Wednesday, August 27, 2008

Gold-Medal Economics Lesson

Economist William Watson had a great column last week in the Financial Post on why the Olympics works differently from the world economy.

Noting China’s sudden dominance in gold-medal victories, Watson figures some Canadians might be wondering whether the developing nations that are beating us so handily now at track, gymnastics and field hockey will soon be wiping the floor with us economically.

It’s a good question. Fortunately, as Watson writes, “economic life is very different from Olympic life.”

Point 1: In the Olympics, you're either a winner or a loser. There are no medals for fourth place, even if you finish one-tenth of a second out of gold. “But in economic life,” says Watson, “close counts a lot.”

If you are lucky enough to be the country whose living standards are ranked fourth-best in the world, you still have it pretty good. Iceland last year was No. 1, with a score of 0.968 out of a possible 1.0. Canada was fourth, with 0.961. The difference among the top countries is essentially negligible.

Point 2: Economics is not a zero-sum game. Winners create wealth, they don't take it from other countries. With China, India and other countries emerging from poverty to become industrial powerhouses, Canada may lose some companies, and indeed whole industries. But we also gain billions of new customers, with growing appetite for imported goods and services that smart businesses are moving to supply.

As Watson concludes, “economic life is almost infinitely expandable. The number of medals available to be won is limited only by our imagination and entrepreneurship. There are plenty for everyone.”

You can read Watson's original article here.

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