The Nature of the Global Free Market

The significance of the global free market has been vastly underestimated in our efforts to influence our economic outlook. So much of the rest of the world is tied in with the United States in such a way that if we fail, they fail. Everyone has been forced by the extremely competitive nature of trade economics to run their country right at the edges of feasibility. This is great for progress, but it also comes with a risk of more complete failure. It is something of a synonym for our own individual or national credit-investment lifestyles.

As the economic video on a previous post humorously pointed out, in our fiat based monetary system, nations measure their currency not by any fungible commodity, but by relation to other currency. Lets take this to its logical conclusion:

• We incur a large deficit.
• We print a lot of dollars in the hope of decreasing the relative cost of our goods and value of our debts
• This causes the same sort of economic instability in other nations that caused our problems.
• Those nations print money in order to decrease the relative cost of their goods and debts.
• We end up right where we started.

What this proves is that even in a fiat, regulated, socialist heavy world, the free market is still running the show. You can push the numbers around, but in the end, what really matters is whether you produce a desirable product and sell it at a reasonable value.

I found another example of this thought in an odd cooking website, of all places. The Big Mac Index  is a method of measuring the purchasing power parity of various currencies by comparing the price of a Big Mac in each country. My immediate thought was Japan; land of the hundred dollar melon. Strangely enough, Japan wasn’t near the top of the list for cost of a Big Mac (about 280 yen or $2.62). This is because things like the purchasing power of your currency, and the number of zeroes attached aren’t the only important factors. In the U.S. it takes abut 13 minutes for the average citizen to earn enough money for a Big Mac, in Japan, only 10.

As I once learned from a business administration lecture, a man by the name of Deming revolutionized the industrial strategy of Japan after WWII. He put their focus on quality at a time when other nations were putting theirs on quantity. This is how they manage to live on a small island and be one of the best producers of high tech goods in the world, with a thriving economy. People buy their goods, not because they are cheap, but because they are too high tech to be produced in most other nations.

Rather than trying to compete with the cheap labor of China, Mexico, India, and Brazil, we should be competing with Japan for the products of tomorrow. This is the path to progress and prosperity. Adjusting interest rates and printing money is nothing but smoke and mirrors.

Update: I found a great post on the subject here: The U.S. Can’t Unilaterally Inflate