Elon Musk and Jeff Bezos can’t realistically spend all the wealth they’ve created. That’s why both epitomize progress. It’s not just that they’ve transformed how we live, it’s that their inability to spend the abundant fruits of their commercial genius means that what they don’t spend will be continuously directed to entrepreneurs and businesses intent on vastly improving on the present.
It’s important to remember this as Cornell economics professor Eswar Prasad casts aspersions at the New York Times on the savings fruits of production in China. Prasad surely knows better.
For now, Prasad laments that “Domestic consumption has not kept pace with rising output because Chinese households are reluctant to spend freely.” The economist misses twice. Unspent wealth doesn’t disappear into a coffee can, rather it’s shifted to individuals with near-term consumptive needs. It can’t be said enough that all acts of production are mirrored by consumption even if the producer personifies austere.
The Keynesian in Prasad fears savings, but as we see with the superrich like Musk and Bezos, the billions they don’t spend invariably fund consumption of goods, services and labor by entrepreneurs and businesses eager to invent an all-new future.
Like those of Musk and Bezos, Chinese savings are productivity-enhancing. As Prasad undoubtably knows, most Chinese people are either intensely poor (roughly 40 percent of the population gets by on $1,700/year) or are not too far removed from intense poverty. Naturally they have a savings preference, and the global economy is lifted by it.
Prasad goes on to write that “When an economy produces more than it consumes, something has to give. One possibility is that prices fall, which tends to encourage consumers to buy more. But when households anticipate continually dropping prices, they might postpone consumption rather than increase it.” This is incorrect. Economies are people. When people don’t spend, someone else does. Banks don’t pay interest on savings to just stare at the money rented.
Prasad’s main fear beyond savings is falling prices. He writes that non-U.S. countries are suffering the inflow of Chinese plenty whereby “Chinese exports are swamping their manufacturers, which are unable to compete. Even low- and middle-income countries have a difficult time countering Chinese exporters, strangling some of their companies.” Nonsense.
Prasad’s analysis suggests that Londoners are hurt when manufacturers in Manchester send cheap goods to London. Actually, they’re elevated in countless ways. The division of labor lifts every worker like nothing else, while the falling prices born of labor division increase the consumptive value of monies earned all the while introducing new wants that are an effect of falling prices.
The U.S. isn’t impoverished by the free flow of goods throughout our fifty states, rather it’s enriched. What’s true inside the U.S., England or China hardly loses validity when the production is coming in from the outside. If the opposite were true, then the U.S. and Hong Kong would be the poorest locales in the world exactly because they’ve long been almost completely open to foreign production. Those lucky enough to have the world producing for them have the greatest odds of doing the work that most associates with their unique skills and intelligence. Imports enrich us, always.
Not so, says Prasad. Somehow labor division is bad if it’s China participating in the division and giving the world a raise in the process. Actually, Chinese production just frees the world’s producers to upsell the people on previously unattainable wants, all the while increasing their ability to save. Falling prices are progress because there's quite simply no progress without savings. Prasad must know this, or should.
