Chile Economy — 02 June 2011

It is with despair that I read that the economic recovery in the USA is faltering.  In part this is for personal reasons as I am trying to sell my house.  But also I would like to see the USA get back on its feet.

Here in Chile the economy is roaring ahead as is the case with Brazil.  But no one writes about Chile.  They only write about Brazil because it is so large and Chile with its 15 million residents, located at the bottom of the world, is not on the radar of the reporters at “The Economist”.  The only time someone mentions Chile is when there are earthquakes which is often.  (Here is a funny aside:  Today a city in the north of Chile held a city-wide drill to rehearse what would they do in the event of an earthquake.  The event was cancelled.  Reason:  there was an earthquake.)

In the first three months of this year Chile created 400,000 jobs and last year 1 million.  The USA this month is predicted to create 30,000 jobs.  With the increase in immigration and the number of kids graduating school that increase represents a precipitous decline.  For my own personal experience I left a job in the USA three months ahead of layoffs that cut 95% of the people in the position where I worked.  That job I had taken scarcely a year before when having been laid off by another company I suddenly found myself without work.  One must be flexible to survive the ups and downs of the USA job market.  I think most people are not able to switch jobs at a whim without suffering some damager to their situation.

Here is Chile the skyline is dotted with construction cranes as new building go up.  The subway line here expands at a rate that the USA–tied up in lawsuits and political battles on issues both large and small–can only envy.

The office where I worked in filled with expatriate American and European firms, the streets crowded with domestic banks.  There is no Citibank here anymore because they sold out to the Bank of Chile.  Seemingly Chile with its copper, profitable agriculture, and growing economy is a better economic bet than the USA whose economy based upon housing construction collapsed into the aftermath of the mortgage meltdown.  American short-sightedness in such matters was of course copied in Ireland and Spain whose booms in home construction similarly led their economies to collapses.

I am no expert in economics but I think dark days loom ahead for the USA as the working class people there have been cast into direct competition with Chinese girls making chips and San Salvador peasants weaving shirts.  There is no way that prosperity is going to return to the USA when the union jobs of yesterday at General Motors are gone for good.  

All of this misery of course spells growth for the rest of the world.  If we are truly a global economy where it does not matter where one is located then it is only logical to assume that some kind of equilibrium will ensue.  Wages are rising in China so jobs are moving to Vietnam.  Only when the USA working class makes the same as the Vietnamese will jobs go there.

This of course does not hold true for the knowledge workers who have the benefit of education.  IT jobs in the USA still show some resilience.  Bankers there of course are looking for other work and starting there own businesses.  But these white collar jobs will invariable pay less.  Instead of $100,000 of yesterday probably such salaries will fall to $60,000 to equal those in other nations.

I think that in the USA one will have to start living as they do in the rest of the world.  There is no need for each and every person to have their own automobile.  Buses are better.  A medical system that pays every cost without cost controls is going to bankrupt the USA.  So there will be some kind of price controls in the market and access to medical care will be rationed.  College costs are scarcely affordable to the middle and upper class so the working class will fall further and further behind as they cannot pay the tuition.

All of this suggests there will be a division of the cultures into the poor, the less poor, and those who can barely keep up.  The egalitarian ideal which has always been the USA is gone.  So the USA will become like the rest of the world with a large middle class but plenty of poor people.  In the USA I don’t think people have seen genuine poverty as poor people there have a television and an automobile, plumbing, electricity.  Here in Chile poverty scarcely exists (Chileans would argue with me on that point).  But those of you who have been to poor countries know what I mean.  If I am correct on any of these points expect a John Steinbeck of Charles Dickens to rise up from the ashes and chronicle all of this misery.


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