Connecting the Dots

QUESTION: I find your explanation of how everything is connected very insightful. So events go nuts in Europe and that sends capital fleeing to America as in World War I and II. Am I correct in saying it is not possible to manage an economy in isolation?

Thanks for making my mind work

HW

ANSWER: Correct. Everything is connected so what happens in one nation influences capital flows globally. It was World War I and II that took the USA from bankrupt in 1896 to the world’s largest economy by 1949. It is impossible to carry out any policy domestically that is counter-trend to the world economy. You can even put in capital controls to try to stop the movement of money. That fails to work as well. Even Communism collapsed for it was unsustainable. Adam Smith’s Invisible Hand prevails – nobody has ever beaten it long-term.

Producers of eggs got together to try to defeat the business cycle and smooth out the price of eggs. That blew up in their face into a class action lawsuit. Nobody can stop the cycle for everything is captured within it from weather to war. Some people will never get it. They want to believe government can make things better so they remain blind to events outside their domain.