Economics will make you Rich

Economics is the study of how individuals and nations become wealthy

Individual Economics

How can one become wealthy and have fun doing it at the same time (take Warren Buffett for instance…)

Macroeconomics

How does a nation makes its citizens wealthier relative to other nations (take US 1946-1970 for instance…)

The US Economic Miracle 1946-1970

Every democratic country government promises to construct an economy to favour its citizens in order to get elected.
The US government after WW II implemented an economic program to help American Industry become the best in the world. It sponsored research through its own agencies and universities and encouraged corporations to market the new inventions. Bill Gates in a famous 2015 Atlantic magazine article https://www.theatlantic.com/magazine/archive/2015/11/we-need-an-energy-miracle/407881/ described how corporations can only justify research that takes up to a maximum of 5 years to market before they provide payoff. The government is the only entity that has appetite to take up research that takes over 5 years to harvest (most energy investments are in this category).

The close cooperation of government and private industry made American Industry the best in the world in the period from 1946-1970. Economist Mariana Mazzucato has identified the many US government inventions in that period that gave the US Industry a tremendous competitive advantage (among them were radar, microprocessors, RAM memory, hard disk drives, liquid crystal displays, lithium batteries, the internet, cellular technology and networks, GPS, multi-touch screens, airbags, jet engines, most innovations in biotechnology, etc. https://blog.ted.com/qa-mariana-mazzucato-governments-often-fuel-innovation/). That advantage made American workers the best paid in the world. This is economics in action - the practice of making a country’s citizens wealthy.

US Economic Decline 1980-2019

Milton Friedman felt the government had over-regulated the US economy and killed its dynamism by the 1970’s. The 1973 and 1979 OPEC Oil Embargoes quadrupled the price of oil and killed economic growth (the measure by which economic health is measured, because to keep up with yearly population growth an economy must grow every year). This was the opportunity for Milton Friedman’s theories of de-regulation and small government. He published his book Free to Choose, which became a popular best-seller because everybody was worried about the end of two decades of healthy US economic growth. The US people became so interested in the subject that Milton Friedman became a media personality and created a TV series with regular episodes to explain his theories to the general public!

President Reagan’s US economic “free-market sacred cow”

President Reagan quickly became a Milton Friedman believer and he used Friedman’s ideas on the virtues of free-markets to coin his famous phrase that has come to represent the “US small-government movement”: “Government is not the solution to our problem, government IS the problem” (1981). The idea became a “free-market sacred cow” of American popular political economics to the extent that no politician (until Trump’s protectionism), ever dared mention anything that could be interpreted as even remotely suggesting government might have a legitimate role moderating a free-market economy.

In the altar of that free-market sacred cow was sacrificed American Industry’s competitive advantage. There was not even a hint of government intervention when American companies decided to manufacture in China because “it was so much cheaper.” Their workers were left for US taxpayer’s to rescue through government programs - a blatant “externality,” meaning you leave somebody else to clean up your mess as you quickly move on to make greater profits. In contrast in the last few decades of economic standoff between the US and China, China did not abandon their workers… .

The Chinese Economic Miracle 1990-2019

The Chinese government tilted the game to benefit their workers and their industry throughout this period (as mentioned in the following Frontline documentary: https://video.kqed.org/video/trumps-trade-war-yf4cb1/ ). In economics this is considered “unfair competition” but under the “US free-market sacred cow” philosophy, nobody dared say anything that might imply a possible role for the government in protecting US workers.

South Korean Cambridge Professor Ha-Joon Chang, an expert in economic history, has described the strategies that countries use to gain economic advantages for their population in several best-seller books (especially Bad Samaritans, The Myth of Free Trade). Since the Mercantilists in the 1500’s, countries had started identifying the premium a country gets from exporting manufactured products in exchange for importing less manufactured products. Both the country and the population can enjoy relative increased wealth from that exchange. The South Korean government spoiled their infant electronics and automotive industries while ignoring the rest of their country who suffered under low incomes for decades. Under government protection those two industries enjoyed government largesse until eventually they became world competitive. Now South Korea is a member of the “industrialized club” and its population enjoys the relatively privileged income of an advanced industrialized country.

China’s government has been doing the same by supporting its manufacturing industries while they jump over other countries, including the US. It was very convenient for them that the US was sold by Milton Friedman and Reagan on the idea that the government should not have a role in the economy. Private industry through Adam Smith’s “invisible hand of the free-market” was delusionally thought as the only reason American Industry had been so successful after WW II - the government was falsely recast as an impediment to the power of the free-market. Professor Ha-Joon Chang’s studies have shown that throughout the centuries since the Industrial Revolution countries have always protected their domestic industries until they became competitive enough to face international markets (in fact it was Alexander Hamilton, US Secretary of the Treasury who in the late 1700’s originated the well respected “infant industry protection” argument).

How should the US meet its future?

From the analysis above it is evident that it would be very useful, as Bill Gates suggested, that the US government is allowed to continue and increase its role as helper and enabler of research and development for American Industry.

Additionally, economic analysis indicates that in order to have a healthy economy it is paramount to have strong economic demand to pull an economy into increased production. It might be surprising to find out that two of the most conservative economists of the 20th century, Nobel prize winners Milton Friedman and Frederick Hayek, both defended UBI-Universal Basic Income, the providing of a basic salary for every person of a country, as a desirable and efficient economic practice to stimulate a country’s demand. Such programs should be investigated and implemented to help the US economy flourish. The goal of economics after all really is to make everybody wealthier.