Economics Explained

Whenever we see China in the news it’s normally for some impressive statistic about building stuff, or how it is now home to the most millionaires in the world, or maybe it’s even an article about whatever geopolitical tomfoolery they are trying to pull this week. 

But what is often forgotten about this is that behind the somewhat intimidating outward appearance of economic might and glistening skyscrapers, china is an extremely poor country. 

This almost sounds a bit paradoxical given the wealth that is so evident from the outside. Nevertheless average incomes in China are still less than $15,000 USD’s per year, and that’s average, so in a nation that reports a Gini coefficient of 0.47 with some independent research noting this could be as high as 0.73 that means there are a lot of poor people at home in this economic miracle. 

In plain English, this means upwards of half a billion people in China are living on less than $10 per day, primarily made up of those still living in rural areas.

Now this fact is not lost on the Chinese government, who know that a growing wealth divide in their worker’s paradise is not a great look, especially if that divide is between the cities fueling growth and the farmers feeding them. 

That is why in just the last 5 years the government has poured the equivalent of over 800 billion dollars into aid in areas where extreme poverty is still commonplace. This is to say nothing on state-owned enterprises which easily bring this running total to over a trillion dollars in the same time period. 

A trillion dollars in 5 years, that’s more than the entire GDP of 3 quarters of the world’s countries, on one single welfare project. 

Even for a government as wealthy as China’s, this is ultimately not sustainable.

So a new solution was needed to make these systems more efficient at solving core issues rather than alleviating the symptoms with handfuls of cash.

And there might be a lot to take away from what they have done so as always we need to understand a few things. 

How much poverty is there actually left in china?

Why is this so difficult to measure?

Why does China care so much?

And how might cows be the solution to this whole problem?

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This is Argentina – a South American nation that has been home to an unprecedented period of sustained growth quintupling in size in the last decade. 

This nation has seen remarkable resilience through financial crises and even though it cycled through 5 presidents in two weeks, its continued re-investment in itself has paid off many times over as average incomes have doubled in the same time period to create fantastic increases in the quality of life for all the citizens of the nation.

Or at least that would have been the video we were making a few years ago. 

Unfortunately today the economy of Argentina tells a very different story.

Just as quickly as the economy soared to these lofty heights it has crashed back down bringing about a period of heavy inflation and widespread poverty.

But perhaps this shouldn’t be a huge surprise, in the last 100 years, the economy of Argentina has been categorized by periods of massive growth followed by huge declines making the most recent decades little more than a continuation of that unfortunate trend.

This is a real shame because Argentina obviously has a lot going for it, from a healthy population of productive workers, strong natural resource reserves, and even a landmass that is very conducive to foundational industries like manufacturing and agriculture.

But despite all of these advantages Argentina has time and time again fallen into this unfortunate pattern and is now teetering on the edge of becoming a full-blown failed state.

Nobel prize-winning economist Simon Kuznets is said to have remarked in the early 1970’s that there are four types of economies in the world, developed, underdeveloped, Japan and Argentina.

We have already explored what makes Japan so weird, but to unravel the mystery of Argentina we are going to have to understand a few specific issues.

What has caused the various economic booms over the years?

What has caused the subsequent economic declines?

And why is this most recent downturn just a little bit different?

Once we have done all of that we can get to the fun stuff and put Argentina on the economics explained national leaderboard, how's that for a 2020 grand final?

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This is Bill Ackman, the billionaire hedge fund manager of Pershing square capital. 

Bill has been featured on this channel a few times before, most notably because of his trade made in early 2020 which netted him over 2.6 billion dollars in profit. 

Since then he has become a bit of an internet darling which is just great for him because a lot of his trading strategies require him winning over hearts and minds to change people’s opinions on a stock, bond, cryptocurrency or whatever else it is that he has some kind of vested interest in. 

Now this is nothing new, influential stock traders have been trying to create news stories that suit them ever since there were stock markets and newspapers.

But this most recent announcement has been a little bit different. 

Ackman along with a selection of business leaders and economists have started advocating for a plan that would give everybody a few thousand dollars in cash on the day they are borns all in order to solve the retirement crisis. 

It sounds crazy, but there may be more merit to this whole plan than you think.

Most advanced economies around the world today are dealing with aging populations and declining birth rates. A future where the dependent elderly far outweigh the productive young is fast approaching, current pension infrastructure may just not be able to cope. 

We may see a future where the quality of life for elderly citizens rapidly declines, or young people are taxed very heavily in order to support them, neither of which sounds particularly appealing to anyone, so perhaps radical solutions are what we need. 

And to understand this plan we are going to need to look at a few key areas. 

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So apparently we are due for a fourth industrial revolution, which might come as a surprise to you because as far as most people can tell we have only had one industrial revolution, and some nations haven’t even got around to that one yet. 

All the same, this promise of a radical shift in the way we live our lives has got a lot of economists very excited and maybe a little bit anxious, both for very good reasons. 

The first industrial revolution, you know the one that we all think is the only industrial revolution was responsible for giving us production. 

This production went on to define our way of life in the modern world where people in advanced economies have access to practically unlimited food, robust housing, and bits and bobs to fulfill our every little desire. 

The world before this was very stagnant. The idea that we have economic growth at all, where society is always advancing and every generation is richer than the one that came before it is a surprisingly modern ideology. 

What’s more, is that it’s not something that we are guaranteed. We can only get so good at making stuff given our current set of technologies and resources, and in fact, we might already be starting to see this plateau. 

Arguably the rollout of smartphones that gave us unlimited access to information wherever we were, was the last great paradigm shift in how we lived our lives.

13 years later this technology is improving but it doesn’t offer anything fundamentally different to the way that we live our lives, run our economies or advance our standard of living. 

But maybe we are getting ahead of ourselves.

To really know what to expect from this supposedly incipient fourth revolution we must first understand a few key things.

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This is the Carnival Imagination, a luxury cruise liner worth hundreds of millions of dollars, which just 10 short months ago was touring passengers in extreme comfort to exotic destinations all over the world. 

This ship is sailing dead ahead to its final port of call, where it has been sold for scrap alongside dozens of other ships that have become the latest victims of the global pandemic. 

The Chittagong ship breaking yard in Bangladesh is the largest of its kind in the world, and in the past few months even its abundant shores have become inundated with pleasure cruises and industrial cargo ships alike that all could have otherwise sailed the oceans for many more decades. 

These are all very troubling signs for the unsung heroes of our modern global economy, the merchant marine fleet. Every year trillions of dollars worth of cargo is transported on ships like these and losing this fleet could turn into a huge barrier to global trade.

But what is really going on here?

Why would profit-motivated companies destroy billions of dollars worth of productive assets? Sure times are tough, tourism and trade have declined massively but this hardly looks like a reasonable response right?

I don’t burn down my house if a video gets less than 10,000 likes, so why would companies in such a competitive industry do something equally as self-destructive?

Well as always it has to do with economics (go figure) and to understand this bizarre behavior we need to understand a few key areas.

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The United States 2020 Presidential election has been called by pretty much every organization that covers the event in any capacity and while the final decision is not made until the special club that is the electoral college has presented its final decision, it’s apparent that Joe Biden will be the next president of the united states. 

This is the first time in almost 3 decades that an incumbent president has been voted out before serving a second term and it has come in the midst of national and global catastrophes galore. 

To add fuel to a fire that threatens to ignite the global economy, the outgoing president has been vehemently challenging the results which is casting doubt over the smoothness of the transition, the continuation of much-needed government support, and the foundation of the nation’s systems in their entirety. 

And this all begs the question, either unwittingly or maliciously, how much damage could a president do to the American economy, and by extension the global economy. 

There are checks and balances in place to control the influence of any one man in the united states around things that were relevant when those checks and balances were been written. But it must be remembered economies back then depended a lot more on successful harvests, and a lot less on tweets. 

Our modern economies are incredibly complex and incredibly fine-tuned, but complex fine-tuned things tend to be very easy to break, and the outcomes of throwing a proverbial spanner into the works could be just as devastating. 

Thousands of people die when unemployment rises, and many more could lose access to healthcare, housing and livelihoods during even a minor period of economic turbulence.

All of this is to say that a president waging war on an economy could be just as dangerous as waging war on a nation. 

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This is the Netherlands, a picturesque nation filled with windmills, tulip fields, and uhh coffee shops. 

The nation is looked to by many as an extremely forward-thinking place that practices some pretty progressive policies. The nation has an incredibly strong social security system, with universal healthcare, robust retirement pensions, as well as allowances for maternity leave.

And These kinds of policies are mirrored in other areas as well, the nation is home to relatively high tax rates, and the protections for employees are very strong almost to the point that people joke it is impossible to be fired in the Netherlands. 

So this kind of looks like a liberal paradise right? Well, it would if it were not hiding a dirty little secret. 

This postcard-perfect little nation is according to the world bank the most unequal place on earth, and the extent of the inequality is simply staggering. 

We have explored south Africa on the channel before, which normally gets this less than desirable title. And if you were to pose this question to google, it’s what you would walk away thinking. But this isn’t the whole story.

In terms of wealth inequality in recent years, South Africa has been pretty tame. The Netherlands by contrast is the only country on earth that is more unequal than the world itself.

So what is going on here?

Similar policies to the ones that have been commonplace in the Netherlands for decades are being proposed by politicians in places like the United States as a way to curb the issue of wealth inequality. But if we look at the results it doesn’t look like they will do that at all. 

So to really understand this we are going to as always look at a few key issues.

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China has been home to the most extreme economic growth in human history. In four short decades, the nation has gone from a struggling backwater filled with poverty to this, a nation of glistening skyscrapers and more Gucci stores than you can poke a stick at.

The driver of this growth has obviously been its embrace of the free market and opening itself up to international trade. 

The nation has always had huge potential, given that historically for 1,900 out of the last 2,000 years it has been the largest economy on earth, but now it is finally realizing that potential once again. 

Seeing this sustained growth people are obviously keen to jump on board, millions of dollars are been made by millions of people and any logical investor would be foolish to not have exposure to the largest growth market in the world right?

I spend a fair amount of time chatting to channel viewers on discord, Patreon, and even in the comments section of the video’s and it’s probably one of the questions I see the most, Mr economics man how can I invest in Chinese companies stock? 

Now I don’t want to sound rude, and I promise I absolutely mean this in the nicest possible way, but if you have to ask someone on youtube how you can invest in Chinese equities, you absolutely should not at all be investing in Chinese equities. 

And in fact even for more seasoned investors, the market for Chinese companies is not exactly the promised land of double-digit annual returns you may think it is. 

This is because there are a few major problems that have yet to be overcome, the stock market in China is both too regulated and not regulated enough. Which sounds silly but let’s explore it by looking at this problem piece by piece. 

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This is Texas, the second-largest state in the USA by landmass, population, and GDP. 

But perhaps being runner up is not so bad in all of these categories. Texas has for many decades been a huge driving force of prosperity, not only for the people within the state but also for all of the USA.

The state provides over 40% of the oil production in the country which is, in turn, the largest oil-producing nation in the world. 

To give you an idea of just how massive this operation is, Texas produces more oil than, brazil and china combined. 

Now for regular channel viewers, you might be thinking that well that’s great and all however, oil wealth doesn’t always guarantee prosperity, but fortunately for Texas, it has diversified itself into a host of other industries some of which are very far removed from what you might picture taking place in the land of cowboy boots and Ford F350’s.

Texas today has the fastest growing population in all of the United States which is been driven by the state attracting a range of new businesses that will work with this young new professional demographic to continue to grow a strong economy. 

Or at least that is the theory, the rumblings of the world in 2020 have not been easy on the Texan miracle, and for the first time in almost three decades, the state might be starting to show signs of troubled waters. 

To see if this could be a hurdle the yeehaw state could not overcome we need to look at a few key areas.

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