By Wan Bao

Translated By Yaqing Wen

22 September 2008


China - Creaders - Original Article (Chinese)

The Cause of the America’s Decline

The United States is the most powerful country in the world. Conditions in the U.S. directly influence the majority of the world’s population, like when the depreciation of the American dollar led to financial losses in every country with a currency exchange. From any global perspective, whether political, economic, cultural, or technological, America’s decline is detrimental to the majority of the world population and the development of the global civilization.

Unfortunately, America’s decline seems to begin now. There is major decline in the manufacturing industry, an adverse foreign trade balance, a subprime lending crisis, a slump in the job market, a steep fall in real estate prices, an enormous deficit in the Treasury, depreciation of the American dollar, a financial crisis, etc. The decline of American economy is clear and easy to see.

The root of America’s decline is in the low amount of material production (creating wealth), coupled with high expenses and low efficiency. With real estate as an example, following the bankruptcy of the three large banks, the discussion often turns to the slump in the housing market and the subsequent subprime lending crisis. Some even believe that that is the reason for America’s decline. Actually, subjectively speaking, real estate prices should not be an important social issue. Why? Simple: whether the real estate prices are high or low does not influence the overall wealth of society, but only the distribution of wealth. High prices mean the seller gets more money and lower prices mean the buyer spends less money. The houses are still the same; the price only affects how money is allocated between the two parties.

The real estate prices in the U.S. have already been rising too quickly these past few years. Especially on the coastal regions, real estate prices far surpassed its actual value, so it is not a big deal now that prices have fallen to those of ten, twenty, or even thirty or fifty years ago. Even if current landlords and employees of the bankrupt banks lose some of the wealth they had gained before, their lost wealth would be transferred to the buyers of the new real estate. From the perspective of the market economy, if a house was bought five years ago at $200,000 and now is worth $600,000, why can’t a new buyer buy it below $600,000? Why can’t the price follow the fluctuation of the market and the rule of supply and demand and fall back to $200,000? Say the housing slump caused certain people to lose their homes; the effect would be that the same number of people can use less money to procure homes. The employees and customers of the banks, especially senior executives and customers with large holdings, were on the higher end of the income spectrum in relation to others. After the banks went bankrupt, they basically just fell to the income and standard of living of the average American.

According to the bankruptcy report of the Lehman Brothers, employees in the New York office will split a $2.5 billion bonus. If the owner of a restaurant can be poverty stricken as a result of his restaurant going bankrupt, why can’t landlords and employees and customers of banks? At the same time, overpriced real estate raised production and manufacturing costs. Therefore, the U.S. using the taxpayer’s money to spend $700 billion is completely wrong and unfair.

The root of America’s decline is in its trouble with creating wealth. For a society to be prosperous, it first needs to guarantee an enormous amount of wealth, production power, and actual product. Second it needs an efficient shipping and transportation system, and only after that is a logical distribution of wealth. Furthermore, the creation of this large sum of wealth should be based in a large amount of products, high efficiency, and low cost of production. This is the key difference between success and failure, particularly in a competitive environment.

This simple principle can be proved with the rise of the Qin dynasty during the period of the Warring States Period, and in the Industrial Revolution in Europe. It is clear that the U.S. right now, compared with China for example, has relatively low production rates coupled with low in efficiency and high production costs. The expenses for workers in China may be lower than a dollar, but the minimum wage in states like New York is $7.15, mean that the cost of labour in the U.S. is more than 10 times than that of China. Taking into consideration the high rent prices for the space, American production costs greatly surpass those of China.

Furthermore, irrespective of the form of government, the current Chinese market right now is more capitalist, more free, with higher production rates and efficiency than those of Europe and the United States. Other than its current inability to create wealth, the U.S. also has to pay a great deal more military and political expenses than other countries, thus the United State’s decline is inevitable, and has already begun.

The minimum wage itself is one of the most unreasonable laws in the world. First, the minimum wage is unfair towards the unemployed. If someone cannot find or is not qualified for a job that is $7.15 per hour, but through luck or his/her restricted abilities, he /she finds a job worth $7 per hour, what is his/her employer supposed to do? Let him/her work for the company for $7? Then for every hour that he/she works, the company loses $0.15. If the company let him/her work for $7 per hour, the company not only does not profit from his/her work, but also violates the minimum wage law. Thus, the company has to fire him/her, resulting in the minimum wage depriving him/her of a lawful job opportunity. Even though he/she cannot work or can contribute to other work, but to him/her, making $7 an hour is better than not having job at all.

Second, by restricting some people’s opportunity and right to work, the minimum wage subsequently reduces the amount of wealth society creates. A person can be denied a job opportunity, but he/she will still consume society’s wealth to survive. Third, in New York the minimum wage is $7.15, but the same cannot be required of other regions, especially in the current global economy. Production costs of the U.S. are high, while product competition is low. Many American corporations moved to China, India, and Mexico for production.

Also, the typical oppressive laws that are taking over the market limit work hours to at most 40 hours per week, with pay for overtime. A job is one of the basic rights of a free person, so it is right and proper to spend time on one’s career, so why limit work hours or laden it with so many additional conditions? Go ask the American president, the governors and congressmen, when have their work weeks been less than 40 hours? Campaigning is work. Did the GOP limit John McCain to cut his work week to 40 hours? Did the Democratic party cut Obama’s work week to 40 hours? McCain and Obama work far more than 40 hours a week for their campaign, so why can’t the average American citizen?

Just as long as the employer agrees without force or deception, it is absolutely unnecessary to limit the work week to 40 hours or less. More importantly, limiting the work hours is wasting human resources. It is one of the leading causes of the fall of competitiveness, and a major reason for the decline of the U.S.

Here is a joke which I believe is just a joke, but it also reflects the grave truth about America’s production problem. When the former New York governor Spitzer was the New York State Attorney General, he was famous for giving Wall Street a hard time. Someone even predicted that he will one day run for office. After he resigned because of a sex scandal, someone wrote the following as Spitzer:

“‘The Federal government wants to give us $600 of tax returns to stimulate the economy, but we find it hard to spend this money. If we spend it at Wal-Mart, it would go to the Chinese; if we spend it on gas, it would go to the Arabs; if we spend it on computers, it would go to the Indians; if we spend it on fruit, it would go to the Mexicans; if we spend it on a car, it would go to the Germans; if we spent it on useless junk, if would go to the Taiwanese…none of these would keep the money in America to stimulate the economy. To keep the money in the U.S, the only way is to spend it on women and beer, because they’re the only domestic product left. I’ve already did my part for the economy, and I thank you all for your help.’ –Eliot Spitzer”

In short, America’s decline has already begun, and it is because of the poor combination of low production rates and high production cost. The the obvious solution would be to reverse the two.

China’s principle of progress will definitely look at the United State’s decline as a warning.