Lawson for Congress

Following my discussion with Carl Kenney a couple of days ago, I’ve been reflecting on a fundamental question: What is freedom?

I won’t pretend to have a universal answer for everyone, but I really started thinking about this issue while spending several weeks in China and Hong Kong over the summer. Having been investing in Asia for some time, I really wanted to see firsthand what this “Asian Miracle” is all about. What does capitalism look like in a totalitarian state? Is the 10-12% GDP growth in China “real”? Are average people benefiting from the growth, or is it just multinational corporations exploiting cheap labor? Those were some of my questions, and as I dove in and talked with folks, some patterns became clear.

First, I was amazed to meet a lot of Chinese in major cities from my generation (20s-30s) who speak English, are extremely well educated, and are enjoying a rapidly increasing standard of living. These folks are literally “Chuppies”, and they are seizing China’s transition to a market economy and the opportunity that provides with both hands. Importantly, there is hardly ANY consumer debt, and the household savings rate in China is over 25%.

Think about that for a moment — no consumer debt. Want to buy a car? You’d save and pay cash. You’d have no student loan, credit card, or home equity loan payments. China is only JUST beginning to embrace mortgages to buy property/housing. What would your life be like if you only had to buy food, gas, clothing, insurance, and educational/recreational stuff?

That’s not to say the Chuppies aren’t consuming. They want, and have earned, a Western standard of living: from rice to beef, from bike to car, from room air to air conditioning… everything that the middle class and above takes for granted in the United States is also being enjoyed by China’s growing middle class. They’re just not borrowing money to do it.

So that’s one way to look at freedom — economic freedom. When you have a bunch of money invested and saved, no debt to service, and just living expenses to cover every month, would you feel forced to take a job that you find unrewarding? Might you possibly be inclined to think like an owner, instead of an employee, and start your own entrepreneurial venture?

What I found talking with folks in China is that the entrepreneurial instinct for the average, educated urban Chinese has never been more alive and well. People in this growing middle class are focused on creating value for themselves in the market. I was so shocked by this realization — here I was in a country with a totalitarian government, no tradition of individual liberty such as in our Declaration of Independence, and a censored Internet… yet I’m meeting folks in offices and tea rooms who feel “freer” economically than many (if not most) people I know in the United States!

Not to say that China doesn’t face significant challenges — they also struggle with dirty air, dirty water, rising inflation, and questions of how to address the folks who haven’t kept up with the economic boom. But the important distinction for me isn’t China’s current position, but its direction. With economic liberalization comes increasing prosperity for more people. Those increasingly prosperous people are also less tolerant of arbitrary and capricious social restrictions, as well. Who knows how far social freedom will go in China? Based on my experience, however, it’s moving in a positive direction — certainly relative to the history of the Cultural Revolution.

Contrast China’s dynamic with the United States. We cheer over 2-3% GDP growth, suffer from rising inflation that is understated by the government, and have a negative household savings rate. Of course, with inflation, it doesn’t make sense to save in the traditional sense — a savings account gets eaten alive by inflation, so you have to take additional risk and invest in high-growth opportunities to keep up. But more folks aren’t even trying to invest OR save. We base our purchase decisions on what the monthly payment will do to our budget, and God forbid we lose our job, and our healthcare benefits.

The average American with credit card debt, student loans, mortgages, and car payments NEEDS his job. Leaving a job is a high-risk proposition, and forget about financing your OWN business to test that great idea that you always wanted to commercialize. Instead, we live in The Office, or The Matrix, and forget what it means to be free.

Ironically, in a situation as perverse as ours, one can argue that we really DO need minimum wage laws. You see, people are so enslaved by debt, and so dependent on monthly cash flow, that it’s tough to walk away from ANY offer when you’re desperate. What would happen if people felt free to say “No, thanks” and start their own business, if they couldn’t find an employer that met their expectations for job satisfaction and income?

Does it have to be this way? Well, having governments that encourage consumption and punish production through a punitive tax code and cheap debt doesn’t help. But ultimately, it’s an individual decision to take on debt. The fact that our society makes it so easy doesn’t eliminate our responsibility for the problem. Would you like to be economically free? Meet Dave Ramsey. He’ll help you figure it out.

Note that my focus on economic freedom thus far is on folks who are earning (or attempting to earn) a wage. There’s a whole other category of people who depend on the generosity of others to survive. Ironically, many people in the so-called “welfare state” are actually closer to true economic freedom than the “middle class” two-income family just fighting to survive.

How can that be? Simple — If you’re debt-free and used to a lower standard of living, what do you have to lose by trying something new? If you’ve figured out how to survive on welfare, even barely, you are MUCH better positioned to take a risk and create some REAL value for yourself. Go figure.

This entry was posted on Thursday, November 1st, 2007 at 2:06 pm and is filed under China, debt, economic freedom, free market, inflation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.