Last in a series of Geo-financial jokes trying to get my head around Economy 101 which I never followed.
It's a thing all children do: If you lose the game, you change the rules. In this article by Buffet et al., a tit-for-tat scheme is proposed to get US import and export balanced. A slightly more cynical view in a replay among two rivalling countries: Rice Land and Wheat Land.
Rice Land and Wheat Land are two countries of roughly the same size producing rice and grain. Both countries worship the Goddess of Finance which, in a divine intervention, placed magical machines in both temples. These machines, when prayed to, produce paper called Rice bucks and Wheat bucks used as currency.
The farmers of Rice Land are conservative hard-working savers and produce more than the life-enjoying Wheat Landers. For a generation, the Wheat Landers import rice and celebrate their fortune and easy living style. When needed, they turn to the temple and pray for Wheat bucks which they trade for rice.
The Rice Landers are at first very happy by their accumulated wealth, but become unhappy that they have to stash this unfortunate amount of bucks in their farms. The Wheat Landers propose a solution: they will stash the Wheat bucks in return for IOUs over which the Rice Landers will receive interest. The Wheat Landers find themselves pretty smart since they now have more money to buy rice and just need to prey to their Goddess for interest. Again, happy with this arrangement, both cultures thrive although the Wheat Land's fields become barren and their tools rusty.
After another generation, the Rice Landers again become unsettled by this arrangement. Their assumed number of owned Wheat bucks in IOUs grows and grows, but they wonder whether they cannot strike a saver deal with the Wheat Landers who are now almost fanatical in their worship of their Goddess. They start buying farms in Wheat Land which they rent back and start making a sizeable profit.
After a decade, Wheat Landers are getting annoyed. For some reason, they need to carry around bags of bucks to buy the smallest items and they are not enjoying the demands for production of their new masters. Some bright priests decide that it must have been the result of over-worshipping. The priests enforce a tit-for-tat scheme: A fixed amount of bucks may be spend and earned across the border. The amount is fixed with special tokens sold at the temple.
Within a few years, Wheat Landers are angry because they now need to work hard for their own consumption, and Rice Landers are furious because they thought they could retire but are still working hard and, internally competing, spend exorbitant amounts of Wheat bucks to buy grain tokens. They start to scoff at each other over the border, go to war, and both countries are burned to the ground in a hail of flamy arrows.
Will it happen? Probably not. But given this thought experiment, one might as well derive some laws and trends:
- The ICs as proposed by Buffet are a thought experiment, but they do exactly the same as a hefty import tax combined with substantial export subsidies.
- The US will not pay for Chinese or European pensions because it is not profitable for them to do so. It won't be ICs but a range of protective measures which will protect the US economy.
- Lastly, most surprisingly, the most unsettling factor to world peace is not a bunch of Afghan goat-herders, puzzled by an exercise in misplaced American anger-management, but the US wallet.
(The good part of Buffet's proposal is that if all economies would implement such a scheme, no nation can accumulate wealth at the expense of another.)
