Prescription for the current situation
Globally Adjusted Economic Theory and a Concept of Country Life Cycles
- Purpose of this memo is to try to stabilize current global economic situation through informing necessity of adjusting economic theory and implementation.
- Globalized Economy:
Due to globalization, Economic Theory has to be adjusted accordingly.
I. Growing importance of Adequate Exchange Rate:
Exchange rate has to be added as a major factor in global economic theory since exchange rate is a major factor for determining labor costs in global market.
For example, when our own currency is too strong against other currencies, it becomes cheaper to use offshore labor force and thus domestic unemployment rate goes up.
This is actually happening in Japan.
P&G Japan started outsourcing Administration work to China and thus it downsized Japanese Admin staffs dramatically.
I know it because one of my former co-workers got laid off by P&G Japan recently due to downsizing.
I strongly believe that Japanese unemployment rate goes up if Japanese YEN keeps current exchange rate against Chinese GEN currency, for example.
By the way, wage or labor costs are very important factor in economic theory.
One type of inflation is caused by wage increase, which is called wage-push inflation.
It says that when wage or labor cost goes up, costs of goods go up.
Since buyers who got higher wage can afford to buy higher priced products, price of products go up, which lead to inflation.
I learned this very basic fundamental economic theory about 30 years ago in Japan.
In Japan right now, since YEN is too strong it is cheaper to use off-shore labor forces and thus not only many factories moved out from Japan but also Administration tasks started being outsourced in China.
Although cost of goods goes down and price of goods go down, unemployment rate goes up and total income earned by Japanese as a whole go down.
Since consumers can not afford to spend much money, deflation spiral starts.
This is actually happening in Japan and this is an example for showing how important adequate exchange rate is in real economic situation.
II. A Concept of Country Life Cycles:
In Marketing, we use a theory of Product Life Cycles, which I learned in the U.S. around 1985.
I tend to believe that this theory is also applicable to that of a country.
We are basically after World War II generation.
World War II ended in 1945 and thus the first baby boomers are over 60 years old and they are retiring age right now.
Since industrialized countries tend to have a very low birth rate, this affects country’s performance a lot because a large number of labor forces have got old or retired.
This is one of the reasons why industrialized countries are not doing well economically these days.
Is there any fundamental solution for it?
Although I have not come up with it, I have a very quick but expensive solution for it, which is a devaluation of most industrialized countries’ currencies against Chinese GEN, for example.
This strategy is almost the same as lowering price of products in Product Life Cycles (PLC).
Lowering price is a last thing to do after trying everything else in marketing MIX.
Price cut strategy is usually employed at late maturity stage and early declining stage in PLC.
I assume that most industrialized countries are at late maturity stage and early declining stage considering labor force composition of inverse triangle shape by age group, having many old people on top and less young labor force at bottom.
This price cut strategy will slow down Chinese economic growth rate and so is Chinese population growth rate.
When economy grows, population also grows.
Due mainly to an issue of global warming, I do not wish to see that Chine population grows more because it has over 1.3 billion population and it does not even grasp the accurate number as far as I know.
Now I have to say that we have to devalue our currencies against Chinese GEN, for example, since we do not have any other choice right now, in my opinion.
Otherwise, some countries such as Japan might go broke, which could trigger World Depression.
Time has come!
Let’s follow U.S. devaluation strategy against Chinese GEN currency.
July 17th, 2010
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