The end is near!

China has two fundamental disadvantages. First, its production costs advantages are only possible with cheap fossil fuels. China has comparatively few natural resources so it's forced to import huge amounts of raw material and then of course its products also have to be shipped out. (Australia's economy is literally based on digging itself up and sending it to China) If the cost of fuel doubles for example, it immediately eliminates a portion of the Chinese production economy. There are also other significant environmental issues related to this which I won't get into.

China's second fundamental problem is that it has an unsustainable population. It manages it by keeping 2/3rds living in dire circumstances through government controls that westerners consider unacceptable (though hypocritically the have no issue with materialism supported by this system). In my opinion, the prosperity brought by the manufacturing economy is going to wrench this society into unpredictable directions and thus their role of slave labor producer for the world might very well end.

I also think that national security concerns in places such as the USA will end up trumping pure economics from determining where this might end up.

 

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...but self-sufficient.

 

I'm not a defender of China. But we were discussing what might happen in the absence of any government regulation or assistance - to let capitalism "run wild." In a sense, China is following the path of the old British Empire by importing raw materials and exporting finished goods with higher profit margins. Transportation costs are always a factor, but when the average worker in China makes 1/10 or less the salary and benefits of a worker in the West, it overcomes a lot of fuel cost. The 2/3 of the population you mentioned is the factor that invalidates comparative advantage. There is no need for China to specialize when they can just pull reserves off the bench, so to speak, and dominate every manufacturing industry. Ricardo's theory didn't have to take this into account.

Please keep in mind that most if this is hypothetical since there will always be government regulation, welfare and trade barriers. I just wanted to demonstrate that unfettered capitalism, were such a thing to exist, won't make life better in the West, it will make it worse.

 

OK I understand and it's an interesting question.

In my estimation it will blow up, literally. I base this on two capitalistic theories that I believe in. The first is that fundamentally new wealth (not talking currency or money) is created by only 3 things. You grow it, you dig it up, or you manufacture it. Everything else consumes wealth. People have mistakenly argued that the information age will replace production but I completely disagree with this. Information is useless unless it's used to enable and improve the above.

The 2nd theory is that given the above, the I will argue that production can never be completely one sided. That is, one country produces and another consumes. Once all the wealth is transferred from the consumers to the producers, then how do the producers get paid to continue their work? They will either stop production or they will come and take assets from the consumers.

So given these two concepts and letting capitalism run freely and assuming this means that China is the only producer of manufactured goods in the world, then it can't last. Other countries, at some point, can't pay anything for China's goods, it won't matter how cheap they might be, and they have to stop buying. These countries will either resume their own production, possibly of vastly inferior but suitable products to fill the same purposes or they return to a pre-industrial state.

In the real world, such things lead to revolution or war, and sometimes both.

 

Regarding the first theory, there is also software technology and I don't know where that fits.

Regarding the second theory, as the wealth transfers to the producer, the standard of living in the consumer nation will gradually fall so low that it becomes economical to shift some production back there. And the standard of living in the producer country will rise so that the population there becomes consumers themselves. The problem I see is that this self-regulating mechanism in capitalism will vastly increase poverty in the West before reaching the new equilibrium, and the elite who benefit from the shift don't care, which is why they need to be regulated. So the economics work in theory, but nobody in the West should be satisfied with the outcome. Tariffs are a good response in my opinion.

 

If you look at my house from Google Earth, I painted a big target on my roof.
I would rather an asteroid or nuke landed in my bedroom at 4 AM than wake up to finding out it missed me.
I am living for today, the best I can. The rest is out of my control. :whistle:

 

I see the balance of trades as a major long-term security threat. To get any serious talks about tariffs going on we would first have to get rid of lobbying

 

If China ever puts the currency they use in proper line, they would not have a definitive advantage in the world markets. Using underpaid labor will eventually let all that manufacture of any goods be what workers want but can not buy. They can break into markets like Japan , but they will have to deal with their own population at some point. This is a very sore subject with the so called Communists of China. They fear those who come from the farms to the cities to become the middle class. Food will be their long term problem . Who can purchase the gold and silver they recommend ?

Pep

Pep

 

In terms of wealth creation, it only does this when applied to production, mining or farming. Basically it's tool and product improvement. Companies & individuals can transfer some of this wealth creation to themselves by developing software, but manufacturing societies have a habit of making their own tools over time.

 

Sorry, I guessed I missed that point while I was approving a sales order for over 1 million pounds of product my company just sold to China Cloud. We sell them about 15 million pounds a year.

 

Let me guess.......food.


Really interesting discussion guys.

 

Funny thing, we haven't had capitalism in over a century, and yet the first century of real capitalism in the US was more than enough to ensure we had the best economy in the world for the next century even after becoming socialist. Capitalism is tride and true, and the reason why our nation became so great. There's nothing wrong with it at all. The problem is that people think we still have capitalism when we don't, and blame it for the problems when in fact it's just a matter of labels not keeping up with reality.

 

Back in the golden age of capitalism, there were small children working enormous hours in unsafe conditions, the work week was 10 hours per day 6 days a week. There were no benefit plans. Life expectancy was low for factory workers. Injury rates were high. Pollution went unchecked. Attempts at union organizing were put down violently. Housing was sub-standard and crowded. Most people had no savings. Poverty among the elderly was the rule.

The US had the best economy at the time, but after laws were enacted to address the abuses, the economy was better and more importantly, the standard of living for the vast number of workers improved drastically. The US developed a middle class that is now the envy of the world.

The founding fathers wrote into law controls to prevent the largest organizations of their time [government and churches] from abusing citizens the way it occurred in Europe and elsewhere. If multi-national corporations existed at the time, one can only wonder at what sort of regulations they would have established. Perhaps laws similar to today. The goal is to improve the standard of living for the greatest number of citizens, and when the institutions of society fail in this, they need to be regulated.

 

It is actually a lot of blabbering from people who don't truly understand history.

 

Actually, I don't think that's the case here.......

Thomas Malthus comes to mind.

 

I don't think so. It's an interesting and civil conversation. Don't ruin it with insults.

 

Why don't you post a few "corrections?"

 

I've been enjoying it as well.

(Calmly from the sidelines. If I had something to contribute, I would, but you guys are doing fine.)

 

Nothing like a little praise and expectation to snuff out a thread.

 

The premise is that historically humanity was stable and pleasant. This is an idolized myth. The conditions even among the highest social elite would horrify everyone today.