An Economics Lesson

I'm on a roll with these posts that have nothing or very little to do with this website's goal of expressing my experiences of South Korea... but what the heck, why not?

I am about to nicely repackage and present to you one of the most memorable and enlightening lectures any of my professors ever gave: the correlation of personal savings and the productivity of a whole nation's (or region's) economy.

But first, look at this article about Chinese men having to seriously jump through some serious hoops just to get some attention from the ladies. It's an article talking about how Chinese men have to have a mortgage to prove to women that they are worth marrying.

We all know that the 'great red dragon' is a rolling snow-ball of an economy, a steam-roller, or whatever other phrases might apply. But how did it get that way? And what is the primary difference between the growing Chinese economy, and the shrinking American economy?

The difference is the savings rate... combined with the abundant cheap labor, and the incredible gap between the living standard of the average Chinese citizen and the average Westerner. I'm just focused on the savings rate, though, since I strongly believe that America could be growing at a much brisker pace if our savings rate was higher. Its simple: when people save money, banks can lend that money, or invest it in the stock market or other business ventures. The goal of the individual is to keep their money safe, and where possible, get a nice interest rate so their money can grow. The goal of the bank is to use the money people deposit, to make more money; they invest in projects with foreseeable cashflows, they pick stocks, and they lend the money to other banks, who might be willing to guarantee a nice interest-rate because they need the money to do one of first two things. The more money is lent, the faster the money changes hands, the more funds are available for business loans, and the faster the economy grows. When people are not putting much of their money into the bank, there is less money available to lend to growing business - and consequently the economy as a whole slows. It's beautifully symmetrical: when the opposite occurs (people save more), investment increases and the economy expands. This is the basic difference between the American and Chinese economies.

What is happening in China is so perfect that it is difficult to believe that it was not orchestrated -- and my hat is off to the Chinese authorities! They started with an immense population of dirt-poor people; then they put restrictions on babies allowed per family; while at the same time they graciously accepted Nixon's proposal of lifting sanctions and opening up the Chinese market to foreign direct investment; then bargained their way into the WTO on their own terms - one of which was that any foreign company wanting access to China had to partner with a Chinese company (most of which are State-owned). The result is a population hungry for the 'Western' lifestyle, which is made possible by foreign direct investment and dangled in front of them like a carrot - then lowered the value of men (by way of over-supply) so that the women would have the power to demand more exceptional men who have acquired a degree of affluence, which of course fuels the economy as men save up their money to buy a house. While saving so much, their money rests in the capable hands of the banks, who invest in promising business ventures and fuel economic growth. Of course, after they have saved up enough to make a down payment, the money is still in the bank, and the bank also gets a nice new asset, the mortgage and its promised cashflow for the next 30 years. It's incredible, and from a strategic point of view, it's beautiful.

I also want to point out that other East Asian countries (Japan, Taiwan, South Korea) have all shown that they retain a very high savings rate, even after attaining 'Western' style affluence. It is reasonable to expect China to do the same: its a cultural thing... and that means that China is really only just warming up.

In contrast, just as China was beginning to open up to the world, America started easing up the laws prohibiting usury. Nixon made his historic visit to China in 1972, which started the process of China's opening their market. Then in 1978 the US Supreme Court ruled that borrowers were subject to the laws of the state of the lender. That means that if loan sharking is allowed in South Dakota but against the law in every other state, all the loan sharks will move to South Dakota and try to lend money to people of the rest of the country -- and that is exactly what happened in the form of credit cards. Now we have huge sections of our population in debt to credit cards, and the national average for savings is very low -- some say less than 1%.
In that article I just linked, if you scroll down to where it says our official numbers on the savings-rate might be artificially low: "...Commerce Department calculates the savings rate, it doesn't include things like capital gains and investments in pension plans." That's an interesting line, and its also interesting that the author didn't give it much elaboration -- I will elaborate on it. What that means is only that we have some extra stratification of wealth; the rich and almost-rich have investment-portfolios, while most of the country does not. Given that the average savings-rate would be slightly higher if it included investments, that means that the poor (and even just average) people in America are actually quite a bit poorer than even the savings-rate would have us believe. It's nice that some people are doing well, but on the whole, this is not a good thing.

The American economy has been slowing down for quite a long time -- its been on the decline for 30 years, ever since the 1978 Supreme Court ruling on Marquette Nat. Bank v. First of Omaha Corp. Subtract all debt from all savings, and you get the real or long term savings of the individual -- the aggregate of all individuals' savings in the economy being the whole savings of the country, which has been falling. (This is a rather mercantilist way of looking at it, but I like it because it effectively cuts through the fluff and gives meaning to the jumble of numbers.) Sure, we had a boom in the 90's due to the rise of the internet, but at the end of the day, the bubble burst. Sure, the DJIA is much, much higher now than it was in 1978, but with the average American saving so much less now, its really a hollow number. The higher averages on our stock indexes points to two things: yet greater wealth stratification, and a hollowing out of our economy. By "hollowing out," I mean that if savings are the basis of investing, then our economy has less now than before with which to invest. This is the basic thinking behind my "equity-driven economy" vs. "debt-driven economy" theory (which isn't really a theory, but rather a thought-tool). The debt-driven economy can still grow, but its shaky, and can fall easily, whereas the equity-driven economy stands strong.

But there's more. It sounds bad now, but what I call "the squeeze" will only make it worse. "The Squeeze" consists of two things: the credit cards/usury I wrote about above; and the negative effects of insurance. We all gripe about the cost of insurance, but unfortunately it has become a necessity in America (not elsewhere - mostly just here!). The concept of insurance was taught by my professors as a good thing -- that insurance moves the "utility curve" to the right, and allows our standard of living to be substantially higher than without it. Fucking Bullshit. Insurance is a cancer that is invading every organ of our economy, and is actively seeking to spread to other economies. The argument in favor of insurance is that without it you could not have the things you have - the car and house and regular visits to the dentist. Also, they argue that insurance helps us when there is a disaster, like a car accident or a fire. My argument against insurance is that if insurance did not exist at all, you could still have all those things because the cost would be lower, and our society would be better off because people would avoid risky behavior, like driving cars and owning homes. *Gasp!* How will we live without cars and homes? Well, like most people in the world: we would use the safer and more affordable (and more fuel efficient) inter/intra-city rail, and we would not live in these sprawling suburbs, but in condominiums. *Gasp again!* That would take out so much of our economy! Yep, it would be a complete overhaul, which is really what we need. We need to move from a debt-economy, back to an equity-economy, and we are lucky because we have the benefit of being able to copy other countries that already live like this (Europe, East-Asia, Chile). What other thing do all these other countries have in common? They all have much higher savings-rates than ours, and their economies grow much faster than ours. This is how America will be in the future -- it might be a very distant future, but the future it is. We can get to that future the painful way, by hitting a depression that forces New-Deal changes, or we can pass or repeal legislation to set us back on the right footing. It's a long-shot, but if our Supreme Court can overturn 1978 Marquette, and if our Congress and our State's legislatures can turn the squeeze back around onto the credit/bank/insurance companies, we can turn our economy around and keep our nation on top.

Roosevelt said "Speak softly, and carry a big stick, and you will go far." He was talking about diplomacy, but that big stick is really a strong economy.

another neat link

here's a post that has very little (nothing) to do with Korea; check out this link: http://web1.iseas.edu.sg/

iseas is a research body that appears to wield some influence over Southeast Asian politics in ASEAN, and I have at least once, maybe more, seen BBC News articles quoting them.

there's a few good articles there, and you can download currently three short publications if you go to Publications -> Books & Journals -> Open Access Books.

I like that website -- it gives a window into the diplomacy of SE Asia and their current issues. SE Asia as a geopolitical and economic unit is worth watching as they grow and, by necessity, begin to assert themselves more in their region. They have common threats, common problems, and whats really interesting is how they will have to cooperate with each-other to tackle their problems. It seems all of the problems in SE Asia are regional issues, not individual to any one country, and so we can expect (or we would like to expect!) ASEAN to only become more influential. Examples of problems that ASEAN needs to tackle are human trafficking, environmental destruction, rural poverty, use of shared natural resources (like the "South China" Sea), military cooperation (here is an article that shows the US will likely impact military issues there) -- if I have missed anything in that little list, tell me in the comments!

very interesting website

What an incredible website! If you are interested in language-study or travelling, check this website out. I learned of this website from a comment left on one of my posts here 2 years ago (oops!), by the/one of the admins of the website. Sorry for not seeing your comment for so long :(

I am, right now, reading their material about their Russian program in St. Petersburg. I've lately been studying Russian a bit, and I would love to go there sometime. One possibility that I have been considering is going there for the 2014 Winter Olympics in Sochi (which I need to look up again just to make sure its still happening there!).

What I really need to do is discipline myself.... I am still not at the level I want to be with Korean, and now I've started with Russian... focus, focus!

Anyways, check out that website I linked above - you might find something interesting!

Pics from S. Korea

some pics which i should have uploaded a long time ago. I would love to organize this better, with an explanatory caption for each pic, but blogspot doesnt seem to be that flexible -- rather, I could do that, but I dont want to spend the next hour trying to figure out where to insert it in the html... anyways, enjoy!

And it all comes crashing down...

Last week was midterm week, but I still have one more midterm this week (today, in 2 hours). I am having a build-up of problems now that I don't know how to solve. I have neglected studying for my Korean class so that I could focus on preparing for the midterms in the other classes. I had a Korean midterm too, but since that grade doesn't transfer back to UTA, I didn't take it seriously. I passed it, and thats all that is important.

But now, this test I have in just a couple hours is really scaring me. The class is Management Science, and the whole class is done within Excel. The test will be in Excel. The problem here is that the book, which is supposed to show you how to do things in Excel, is too damn difficult to understand. It doesn't adequately explain how to do things in Excel - it just says to do it, and when it does explain, it leaves some small but crucial bit of information out that makes it impossible to do what it wants.

So, I am convinced I will fail this midterm, and I am now behind in my Korean class. Also, there are several large assignments approaching in my other classes, and I don't foresee having time to catch up in Korean class, do the 4 large essays, 2 presentations, and also have even a small clue as to how to use Excel for my Management Science class. Throw into this the destabilizing effect that results from my girlfriend and I arguing a lot lately, and I have a recipe for complete disaster.

And it all comes crashing down...

A Good Week!

This week has been very good! Tuesday was my birthday, and it was one of the best birthdays ever! Jin, Misang, Yongsu, and I went to a popular restaurant in Gangnam called Brasilia, where they serve all-you-can-eat steak. When I think "all-u-can-eat" I think probably not very good, but this place was really first class! We decided to go to Brasilia because we had seen it on TV. Thats a pretty good indication that the restaurant is good :)

On the day of my birthday, nature gave me a gift: the weather turned good, and the cherry trees all bloomed. It is really amazing: there are cherry trees all over Seoul, especially at Yonsei, and they are really beautiful!

Yesterday, Jin and I went to Everland, the Korean version of Disneyland. We spent the whole day there, so I had to skip my classes, but it was well-worth it. Everland has the steepest wooden roller-coaster in the world; the first slope appears to be straight down - vertical. Of course I had to sit in the front seat, I dont settle for anything less thrilling.

Unfortunately, I forgot to bring my camera... I have been forgetting too much lately. Later, I will take some pictures of the cherry blossoms and then add them to this blog.

Continuing, my class today was very interesting: Global Business Environment; the lecture was about corporate strategies for entering emerging markets, the advantages and disadvantages of being a large conglomerate (like the Korean chaebols - Samsung, LG, Hyundai, etc), and we studied several cases from Harvard Business Review that talked about our subject. I really feel like I am going in the right direction with my life; it has been my plan for several years now to get into international corporate finance, and this class showed me that that is a really good area for a career.

Yonsei is also showing me that I am not getting an excellent education at UTA- only an adequate one. I am sorry if that disappoints any readers from UTA, but it is glaringly obvious to me, here. The scope of these classes is much more encompassing, and I feel that a graduate from Yonsei will be soo much more prepared to enter business than a graduate from UTA. While I like UTA, and am proud of its status as a good school in Texas, the classes at UTA all have one basic problem : they are boring! The classes here at Yonsei, even though they are taught by Korean professors with terrible English, are interesting, intriguing, eye-opening... the resulting difference is this: Yonsei prepares its students to be executives; UTA prepares its students to be mid-level managers and office workers. I will have to think about how I can compensate for this difference. However, I thank UTA for allowing me the opportunity to study at Yonsei - it is an experience that I believe will pay incalculable returns in the future.

I am really not trying to bash UTA - take what you read here with a positive note. UTA is good, and I am augmenting my UTA education with Yonsei experience. I am making something good into something better.

To anyone reading this that may be thinking about studying in another country: do it! You gotta be crazy to not want to study in another country... Yes, at first it is hard: Yonsei definitely did not do a good enough job with helping us international students to know what to do! However, I have never felt more alive than now, here, in a foreign land. If you want a mediocre, probably secure life, then stay at home. If you want an amazing life where you do new things, overcome obstacles, learn languages, culture, and other people's point of view, and generally get treated really well, then go live in another country for a semester... or a year... or two. Even without the Yonsei experience, I know I understand the world now in a way that would have been impossible without going to another country. Okay, I am out of time; I should go to Korean Language class.

Its been a while since I updated the blog... I have a lot of photos etc. to put up, but that will have to be anther time - I gotta post quick for now.

Here in Seoul, my classes are mostly going well. "International Conflicts and Cooperation" is a very fun class, and I like debating world politics with people from other countries (mostly Europeans). On the other hand, I am going to have to drop my American Lit. class - the prof. expects me to read about 100 pages a week, and write a 2 page essay every weekend. Not happening...

On Sunday I hiked some mountain here with some friends - I cant remember the name. Most of Korea is mountains, and from what I can see, I think the old folks around here spend every second of free time hiking the mountains. Its quite comical ; imagine enough elderly folks trying to hike a mountain that there is a long waiting line, and at every place where the ground is level there is an open-air exercise gym with a hundred 80-year-old men and women all twisting and hoolahooping and even bench-pressing. And they all drink liquor at the summit... From what I'm told, this is a common sight on all the mountains in Korea...

Thats all for now - more sometime later. :P