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October 7, 2014
The Dismal Science
Changing Perceptions
by Adam Smith

The families of my two sisters are Green Bay Packer fans, which would not be remarkable if they lived in Wisconsin. But they both live in Utah. Why would families in Utah cheer for a team a thousand miles away? Denver, Seattle, San Francisco and Oakland all have NFL teams and are close in proximity to Salt Lake.

My two brothers-in-law are both a little older than I am. That means that they had their coming-of-age years in the 1960s. For those of you not familiar with professional football, in the 1960s, the decade was dominated by the Green Bay Packers. They won the championship in 1961, 1962, 1965, 1966, and 1967. The last two championships were the first two Super Bowls.

It was natural for all young men of that era to cheer for Starr, Taylor, Davis, Kramer, and of course their coach Vince Lombardi. He is, after all, the coach the Super Bowl trophy is named after. Even after the Packers were no longer good, those that lived through the 1960s still, somehow, always perceived the Packers as winners.

Perceptions can take a long time to change.

For example, if I asked you who was the greatest producer of petroleum in the world, you might say Saudi Arabia, Russia, or Kuwait. All of these would have been good guesses five years ago. But today the country producing the most petroleum is the United States. We are first in natural gas and will also be first in oil in just another year or two.

In fact, with the help of our neighbors Mexico and Canada, we are energy independent. We no longer need oil from the Middle East.

Isn’t that great news? So why do we not hear about it in the news media? In fact, the U.S. is producing so much oil that the Saudis and the Russians have decreased their production to prop up the price. And this change has happened without the help of the government.

The increase in production has come from private lands. The current administration is not thrilled that we can produce so much oil. You know, with climate change and all.

Ponder on what this change means. If we wanted, we could drive down the price of oil and gas. The consumer would have more money to spend on other goods and services. Companies would have more money to invest and hire new employees. The countries in the Middle East would have less money to support extremists.

The list of what is possible just expanded. Will we ever get a government that knows how to use this windfall strategically?

Remember when North Dakota was the place where everyone wanted to live and was a great vacation destination? Of course that never was true. North Dakota was one of those places where, for years, their population was actually decreasing.

Well, it is time to change your perception of North Dakota. They are leading this energy boom. Unemployment is around 1% (full employment is 4% for comparison). A strategically placed Motel 6 is getting $435 per night. A Motel 6! And the hotel is paying the cleaning people $26 per hour.

A robust economy is the best friend of the employee. When companies have to compete to get an employee, wages rise. If the motel did not pay their cleaning people $26 per hour, they would have no one to do the cleaning.

OK, one more perception needs to be changed.

China.

When you see that word, what do you think of? I think of them as this manufacturing behemoth that is accumulating all the world’s production. That was true for the past decade or two, but times are changing in China.

Remember that a robust economy is the best friend of the employee. That statement is also true in China. The wages in China have increased to the point that the amount that their manufacturing is actually decreasing.

And the winner of this change for China is … Mexico. Manufacturing in Mexico is booming. There are two reasons why there are fewer immigrants coming from Mexico. One is our economy flat stinks. The second is that there are jobs they can now get in their homeland. Companies like having their manufacturing close. It allows them to react quicker to changes in the market.

For about the past 20 years, some economists and experts have predicted that the Chinese economy would quickly surpass the U.S. I always thought this was folly. The Chinese government is too corrupt.

For example, consider the plight of the business person in China. In order to get things done they need to pay bribes to government officials. OK, but with the decrease in manufacturing, the government is also prosecuting those that pay bribes.

How does this turn out? In the past year there have been 30 Chinese officials that have committed suicide and 80 leading businessmen. Half the people in China with a net worth over $1.5 million plan to immigrate and 70,000 students that went to study abroad have no intention of going back.

Corruption has always been part of China’s economy. Even during the great dynasties. The Chinese have a lot of work to do to change the countries mores before they will be able to challenge the U.S. economy.

One last fact that may change your perception of a country. Russia’s economy is the same size as New Jersey’s. Mull that one over and consider what is means to the U.S. and Europe.

I hope this article has helped change some of your perceptions of the current state of economic affairs. The few I have mentioned in this article will have lasting impact for the next few decades.


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