Back to the Future!
If you are as old as I am (and I don’t consider myself ancient) you’ve lived through some pretty interesting recessions. You’ve seen home mortgage rates at 17.5%, incredible inflation and economic hard times that were actually worse than what we are seeing right now (with the exception of the insane spending by the government which has reached new heights). I know that’s no consolation to those of you who have lost their job, but I want to share a stupid idea that worked in the 1980’s during the Reagan Administration and I have no doubt would work again.
Before I get into the details let me ask you a question. If you walk into WalMart, Target, Sears, Macy’s or any other store and picked up and item off of the shelf, how many would say “Made in America”. I think the odds are that it would say “Made in China”.
In order to keep this simple I want to use a simple example. Let’s say we are a tribe of hunters and we have a person who is much better at making bows and arrows than hunting. So he stops hunting and trades his bows and arrows for wild game from other hunters. He discovers that he can accumulate more wild game making bows and arrows than hunting. Based on the labor and materials he can sell his bow and arrow for an equivalent of $10. He is so successful that he builds a factory and hires people to make bows and arrows and the economy thrives.
One day he discovers that he can buy a bow and arrow from the tribe in China for $5. It is almost as good as the one his factory makes and he doesn’t have to put up with all of the regulation, unions and taxes. All he has to do is buy the cheap bows and arrows from China and resell them to his tribe. So he shuts down his factory and tells all of his people that the tribe is now in the “Information Age” and it isn’t necessary for the tribe to actually produce things any more. They all need to get retrained for the future.
Things go well for a while and everyone is happy because they are buying bows and arrows cheaper than what it would cost them to make them. But after a year, the chief of the tribe is upset because he used to get a small percentage of each bow and arrow maker employed in the factory. Now they don’t have jobs and the tribe revenue has fallen. But the chief still needs the money and doesn’t want to cut spending. So he goes to the tribe in China and asks for a loan until the tribe in America gets back on its feet.
The tribe in China has been so busy making bows and arrows for the American tribe and the rest of the world that they have plenty of money saved up and they are glad to lend the money to their biggest and oldest customer. After all, the tribe in China made $226.8 billion dollars in 2009 by selling bows and arrows to the American tribe.