China: The Happiest Country on Earth

This post first appeared on Minyanville.

Optimism is decidedly out of favor in the United States. The slumping housing market, the credit crunch, high oil prices and a weak stock market are all making most Americans very bleak indeed about their economic future.

Meanwhile, halfway around the world, citizens of a certain very large country are all smiles. With the Olympics just a few weeks away, Chinese attitudes toward their nation’s future and its economic prospects have literally never been better.

According to the Pew Global Attitudes poll, 82% of China’s urban population considers the country’s economic situation good. A mere 20% of Americans, on the other hand, have a positive economic outlook.

And while the study is biased in favor of urban-dwellers rather than the rural population -- who are prone to rioting over high food and fuel prices -- it's evidence of general satisfaction with China’s progress since it began the transition to a more open economy 30 years ago.

The Wall Street Journal reports that most Americans have a false impression of the Chinese as toiling miserably under the heavy hand of Communist oppression. The surprisingly high level of optimism belies that view.

“Many Chinese view their country as more prosperous and freer than at any time in their lives. Many Westerners focus instead on continuing human-rights abuses and social injustice, comparing China to the yardsticks of their own societies.”

Yesterday on the Buzz, Professor Krueger -- whose contrarian ideas are usually just crazy enough to work -- commented on the possibility of a post-Olympics bounce in Chinese equities. 12 months ago, conventional wisdom said China would crumble after the Summer Games, and investors took profits accordingly. Now, with the global economy staring down mounting inflation and slowing growth, such an optimistic viewpoint seems distinctly counterintuitive.

But the Chinese don’t seem to care one iota what the rest of the world thinks, and scoff at the idea that the faltering developing world will drag China down with them. They expect prosperity to continue, a belief that may well become self-fulfilling.

Economic activity is made up of billions of individual transactions, the characteristics of each determined by the preferences of the actors involved. Whether it’s the purchase of a light bulb, buying a Prius (TM) or making a late-night Taco Bell (YUM) run, economic decision-making is driven by the attitudes of the individual. Those attitudes coalesce into what Professor Depew calls “social mood.”

If a country’s people are collectively optimistic, they’re more apt to spend, take risks and invest, which feeds back into optimism as new construction sprouts up around them and retailers do brisk business. On the other hand, if fear about keeping the lights on or losing one’s job takes root, attitudes towards consumption and what’s really necessary begin to shift.

Escalades (GM) lose their splendor, million-dollar McMansions (TOL) become $500,000 McMansions and American Express (AXP) gold cards are chopped up by borrower and lender alike. These are not attitudes that change overnight; they're cumulative, the amalgamation of millions of unique viewpoints into a single national conscience.

Challenges, such as inflation and pollution, certainly loom on China's horizon. But the collective will of many happy people may supercede the pessimism and negativity of the rest.