Thursday, February 3, 2011

East Vs West - Organic Vs Engineered Economies, What is Going on?

2/3/2011 Portland, Oregon – Pop in your mints…
We had a strange dream last night, fellow taxpayer.  Like many of our dreams, we do not recall much of the narrative.  We awoke with only short, vivid scene in our minds.  The scene we that recall from last night's slumber was confusing and hilarious, if not terrifying.  What we saw was that the legislature of Arkansas had been dismissed and had been replaced by baby pigs.  They were all lying on their chairs in the chamber and from time to time, none other than Bill Clinton, wearing a smile and overalls, would walk by and pick one up, stroke it on the head, and set it back down on its chair.
What does it mean?  That is the terrifying part.  We have absolutely no idea.  But there it is, in our subconscious, laid bare for all to ponder.  If someone from Arkansas can explain the meaning of this dream, please contact us.
Scanning the news it appears that Hosni Mubarak, after making a mild concession to what up until yesterday was a peaceful protest, will not go without a fight.  We pray that this situation will be resolved peacefully as violence in Egypt could have many repercussions that we cannot even imagine at this point.
Today at The Mint we are working on a hypothesis that may explain certain things, such as why China and Asia have been growing so rapidly recently and the United States and the rest of the Western economies have appeared to stagnate or "under perform" the economies in the East.
The East has generally been an "Engineered" economy for a very long time.  By Engineered, we mean that the economy operates under a lot of state control and interference which is normally a characteristic of a socialist and possibly totalitarian government.  Meanwhile, the West has generally been an "Organic" economy.  By Organic, we mean that the economy operates with little or no state control or interference which is normally a characteristic of a capitalist and possibly democratic government.
For the past 20 years of measurable data, rates of economic growth (as measured by GDP growth rates) in the West have lagged those in the East and even decreased while rates of economic growth in the East have always increased in greater proportion than those of the West.  You can easily see the current GDP data at tradingeconomics.com by clicking here.  What is going on here?
This brings us to our hypothesis about economic growth which is the following: 
As a predominantly Engineered (Socialist) economy becomes less Engineered and more Organic (Capitalist), it experiences exponentially increasing rates of economic growth.  Conversely as a predominantly Organic economy becomes more Engineered, it experiences exponentially decreasing rates of economic growth.
The Economy As Nature Intended?
If correct, the logical inference of our hypothesis would be that, once a government, society, tribe, etc. adopts Capitalist principles, it must continue to live by them in order to maintain or expand their economy.  Any attempt to "Engineer" or Socialize any part of the economy will bring with it decreased rates of economic growth and increased poverty amongst its citizens or members.
The reasoning for this is at once simple and complex.  In an Organic (Capitalist) society, an ever increasing division of labor (the tendency to specialize in one field and use earnings to buy goods and services from other specialists) is encouraged.  People are encouraged to both help and to trust in the help of their common man.  The Organic model, if left unchecked, creates such a material abundance that more time may be allotted for leisure.  Any attempt to engineer any part of the Organic economy disrupts the spontaneous division of labor and forces all those affected by the loss of services due to Engineering to make adjustments and, consequently, relinquish some or all of their surplus goods or leisure time.
Meanwhile in the purely Engineered (Socialist) economy the division of labor, to the extent that it exists, does not encourage people to help or to trust in the help of their fellow man.  Consequently, there is less material abundance and less leisure time.  Since there is so little abundance and leisure time to begin with, would it not make sense that any move to an Organic economy would increase the rate of economic growth?  Is the United States turning into an Organically Engineered, Genetically Modified economy?
So there is our hypothesis, ready to be put to the test.  What will we find?  More importantly, will it explain why the Arkansas legislature is filled with baby pigs being coddled by Bill Clinton?  The wonder of it all!
Stay Fresh!
P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!
Key Indicators for Thursday, February 3rd, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.