A Capital Idea Part 18: We're Not as Rich as we Think we are
The case of monetary exchange rates is a case for which I think it is instructive to examine other nations. We are all aware that in most parts of the world, average income is far below what it is in the United States, yet for the most part, people in these places survive comfortably. How is this possible, given that incomes in other nations, for example, $2000 per year, are far less than what is needed in the United States just to pay for necessities such as food, much less utilities, rent, mortgages or property taxes, or any other needs?
It is my contention that monetary exchange rates are skewed in such a way that Americans appear to be richer than they are. Perhaps you have heard that an American can immigrate to certain other countries and live the high life as a rich person. This is true, because the currency of the United States has far more buying power in other nations, for the most part. For example, one hundred U.S. dollars may buy one hundred dollars of a foriegn nation's currency. However, since the foreign currency is undervalued compared to the United States' currency, that one hundred foreign dollars can buy much more in that foreign nation than one hundred dollars could buy in the United States. This is yet another example of the arbitrariness of money as a tool of exchange. This situation also encourages one-way trade between nations, with the United States on the receiving end and the other nation on the selling end, resulting in massive trade deficits for the United States. When Americans pay one hundred dollars for a product from this generic foreign nation, it has much greater purchasing power when it gets to the foreign nation than it did in the U.S. On the other hand, when foreigners pay $100 in their "cheap" currency for an American product, it does not buy very much in the United States. In other words, the prices of goods in the United States are inflated as a whole.
The basic reason for this is that the people of the United States have become addicted to consumption of goods. We have been inculcated to expect a high standard of living, as "the world's richest/greatest nation." Thus, anything less feels like poverty to most Americans -- after all, we have to keep up with the Joneses. I never took an economics course, but it doesn't take an economist to figure out that the high rate of demand for goods by Americans leads to higher prices. Thus, even thrifty Americans become victims to the free spenders among us, being compelled to pay artificially high prices. Add to this our huge and growing budget deficit, our credit card debts, and homes for which people owe more than the house is worth, and we are clearly living on borrowed time. The current pessimistic political climate and attitudes of the American public reflect that many Americans are waking up to these uncomfortable facts and realizing that we are far poorer than we appear to be. However, our lifestyle continues to be one of living beyond our means, for the most part, and using resources irresponsibly, including non-renewable ones.
My wife "Eunice" (Zun-Liang) is from Taiwan, and we are planning to go there in mid to late August. I did go there in 1990, and I can confirm that there are many low-income Taiwanese-Chinese, but few of them go hungry or live in abject poverty. My wife told me that her family used to have its own farm, including fish and freshwater crab ponds. They would often give the food to others in the neighborhood, or have them work on the farm for the food. Everybody shared their resources. That is pretty much the way life still is in Taiwan, at least in rural areas. Thus, in addition to the skewed monetary exchange rate, community lifestyles which encourage self-sufficiency and the sharing of resources make life more comfortable for all and prevent extreme poverty and hunger. This is a common theme in traditional cultures around the world. Places where people live under horrible conditions of poverty, it seems to me, are places where traditional lifestyles which have evolved over long periods of time to the benefit of the society as a whole, have been disrupted, and people don't have land or waters available to provide for their subsistence needs -- places such as the makeshift communities on the outskirts of South American cities, or places where ethnic or religious conflict has wreaked havoc, such as some areas of Africa. In places such as these, people are starving to death literally, but not in peaceful, stable communities. I also have a sister-in-law, Rosalie, who is from a remote part of the southern Phillipines. She and my brother were talking about the Phillipines when we were visiting their house in South Lake Tahoe. Rosalie was describing how they lived in big houses there, had lots of good food to eat, a beautiful (if somewhat rainy and warm) environment, and a nice community. This is despite the fact that this area is officially an impoverished area according to world financial standards. My brother and Rosalie said that one can go out and pick fruit in the forest, or grow it on one's property, catch fish in the nearby ocean or freshwater, or buy whatever one needs for relatively low prices. Furthermore, my brother said he would ideally like to spend his winter on his wife's island, and summers at Tahoe, but his year-around job working for the California State Water Quality Control Board prevents that from happening. It hardly sounds like the Phillipines is a miserable place of poverty to me, except perhaps around overgrown cities such as Manilla, or where Muslim insurgents are in conflict with the Phillipine government. Although it does have some problems and isn't exactly paradise, it seems like a good place to live, to me. I think such is the case around much of the world. By the way, both my wife Eunice and my sister-in-law Rosalie say that the United States has been quite a disappointment to them, compared to its reputation which they heard about before coming here. Eunice says that if not for me, she would go back to Taiwan; I also think Rosalie stays in the U.S. to be with my brother and their kids.
A final consideration regarding monetary exchange rates is that perhaps the biased exchange rates have been intentionally created or supported by politicians. Why? Since it benefits American politicians to point to their constituents' lifestyles and show that they have lots of goodies to play with, the encouragement of consumerism is something which is attractive to politicians. Let's keep our people supplied with lots and lots of "cheap" (but not really by international standards) stuff. By having exchange rates which encourage the importation of goods, and since the manufacturing base in the United States has collapsed, we can maintain this situation, but only as long as our money lasts and foreign factory workers continue to be horribly underpaid. Someday soon, if it has not already happened, America will wake up and find that it is closer to being a third world nation, economically, than the world's richest one, and it will remain that way until we drastically change the structure of our culture.