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Fish lesson for our time: Only eat what you can catch
By Wang Yong |
August 14, 2010, Saturday
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Print Edition
Print Edition
FISHERMEN know many things economists don't about what makes or breaks an economy.
For thousands of years, fishermen have known they have to save more than they eat, but now, economists the world over are telling them to eat more than they save by borrowing beyond their means.
Economists would have caused less harm to society if they had not fished for fame outside their "dismal science" of economics. Unfortunately, politicians have lent their ears to economists who have never predicted or prevented financial busts.
In our modern day, it all began -- at least in a significant way -- with Ronald Reagan's "feel-good" era where conspicuous consumption and spending sprees became the ideology as well as the fashion of the day.
In a new book titled "How an Economy Grows and Why It Crashes" (published this year by John Wiley & Sons), authors Peter D. Schiff and Andrew J. Schiff refer to Ronald Reagan as Roughy Redfish in a fable about fish that explains the basics of plain economics -- not fishy economics of the worldly economists.
The picture book is a pleasant read for its clever casting of America's economic reality in a fable that even a teenager can comprehend. You don't have to read Milton Friedman or Adam Smith to see how an economy grows and crashes. Read the fish story, which goes as follows.
Three men -- Able, Baker and Charlie -- live on an island with no tools and just one food: fish.
At first they each eat one fish a day, because they catch fish by hand, which is difficult. Then Able invents a net, which enables him to scoop up two fish a day.
Now he has created capital (net) and savings (an extra fish) and can lend fish to Baker and Charlie as they forgo fishing temporarily to make their own nets. The island economy expands when Baker and Charlie catch more fish with their own nets to repay Able. Over time, each of them can eat two fish a day, as the supply of fish increases.
Fundamental rule
Here is the fundamental rule of plain economics the authors want to impart: supply grows, so demand grows -- none of the three islanders would have demanded two fish a day if each of them could catch only one. Even if you demanded two fish, you wouldn't have been satisfied. It would only be a daydream.
You consume what you have -- that's how an economy runs in a natural course. But, as the authors point out, worldly economists would have us believe otherwise: People will consume what they don't have (eat two fish instead of one) if you give them more money and ask them to save less.
Fortunately, Able, Baker and Charlie led a peaceful life of consuming within their means without having been poisoned by worldly economists.
Generation after generation prospers on the basis of their wisdom, until one day when a storm wreaks havoc on the island, now called the Republic of Usonia.
In the face of such a disaster, Able, Baker and Charlie would have reduced their consumption, but their offspring have lost their wisdom and cannot survive without eating two fish a day.
Politicians of the Republic of Usonia then decide to increase fish prices, causing "fishflation" (inflation of fish prices). As "fishflation" grows, citizens of the republic start to save less and are eventually left without savings.
The authors ask: "Does anybody here (in the Republic of Usonia) remember how to make a net? I think it's time we all went fishing."
Indeed, when you are left with no savings -- because of "fishflation" -- you can't buy a net and no one sells you a single fish. You have to catch fish by hand again. The economy contracts as a result.
In the view of the authors, deflation grows an economy -- in deflation, you save and buy more as prices fall -- not inflation, but politicians like inflation because it creates the illusion that an economy is pumping along. It's true with real estate as well as fishing.
There is no country in which everyone who wants a hut can immediately afford one, but in Usonia, bankers print the republic into believing that everyone can buy not just one, but two or more huts.
As a result, hut construction goes red hot, but even hotter is the demand for ever more huts.
As the authors conclude, unbridled spending on the back of endless low-interest loans does increase demand and hyperflation, but doesn't ensure you can forever own that one or two huts. When you lose your job, you lose your hut(s), because you are left without savings for rainy days.
Don't demand to eat two fish when you can only catch one.
For thousands of years, fishermen have known they have to save more than they eat, but now, economists the world over are telling them to eat more than they save by borrowing beyond their means.
Economists would have caused less harm to society if they had not fished for fame outside their "dismal science" of economics. Unfortunately, politicians have lent their ears to economists who have never predicted or prevented financial busts.
In our modern day, it all began -- at least in a significant way -- with Ronald Reagan's "feel-good" era where conspicuous consumption and spending sprees became the ideology as well as the fashion of the day.
In a new book titled "How an Economy Grows and Why It Crashes" (published this year by John Wiley & Sons), authors Peter D. Schiff and Andrew J. Schiff refer to Ronald Reagan as Roughy Redfish in a fable about fish that explains the basics of plain economics -- not fishy economics of the worldly economists.
The picture book is a pleasant read for its clever casting of America's economic reality in a fable that even a teenager can comprehend. You don't have to read Milton Friedman or Adam Smith to see how an economy grows and crashes. Read the fish story, which goes as follows.
Three men -- Able, Baker and Charlie -- live on an island with no tools and just one food: fish.
At first they each eat one fish a day, because they catch fish by hand, which is difficult. Then Able invents a net, which enables him to scoop up two fish a day.
Now he has created capital (net) and savings (an extra fish) and can lend fish to Baker and Charlie as they forgo fishing temporarily to make their own nets. The island economy expands when Baker and Charlie catch more fish with their own nets to repay Able. Over time, each of them can eat two fish a day, as the supply of fish increases.
Fundamental rule
Here is the fundamental rule of plain economics the authors want to impart: supply grows, so demand grows -- none of the three islanders would have demanded two fish a day if each of them could catch only one. Even if you demanded two fish, you wouldn't have been satisfied. It would only be a daydream.
You consume what you have -- that's how an economy runs in a natural course. But, as the authors point out, worldly economists would have us believe otherwise: People will consume what they don't have (eat two fish instead of one) if you give them more money and ask them to save less.
Fortunately, Able, Baker and Charlie led a peaceful life of consuming within their means without having been poisoned by worldly economists.
Generation after generation prospers on the basis of their wisdom, until one day when a storm wreaks havoc on the island, now called the Republic of Usonia.
In the face of such a disaster, Able, Baker and Charlie would have reduced their consumption, but their offspring have lost their wisdom and cannot survive without eating two fish a day.
Politicians of the Republic of Usonia then decide to increase fish prices, causing "fishflation" (inflation of fish prices). As "fishflation" grows, citizens of the republic start to save less and are eventually left without savings.
The authors ask: "Does anybody here (in the Republic of Usonia) remember how to make a net? I think it's time we all went fishing."
Indeed, when you are left with no savings -- because of "fishflation" -- you can't buy a net and no one sells you a single fish. You have to catch fish by hand again. The economy contracts as a result.
In the view of the authors, deflation grows an economy -- in deflation, you save and buy more as prices fall -- not inflation, but politicians like inflation because it creates the illusion that an economy is pumping along. It's true with real estate as well as fishing.
There is no country in which everyone who wants a hut can immediately afford one, but in Usonia, bankers print the republic into believing that everyone can buy not just one, but two or more huts.
As a result, hut construction goes red hot, but even hotter is the demand for ever more huts.
As the authors conclude, unbridled spending on the back of endless low-interest loans does increase demand and hyperflation, but doesn't ensure you can forever own that one or two huts. When you lose your job, you lose your hut(s), because you are left without savings for rainy days.
Don't demand to eat two fish when you can only catch one.
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