Fareed Zakaria GPS – CNN 07-08-12

Salient to Investors:

Kishore Mahbubani of Lee Kuan Yew School of Public Policy said the era of the West changing governments is over, Western power has peaked and will decline. The more the West isolates Iran , the more Iran becomes a geopolitical gift to China, which will accept it. China can get away with it because America cannot sanction Chinese banks like it can other world banks. Frightening is that so few Americans are aware that the US economy in purchasing power parity will become the number two economy in the world in three and a half years time.

Mark Malloch-Brown said that without more decisive intervention, Greece will exit the euro because it can’t grow or export so its longer-term position is unsustainable. US gets written off prematurely and has another chapter – cites the extraordinary energy revolution in shale, labor costs and manufacturing returning home, and a fiscal deficit so dramatic that it will force Congress to act.

Dominique Moisi said it is premature to bury Europe because many big investors are hedging their bets between the emerging countries and the West – by saying the virus is in Europe but the antibodies are stronger in the West than they are in emerging countries. America looks better than China because its fundamentals are more right.

Fareed Zacharia noted rising public discussion in China about its one-child policy. China faces a demographic disaster – it will get old before it gets rich. In 2011, 8.9 percent of China’s population were over age 65 versus 13 percent in the US. By 2050, China will overtake the US – to 26 percent which is more than Japan is today. The median age in China was 22 in 1980, is 35 now, and will be close to 50 in 2050, versus 40 for US. China will no longer be the world’s factory, its workforce will shrink so will need to import workers, and seniors will need to be supported by families and the state. In China, ominously there are 123 males for every 100 females under age 4 – countries with male youth bulges have historically seen civil wars and revolutions.

Nick Hanauer said if investment were the key to the economy then there would be Apple stores in Somalia. The goose that lays the golden egg is the creation of the middle class. Demand drives all economic activity. The world is awash in capital,  What we lack today is consumers. A capitalist only invests or hires people is when it believes it has customers. Entrepreneurs start companies for personal reasons and not because of low tax rates. The idea of having to lower tax rates to incentivize risk takers is absurd. Iconic entrepreneurs grew up in professional families with no risk. The Google guys grew up in families with professors in computer science and math – no risk – went to Stanford and got PhD degrees in computer science – still no risk. Then started Google at the best place and time in history in Silicon Valley in the 1990s – still no risk.  Other than being born in the British Royal Family, no institution on earth more insulates you from risk than getting a PhD in computer science from Stanford. The money invested in Google came from venture capitalists like PE people who make money whether or not the deal works or not – still no risk. The only people who took risk were the workers whose pension funds were at risk if the company went bankrupt.

Ed Conard said US median incomes are 25 % higher than Europe and Japan and growing faster because US innovation is driving the world. Europe and Japanese most talented people go to the beach.

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