Six Asians and an American are stranded on an Island…January 18, 2008
They recognize that nobody is coming to save them and agree to divide some jobs amongst themselves in preparation for a long exile. One of the Asians does the fishing, another one does the hunting, another gathers the fruits, another gathers building materials for shelter, and so on. The American’s job is to eat. Every day the Asians work hard gathering food and materials to prepare a feast for the American. Of course he doesn’t consume the entire day’s production, he leaves just enough crumbs to keep the Asians healthy enough to repeat the same tasks again tomorrow. Modern economists would argue the American is essential to the island’s economy. If he didn’t consume so much the Asians wouldn’t have any customers for their production. They wouldn’t need to fish as much, or hunt as much, or do anything as much. The common sense reaction should be to argue the Asian’s lives would improve dramatically if they just kicked the American off the island. Who cares if they don’t have a customer to drop crumbs off the table, they could consume the entire feast themselves. Perhaps even take some time to rest on the beach every day, where’s the harm in that? The reality of today’s world is that China is harming itself by forcing its citizens to live off American crumbs. If they would allow their currency to fluctuate more freely their manufacturers would be better off exchanging goods for Renminbi instead of Dollars and the standard of living in China would improve dramatically. [update: changed Yuan to Renminbi to remove this distraction]
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This is the silliest economic allegory ever written.
You obviously don’t understand China’s current economic policies or realities.
And BTW, the Chinese currency is called Remnimbi (RMB), some people call it Yuan. IT IS NEVER Yuans as this article has it.
Can you explain why it’s silly?
More people recognize their currency as yuan rather than remnimbi, that’s a minor issue.
The RENMINBI.
If you are going to call someone else out, you’d better get it right.
…except, that in the real world, the American does provide something of value in return to the Asian people. The amount of money he offers may be small compared to what he would need to offer another American, but it is large or at least reasonable in comparison to what they could pay each other.
If it weren’t, individuals would simply choose not to sell.
That’s the point, the US dollar is artificially inflated by the Chinese when they keep their currency down. They think this is helping their exports, and it does, but eventually you get so many US dollars that you can no longer put them to use in a way that brings about any meaningful improvements in the Chinese economy. If they let their currency appreciate to its natural rate, all their manufacturers would be much better off selling domestically. It’s cheaper and more profitable.
Uh, yeah. I’m sure all of the Chinese economic politburo, following a classic and well-tried strategy of strengthening sub-competitive industries through currency protection are really, really just waiting to be told bad allegories to make them see the open-currency light. Especially by someone who doesn’t use the trading name of their currency. Most dumbest post on China since I heard a drunk redneck tell me that the Chinese (not his term) should stick to rice, tea, and rich, infertile white women’s (not his terms) children.
Seriously, learn something before you post, even to your own blog.
Did you hear they are beginning to implement price controls? Looks like your Chinese friends aren’t as well versed in free market economics as you believe.
I don’t have a sophisticated knowledge of economics, but obviously whoever wrote this doesn’t either. Plus I’ve lived in China for 4 years. America buys all the cheap crap China makes, a major reason for their catch up miracle. There is a lot of wealth in China now. Now, as always, that wealth is kept with astonishing corruption and lack of regard for long term stability by a cabal of warlords and their extended networks. I pay for the meals Asians make me with money I exchanged market-determined value for. Police eat and patronize brothels in exchange for protection here, and ‘businessmen’ eat free off factory slave labor and Enron-style accounting. They take care of their own, though, so none except the most idealistic Chinese really find fault with it.
China benefited from a depreciated currency as industry was being developed, there’s no question, but most of that money was not going to the workers in those factories. Obviously you have trouble with your english comprehension. The Chinese people would be better off selling goods to themselves and raising their currency to match the market demand. They are saturated with capital and over investment, don’t you pay attention to the news? How many times did they increase interest rates and bank reserve requirements? Get real people.
It does often amuse me how the same people with one breath will describe the unimaginable regression China suffered during the rise of the Red Guards, then claim, in less than thirty years since that nadir of human economic achievement, a Chinese consumer market anywhere near equivalent to that of the West. Granted, China has 1.3-4 billion people living within its borders. Yet, for some reason, it does make me skeptical to claim, of this “New” middle class, that they will consume, considering not merely Western consumption patterns, but pure agricultural domestic consumption, on the level which makes up for Western patterns of consumption; you can teach someone from a largely consumptively vegetarian country how to eat pork every night - it take their children, however, to assume it as a consumptive right. The simple fact is that there aren’t enough Chinese willing to pay the same amount for the same services as Westerners. And this extends across virtually every category of production AND monetary category. There is no way you can convince a Chinese citizen, with the current offer of DVD’s that a “black-market” (personally, I can’t think of a more justifiably oxymoronic term than “Chinese black market”in existence, but that’s just me) copy has in any major city in China that they should pay the same price as an American - which would inflate the price of that DVD beyond the capacity of any but the most wealthy plutocrat AND diminish the market for US discs in the first place -
So which half of the deal do you want - consumption, or sphere of influence? Given that you can only get the first?
And yes, China is looking for consumption-heavy markets where it can invest its earnings off of US investment. But investment opportunities are easier to find than capital structures of consumption - more or less, the first funding the second is the cultural gift of capitalism to human creation.
They don’t need to consume the same amount per capita or with the same patterns in order to replace American consumption. Hundreds of millions of people have been lifted out of poverty all across Asia and they DO want to live a comfortable life. That may not mean they will start buying the same junk Americans buy, but it does mean they will buy other things maybe you consider to be junk.
And even if they don’t, the loss of more US dollar that are just accumulating in the bank anyway isn’t exactly a big deal. It’s not like they need that money to invest in more factories, they are constantly complaining about excess investment. What they need is time for their public infrastructure to catch up with their industry. Asia in general could stand to benefit from an American recession.