almost always turns up to stop them.

At this time, there are those who are pushing current trends to the year 2050. They are as likely as their predecessors to be hilariously wrong. A favorite trend is the growth of China. Some predict that China will be the largest economy in the world by 2050, and our grandchildren will be working as gardeners and nannies in China. Others predict that China will implode well before 2050. I smile slightly at the"gardener and nanny" prediction. As they say, trees don't grow to the sky. I laugh loudly at the implosion prediction. Today, I'll address the implosion prediction.

It is often stated that, in the last ten years, 200,000,000 people have moved from the countryside to the industrialized east China cities. Some are saying that, when China experiences a serious recession and must reduce payrolls, there will be widespread riots that will destroy the Government and break up China. Then, there is the precarious position of the banking system. Based on extensive reading and personal observations, I am convinced that even severe depression is unlikely to destroy the Chinese Government or lead to the breakup of China. Neither will a banking collapse.

People moving from the Chinese countryside to the cities didn't just move geographically. They move from the 16th to the 21st century. Many of them are undoubtedly overwhelmed, and they fondly recall their old homes. Indeed, many travel to the city to earn only enough money to retire a debt or buy something that is needed. I have read that when some earn the money they need, they go home. Some of the textile factories even plan for this. People resign their jobs, go home, and, when they have accomplished what they wanted to do at home, they return and are rehired. Some people have gone through that cycle several times. When these people lose their jobs during a recession/depression, many of them will gladly go home and wait there for the recession to end. Don't expect them to bring down the Government or tear the country apart.

People remaining in the countryside also benefit from the migration. First, there are fewer mouths to feed from the harvests of the small family farms. Second, some of those who moved to the city are sending money home and some of that money is being used to increase the productivity of the family farm. Third, the country folk now have more to sell on the market, probably at higher prices than they could get before the migration. City people have to eat, too. Don't expect either the city people or the country people to bring down the Government, or tear apart the country.

I remember the 1930's in the United States. The unemployment rate was around 25%, with many people working part time, including my father. Millions of people were impoverished and bitter, thinking that they'd been had. Nevertheless, riots that did occur never threatened to bring down the Government or tear apart the country. One safety valve was the ability to return to the soil, a safety valve that China still has and we don't, except for the "guest workers" from South America. During the depression, even our family built a country home, and, until five years ago, I enjoyed frequent visits to the old homestead to"recharge my batteries."

During the 1930's, people were also disenchanted with war, vowed to never let it happen again, and hated the "merchants of death." However, when the country was finessed into World War II, most people marched off to war without complaint. People will take an awful lot before they tear down the Government – particularly if they see fat paychecks or a no-money-down house in their future.

Some say that when recession comes and Chinese workers cannot afford the luxuries that American television claims all are entitled to the resulting dissatisfaction will be enough to cause revolt. In answer to that, some say that a worldwide depression is on the way. If that happens, the American example, built on smoke, mirrors, and lies, is likely to collapse long before the Chinese think of revolting. The Fannie Mae and General Motors cases suggest the collapse of the dream could be just around the corner.

A slow down in the break-neck growth of the Chinese economy may even be helpful. It may give China the time to clean up the environment and to correct some of the injustices caused by that rapid development. For those who decry those evils, let them read about the industrialization of England. It was every bit as unpleasant as the industrialization of China and it lasted longer. Let them pay particular attention to the Enclosure laws, and the effects of those laws. Closer to home, does anyone remember what Pittsburg was like half a century ago?

As far as the Chinese banks are concerned, the largest ones are Government controlled. As long as they remain out of the clutches of foreign interests, they will not collapse. If necessary, the Chinese Government could drop Yuan from helicopters. After all, the Chinese Government has a printing press, too. In fact, the Chinese invented the printing press.

While we are thinking of financial matters, there are those who are telling the Chinese that they must release the peg to the US dollar to"level the playing field." Those people assume that the Yuan will increase in value relative to the U.S. dollar if that is done. Why? If the Chinese Government tries to solve the banking problem through inflation, the Yuan could decrease in value. Some are saying that, if the Yuan peg to the dollar is removed, money will flee the country into stronger currencies, thereby decreasing the value of the Yuan. Then what? Besides, I didn't hear those people complaining when the peg was first put in place.

Another issue is the huge Chinese investment in the dollar. Some say that China can't afford depreciation of the dollar. They say that evaporation of hundreds of billions of Chinese-owned dollars would cause hate, discontent, and hardship in China. So what? It would be a small price to pay for what China has gained.

What China has gained is the transfer of significant manufacturing capacity from the United States and Europe to China, a quick leap into the 21st century, the training of more skilled workers and professional people than exist in any other country, and considerable technical know-how. There is even a claim that China may build the next generation of nuclear power plant and export it to the world – even to the United States.

If China should lose a few hundred billion dollars through dollar devaluation, that loss would be less that the cost of a few B2's and their maintenance. It appears that China has won an economic war at a tiny fraction of the cost of a hot war. Eat your hearts out, you war mongers.

It seems to me that there are an awful lot of sloppy analyses, lies, and optimistic hopes out there. Not only that, but writers continually repeat other writer's thoughts to avoid thinking for themselves. I hope that I have helped some to see past the slobs, liars, hopers, and lazy thinkers.