Everything I ever needed to know about economics I learned in Sri Lanka.
I spent 1989 in Sri Lanka teaching at a post-A-level technical school. I was a junior in college and it was a chance to see the world. The village below the school had no electricity, and dirt floors.
Yet the country was so awash in tropical food that several people each year died from falling breadfruit. You couldn’t starve there.
There was a civil war. We saw burning bodies, headless corpses. A couple times we rode out island-wide government curfews holed up in a luxury hotel in the capital Colombo while tanks patrolled the streets.
Even then though the seeds of what today vexes the politics of the USA were taking root. A factory was making famous Japanese Noritake china dining sets in Sri Lanka. You could buy a complete set of Venetian Lace for a modest price and I did.
And you could buy bomber jackets made in Sri Lanka, where textiles are a natural skill. You could have pants and shirts made by a tailor for about 40 rupees each, or about $1. And 40 rupees was a heady daily wage.
Today, the exchange rate is about 310 rupees to the dollar. Nominal GDP per capita in Sri Lanka is about $4,500. On a purchasing power parity basis it’s over $18,000.
How did the Sri Lankan rupee devalue from 40 to 310? We did that. The USA.
And Sri Lanka is way, way down the “affordability” food chain. The United States turned China into the global manufacturing power. We created South Korea. Taiwan. Vietnam (not the war, the economic “miracle”), Thailand, Cambodia. Mexico. The Philippines. Heck, Hong Kong and Singapore owe us.
The vaunted quality of life that Europe flaunts is a direct byproduct of an 80-year dependency on the wallet of the American taxpayer for defense.
Call it altruism. After winning WWII, America thought it could change the world, eradicate poverty and lift everyone up. We spent trillions of dollars on Lyndon B Johnson’s Great Society initiative. We confronted and contained Communism around the globe.
And we exported our currency, prompting a massive global move in manufacturing from the USA to continuously shifting economic sands as producers sought to blunt the effects of a devaluing currency by matching production to the lowest-cost labor input.
It’s not complicated. There are two inputs per output as a central tendency. People and money. Labor and capital. Devalue the money, and you’ll have to control the labor input to turn a profit. So you move from Binghamton, New York, to global locations. Ultimately, you’re making shirts in Bangladesh, disk drives in Thailand.
And Bangladesh and Thailand get rich. And the United States goes into debt.
And dependency in the USA rises. And soon you have 100 million people without jobs getting checks and the government is $40 trillion in debt. And nothing is affordable (you can still get a $4 beer at the airport in Belize, maybe the last spot left on the planet. In Tahiti it’s $15.).
We cannot “bring inflation down” so long as we have a debt-backed, devaluing currency. Inflation is unnatural. It doesn’t happen by itself but by policy. Throughout the history of the world, inflation has never persisted for long without war.
We’ve had it since WWII. Only two times since then have average consumer prices declined in the United States: 1949, by 1%. And 2009, by 0.4%. In a sense, 2009 was the market’s effort to try to reset prices. And the government immediately intervened and inflated away that effort.
In 1800, a good rifle from Ezekiel Baker cost about $100. A big investment. In 1894, an excellent repeating rifle from Sam Winchester set you back about $25.
What? Yup. A stable currency combined with improving manufacturing and distribution bred productivity, and prices fell. Consumer prices declined 50% from 1800-1900.
How come an iPhone that used to cost $100 is now $1,500?
Because the USA is $40 trillion in debt. Total global obligations are somewhere north of $300 trillion. How did we go from cash on the barrelhead to cryptocurrency?
This is how. There’s more but I’ve got 800 words to say and that’s all. We fix this problem by shifting from a society built on debt to a society built on assets. When your money is valuable you take the time to build cathedrals, make art deco buildings.
When it’s like sand running out of an hourglass, everything is slapped together and desperation pervades the psyche. I like cornices. Craftsmanship. Value. I’d like to see a world without debt. It’s possible. It existed for thousands of years.
