Quotulatiousness

March 17, 2010

Superbubble?

Filed under: China, Economics, Politics, USA — Tags: , — Nicholas @ 12:14

Jon, my former virtual landlord, sent me this link, suggesting that it “gives you an opportunity to round up all of your ‘as I said about China earlier…’ [posts]“.

The world looks at China with envy. China’s economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese “Confucian capitalism” — a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will — is superior to our touchy-feely democracy and capitalism. But the grass on China’s side of the fence is not as green as it appears.

In fact, China’s defiance of the global recession is not a miracle — it’s a superbubble. When it deflates, it will spell big trouble for all of us.

I don’t want to give the impression that I’m anti-Chinese, because that isn’t why I post this sort of material. I think the Chinese miracle has been to raise literally hundreds of millions out of poverty, but it hasn’t been a purely positive thing: hundreds of millions of others are supporting the uplift but being deprived of similar opportunities. It’s a fantastic achievement, but it has involved — and continues to involve — injustice and repression.

It also requires continued state control over media, and not just BBC/CBC/PBS type state funding, but actual state censorship and worse:

During the crisis, Chinese exports were down more than 25 percent, tonnage of goods shipped through railroads was down by double digits, and electricity use plummeted.

Yet Beijing insisted that China had magically sustained 6 to 8 percent growth.

China lies. It goes to great lengths to maintain appearances, including censoring media and jailing those who write antigovernment articles. That’s why we have to rely on hard data instead.

Those lies will compound the impact when the lies can’t be maintained any more:

What happens in China doesn’t stay in China. A meltdown there — or even a slowdown — would have severe consequences for the rest of the world.

It will tank the commodity markets. Demand for industrial goods will fall off the cliff. Finally, Chinese appetite for our fine currency will diminish, driving the dollar lower against the renminbi and boosting our interest rates higher. No more 5 percent mortgages and 6 percent car loans.

It will be bad for the US and the rest of the world’s economies, but it could well be catastrophic (in the full meaning of that word) for China. As the US economy contracted over the last couple of years, it revealed lots of malinvestments . . . and the companies which were most exposed to the risks took huge hits to their balance sheets and their business models. A similar shock to the Chinese economy could topple the government or raise the already-high chances of massive unrest and corresponding increased repression.

Interesting times, indeed.

As Jon suggested, you can see my previous concerns about the Chinese economy here.

March 16, 2010

Trudeau’s part in Cuba’s economic non-liberation

Filed under: Americas, Cancon, Economics, History — Tags: , , — Nicholas @ 10:01

William Watson mentions, in a review of Just Watch Me, volume 2 of a Pierre Trudeau biography:

But to me the strangest and most alarming passage was this one, on page 617. Referring to the optimal speed of transition for countries exiting communism, English writes: “Trudeau’s concerns about making haste too quickly, with potentially disastrous results for the health of any society, were apparent in the mid-Nineties, when Castro’s Cuba, reeling from the impact of the abrupt end of financial support from the Soviet Union, considered opening up its rigid state socialist system. Because of its historic economic ties with Cuba, Canada became involved in discussions with the Cuban government. James Bartleman, then the chief foreign policy advisor to prime minister Jean Chrétien, later indicated that Castro abandoned his plan to loosen socialist restraints after a conversation with Trudeau, who cautioned him about its impact on the social health of his country. No record of Trudeau’s conversation is available, but Bartleman’s account rings true because of Trudeau’s friendship with Castro and his respect for the gains achieved by Cuba in the areas of health and education.”

Fidel must have been deeply grateful for Trudeau’s advice; the Cuban people, not so much.

It must be said that Castro probably welcomed Trudeau’s advice partly because it aligned closely with his preferences anyway . . .

That Red Dragon may be paper after all

Filed under: China, Economics, Military — Tags: , , — Nicholas @ 07:45

Strategy Page makes a case for the recent military spending and increased media attention being paid to it being highly misleading:

Over the next few years, you’ll be seeing a lot media attention paid to China’s growing military might. China’s ever increasing spending on modern weapons and military equipment gives the illusion of growing military power. It is very much an illusion. The 2.3 million troops in the Chinese armed forces are poorly trained and led. China has a long history of corruption and rot in the military during long periods of peace. The last time the Chinese military has been in action was 1979 (when they attacked Vietnam, and got beaten up pretty bad). [. . .]

American sailors are constantly exposed to examples of the poor training and leadership in the Chinese navy, whenever they encounter Chinese warships at sea. Foreigners living in China, and speaking Chinese, can pick up lots of anecdotes about the ineptitude and corruption found in the military. It’s all rather taken for granted. But in wartime, this sort of thing would mean enormous problems for the troops, when they attempted to fight better trained and led troops.

You don’t see much in the media about the poor training of Chinese troops, pilots and ship crews. You don’t hear much about the poor leadership and low readiness for combat. But all of this is common knowledge in China. There, the military is not walled off from everyone else. Cell phone cameras and the Internet make it easy to pass around evidence (often in the form of “hey, this one is hilarious”). The government tries to play up how modern and efficient the military is, but most Chinese know better, and don’t really care. China is winning victories on the economic front, and that what really counts to the average Chinese.

According to this analysis, the key role of the Chinese military is actually as a tool in American politics, specifically filling the role once occupied by the mighty Soviet armed forces. The Chinese are portrayed as being the reason for maintaining or increasing US military spending, which must work well enough, for aside from the required money to keep troops on active duty in Iraq and Afghanistan, the government still provides additional funds for this purpose.

The basic weapon for this sort of thing is FUD (Fear, Uncertainty and Doubt). Works every time, although it is difficult to pitch the Chinese navy as a crack force. Most of their ships are elderly, poorly designed and rarely used. Their nuclear subs are worse than the first generation of Russian nukes back in the 1960s. The most modern Chinese ships are Russian made, Cold War era models. Chinese ships don’t go to sea much, not just because it’s expensive, but because Chinese ships tend to get involved in nasty incidents. Like the submarine that killed its crew when the boat submerged (and the diesel engines did not shut down when the batteries kicked in, thus using up all the oxygen.) Breakdowns are more common, as well as a lot of accidents you don’t hear about (weapons and equipment malfunctions that kill and maim.)

Given my skepticism about the Chinese economy (see here for example), I’m somewhat inclined to agree with the author of this article about the Chinese military.

March 13, 2010

Privatization? Let’s not be ideological!

Filed under: Bureaucracy, Cancon, Economics — Tags: , , , , , , , — Nicholas @ 13:03

Robert Fulford on the problems with unions in the public service:

Unions hate the very word “privatization.” And no wonder. Their present system is close to perfect: Their workers can’t be fired but can strike, as they do from time to time, demonstrating their power. They win most of their struggles with politicians, who throw billions at them just to keep them quiet. (After all, it’s not as if the politicians were spending their own money.)

This arrangement became commonplace in Canada about half a century ago, turning public-sector employees into princes of the working class who make more money than other people doing the same jobs, and receive more generous benefits.

Union members passionately believe this is no more than their due. The unions and their friends believe public ownership is fundamentally good, private ownership at best dubious. In 1994, when it seemed possible that Ontario would privatize liquor sales, the Ontario Liquor Boards Employees’ Union commissioned a study by a York University economist, Nuri Jazairi. He found, no surprise, that this was a bad idea and that the provincial government should continue to control every ounce of liquor sold within provincial boundaries, presumably for eternity.

But his report was most revealing when he turned to the motives of those who favour privatization. He suggested the idea sprang from “purely political and ideological reasons,” among which he listed “the control of public expenditures” and “limiting the role of government in managing the economy.”

It’s no surprise that the folks who benefit disproportionally from the current arrangement are the most vocally opposed to any changes which would reduce their advantages. If the government did get enough political will to go ahead and privatize, there’s no way (unless the government tied their hands in advance) that private enterprise would give — or could afford to give — their employees the same pay and benefits they currently enjoy under public ownership.

Update: Speaking of situations which could only arise under public ownership, here’s a perfect example:

More than 1,250 Ontario Ministry of Revenue employees will soon be receiving severance packages of up to $45,000 each — but they won’t be out of work. Most of them aren’t even switching desks. They’re simply being transferred from the provincial payroll to the federal payroll when the province moves to a federal harmonized sales tax this summer.

March 11, 2010

QotD: Green jobs

Filed under: Economics, Environment, Humour, Quotations — Tags: , , , , — Nicholas @ 13:29

[G]reen jobs have become the ginseng of progressive politics: a sort of broad-spectrum snake oil that cures whatever happens to ail you. They are the antidote to economic malaise, an underskilled labor force, the inherent unwillingness of the public to suffer any significant economic and personal dislocation in order to save the environment. They enhance nationalistic vigor. (If we don’t act now, the Chinese will steal all of our green jobs!) They stave off aging of stale political platforms. And I’m pretty sure they’re good for bunions, too.

Megan McArdle, “The Jobs Are Always Greener…”, The Atlantic, 2010-03-11

March 10, 2010

California launches yet another attempt to tax out-of-state corporations

Filed under: Bureaucracy, Economics, Politics — Tags: , , , — Nicholas @ 08:28

California is getting desperate to scrape up every penny it can, so a renewed proposal for a tax grab vetoed by Governor Arnold Schwarzenegger last year is back in play:

The online retail giant [Amazon.com] has enjoyed an edge over many competitors in the state because it is not required to collect sales tax from residents who buy books, top-of-the-line plasma televisions, cases of diapers and thousands of other products from its website. The Seattle corporation has no store, warehouse, office building or other physical presence in California, and the state cannot tax such businesses under a 1992 Supreme Court decision.

Consumers here are required to pay sales tax on the goods they purchase at Amazon but almost never do, because the state has no mechanism for tracking Amazon purchases and collecting the money.

No story is complete without a nasty accusation:

The Democrats who control California’s Legislature plan to put their own bid on the governor’s desk this month in hopes of reaping up to $150 million annually for state and local coffers. The revenue would make only a tiny dent in the state’s $20-billion deficit, but supporters say every dollar counts in tight times, and there’s a principle at stake.

Amazon has “built an entire business model based on tax avoidance,” said Assembly tax committee Chairman Charles Calderon (D-Montebello).

Of course, tax avoidance is perfectly legal . . . he’s trying to smear Amazon (and every other business selling to customers in California) as being tax evaders. Avoidance is not only legal, it’s a sensible strategy to minimize costs and gain a competitive advantage. Tax evasion, on the other hand, is illegal.

So who is going to get hurt if the measure passes — other than Californians who have been remiss in declaring and remitting their sales taxes?

The California proposal seizes on the thousands of online sales affiliates that Amazon contracts with to get customers to its site. Those companies advertise Amazon products, provide links to the company’s website and get a percentage of the resulting sales.

Many of the affiliates are in California. Supporters of the Democrats’ bill, ABX8 8, say that the connections amount to a presence for Amazon as well and that California should be able to force the firm to collect sales tax.

H/T to Clive, who became aware of this through a website he visits regularly which may have to close down due to the proposed law.

March 9, 2010

It’s pesticide-free . . . but don’t call it “organic”

Filed under: Economics, USA — Tags: , , — Nicholas @ 17:43

Organic wine, in theory, should be better quality than non-organic wine because the lack of pesticides requires much more manual labour in the vineyard to produce useful grapes. If you have to put in all that extra effort just to get sufficient grapes at harvest, it’s prudent to treat the resulting wine with care and further attention (otherwise, you’re wasting all that effort up front to grow the grapes in the first place). But, after all that (at least in California), don’t put the word organic on the label:

“You’ve heard of the French paradox?” quipped Delmas, associate professor of management at UCLA’s Institute of the Environment and the UCLA Anderson School of Management. “Well, this is the American version. You’d expect anything with an eco-label to command a higher price, but that’s just not the case with California wine.”

[. . .]

So long as they didn’t carry eco-labels, these wines commanded a 13-percent higher price than conventionally produced wines of the same varietal, appellation and year. Their ratings on Wine Specator’s 100-point scale, in which wines tend to range between the mid-50s and high 90s, were also higher. Wines made from organically grown grapes averaged one point higher than their conventionally produced counterparts.

While the higher Wine Spectator scores still prevailed when producers slapped eco-labels on their bottles, the financial rewards for going to the trouble of making certified wine evaporated. The “made from organically grown grapes” label not only wiped out the price premium for using certified grapes but actually drove prices 7 percent below those for conventionally produced wines, the researchers found.

[. . .]

“Organic wine earned its bad reputation in the ’70s and ’80s,” Grant said. “Considered ‘hippie wine,’ it tended to turn to vinegar more quickly than non-organic wine. This negative association still lingers.”

Even today, the absence of sulfites reduces the shelf-life of organic wines, making them less stable, the researchers said.

I’m afraid my experience of “organic” wine is similar: the ones I’ve tried haven’t been very good, mostly due to rapid aging (the wine was already well past its best when others from the same region/same vintage were still improving). I certainly don’t pay extra if I notice an “organic” label, and I’m likely to avoid such a wine in favour of a non-organic option where possible.

Opening the door to arbitrary punishment

Filed under: Britain, Economics, Law, Liberty, Technology — Tags: , , , , , — Nicholas @ 07:33

Cory Doctorow talks about why the proposed “three strikes” internet ban is such a stupid idea:

Another anti-piracy scheme that hurts legitimate users

Filed under: Economics, Gaming, Technology — Tags: , , , , — Nicholas @ 07:06

French games developer Ubisoft was the target of a DDoS attack over the weekend, which took out their license verification servers. This left thousands of gamers unable to play their games . . . but not all gamers. Only the ones who bought the game legitimately, because the “real” version requires online validation every time you play . . . the cracked versions do not:

PC users started reporting problems accessing some of the French company’s most popular games, including best-seller Assassin’s Creed 2, on Sunday afternoon. It later emerged that attackers had targeted the company’s controversial anti-piracy system, causing it to break down — which in turn left thousands of people unable to play.

The chaos was so widespread because of the way that Ubisoft’s copy protection system — which requires players who have bought the game to log in online and verify that they are not playing a pirated version — is designed. By flooding the anti-piracy servers with web traffic, the unknown attackers forced it to collapse and therefore locked out those players who tried to sign in.

This angered many gamers, who felt that they had been punished for buying legal copies of the company’s games — which cost as much as £50.

“We’ve had to agree to their draconian rules in order to play their game, however Ubisoft haven’t given a single thought to what happens when their servers screw up,” said one disgruntled user on the company’s web forums.

This is far from the only example of companies trying to protect their intellectual property by imposing DRM “solutions” which punish their customers. In the long term, no matter how nice the product may be, it can’t be a good practice to place barriers in the way of the people who’ve paid to use the product.

March 8, 2010

This sounds familiar

Filed under: Bureaucracy, Cancon, Economics, Europe — Tags: , , , , — Nicholas @ 17:39

The other day, I wrote:

Once upon a time (and this is becoming long enough in the past to qualify as legend), government work was less well-paid than equivalent work in the private sector. The advantage of taking the lower-paid government job was job security: government workers had a “job for life” and a nice pension at the end of it. Private sector workers got more in the weekly pay, but generally had worse pensions and more uncertainty for long-term employment.

During the last generation or so, this basic trade-off has been lost. Government workers now get better paid than their private sector counterparts, still get practically guaranteed lifetime employment, and not-just-nice-but-very-nice pensions. No wonder governments have become the employer of choice.

Clearly I’m not the only one thinking this way, as Kelly McParland makes a similar pitch:

I like they way they put “bail out” in quotations, as if devoting billions of dollars to the rescue of Greece isn’t really a bail-out. Because in union-land, it isn’t. By definition, everything a unionized worker earns is deserved, because someone, somewhere agreed to pay it — especially workers employed by the government, who make up the bulk of the protesting Greeks. And since they earned it, there’s no reason they should make any sacrifices to help the country avoid economic disaster. No, that’s for little people, who don’t have government jobs.

Canada isn’t Greece, but it’s no healthier here to have a country divided into two classes. Class One: Public sector workers with safe, secure, well-paid jobs it is almost impossible for them to lose, with generous holidays, guaranteed pensions and protection against the economic cycles that prevail in the private sector. Class Two: Everyone else.

It used to be that the people in Class Two had an incentive for risking exposure to economic ups and downs. The pay was generally better, and it was possible to spend an entire career with a successful company and enjoy a pension at the end. Not any more. If events of the past few years have proved anything, it’s that no company is too big to fail, and there’s no guarantee benefits promised when you were hired are likely to be there when you leave. If the pension goes splat, like so many have, you’re on your own.

While the incentive to face the risks of the private sector have diminished, life on the government payroll has never been better. After all those nasty cutbacks imposed by Finance Minister Paul Martin, the Conservatives were elected in 2006, and have been spending wildly ever since. All the staff reductions have been reversed and the public payroll is bigger than ever. Salaries have largely caught up with private sector levels, and the pensions are just as rock solid as they’ve ever been. And you can’t be fired, short of indictment for murder.

At some point (and that point may be sooner than anyone believes), growth in civil service has to stop: there won’t be enough non-civil service jobs to pay for all the rest. Especially as government jobs become more and more attractive over their private sector counterparts. Why not take a job paying more money, with longer vacations, guaranteed pensions, and no risk of losing the job? You’d be crazy to take a job anywhere else, wouldn’t you?

March 5, 2010

Government wages and benefits outpace private sector

Filed under: Bureaucracy, Economics, USA — Tags: , , — Nicholas @ 12:59

Once upon a time (and this is becoming long enough in the past to qualify as legend), government work was less well-paid than equivalent work in the private sector. The advantage of taking the lower-paid government job was job security: government workers had a “job for life” and a nice pension at the end of it. Private sector workers got more in the weekly pay, but generally had worse pensions and more uncertainty for long-term employment.

During the last generation or so, this basic trade-off has been lost. Government workers now get better paid than their private sector counterparts, still get practically guaranteed lifetime employment, and not-just-nice-but-very-nice pensions. No wonder governments have become the employer of choice. Katherine Mangu-Ward has the gory details:

There are two million civilian federal workers. 1.1 million of them have direct private sector equivalents. And they are laughing their asses off at those private sector suckers, who are doing similar jobs for less pay — often a lot less.

“Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector,” according to a USA Today report. In jobs where there are private equivalents, the feds are earning $7,645 more on average than their private counterparts.

[. . .]

Note that the figures above are salaries and don’t include the value of benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker.

New economic term: the Jukebox economy

Filed under: Cancon, Economics — Tags: , , , — Nicholas @ 08:33

Terence Corcoran endorses a neologism from Bob Hoye, which seems to perfectly capture the current notions about the role of government in the economy:

In the economic culture of our time, in which government is seen as the engine of growth and prosperity, maybe it is too much to expect anything more. We live in what veteran Vancouver investment advisor Bob Hoye has called a jukebox economy. “Jukebox economics,” he wrote recently, “is a suitable description of the notion that the economy can only be kept going if the government feeds it quarters.”

So long as jukebox economics is the dominant economic ideology in Canada and elsewhere, the orthodoxy that guides our politicians and the conventional wisdom our media feeds off, we will continue to get budgets like the one Mr. Flaherty delivered on Thursday. In his speech he kept pumping quarters into the machine, calling the spending “investments” and describing the outcome as “jobs.”

Quarters in, jobs out. “We are in the middle of the largest federal investment in infrastructure in over 60 years. We are putting Canadians to work.” Are these good investments producing worthy jobs? Will they boost productivity and real economic gains that will actually generate what Canada desperately needs, which is greater wealth and progress that actually increases the standard of living for Canadians?

Nobody’s really counting. The word “productivity” didn’t cross Mr. Flaherty’s lips, even though it is universally acknowledged as Canada’s single greatest weakness. Even in the best of times, Canada falls behind. In the 424-page official Budget 2010 document assembled by scores of economic experts, the productivity problem is studiously avoided. The case is never made that the massive multi-year spending plans could really generate productivity gains, most likely because Finance Canada officials know they don’t exist. Of about 15 mentions of productivity gains, most are associated with a few tax cuts and the tariff reduction on manufacturing equipment imports — one of the few worthy measures in the budget.

It’s become a common notion that the government has a tap, marked “jobs” which they can easily turn on and off. This is why so many journalists demand that the government “create” jobs — they think that not only is it the government’s role, but that it’s a unique one. Individuals and firms don’t create jobs, in this mental model, unless the government prods them into doing so.

It’s another example of cargo cult thinking . . . that by some form of sympathetic magic, the government can induce the sky gods to produce the required manna on demand.

March 4, 2010

Don’t plan on riding those new high speed trains any time soon

Filed under: Economics, Technology, USA — Tags: , , — Nicholas @ 12:03

I’m a train fan, always have been. I’d love to see new rail lines developed, but only where they make economic sense. Most of the proposed HSR lines don’t even come close, and as they point out in the video, they don’t deliver on the other claimed benefits either. I’ve posted about High Speed Railways a few times before.

Shooting the messenger over extra taxes

Filed under: Economics, USA — Tags: , , , — Nicholas @ 07:32

An article in the Chicago Tribune talks about the latest “extra” to appear on restaurant bills in San Francisco: the “health” charge. This is how many restaurants in the city are handling the latest tax increase — making it explicit on the bill — but the Tribune writer appears to feel the restaurant owners should “eat” the new tax as “part of doing business”. Implied in this is that the restaurants shouldn’t raise prices either.

So, let’s all blame those evil restaurant owners, shall we?

The rationale for this one is to cover the employers’ mandatory contribution to the City’s “Healthy San Francisco” health-coverage system. The charge actually is levied on employers, but at least some restaurants are adding a few dollars or percentage points to each customer’s bill to cover this charge.

The restaurants’ excuse for assessing this charge separately is to let customers know how much they’re paying for employees’ health coverage. That’s the same excuse hotels use when they add “resort” or “housekeeping” fees to unsuspecting guests’ room bills. It’s the same excuse airlines would use to exclude fuel surcharges from their advertised fares if the Department of Transportation would allow them. And it’s sheer nonsense. Employees’ health insurance is no less of a cost of doing business than rent, property taxes, food costs, security services and all the other inputs businesses require to operate. To single out health care for a separate surcharge is unwarranted.

What’s missing here is the distinction between mandatory fees or taxes which various levels of government impose, and extra charges for things which logically should be intrinsic to the basic price. I agree that adding a “housekeeping” item to a hotel bill is wrong, but calling out a new tax that has to be paid is correct. Hidden taxes (in which category the Tribune writer misleadingly includes the San Francisco “health” charge) are the ones that don’t get itemized for you on your bill . . . that’s the “hidden” part.

Hidden taxes are far worse than itemized entries, because when prices rise due to changes in the tax rate, they naturally blame the seller (who doesn’t benefit from the raised price) and not the government which raised the tax rate underlying the price increase.

March 3, 2010

Chilean earthquake damage may go above $30 billion

Filed under: Americas, Economics — Tags: , , — Nicholas @ 17:00

In addition to the deaths and injuries caused by the massive earthquake, Chile is still assessing the wider damage to the economy. The Guardian reports on the damage:

With the death toll unchanged at about 800 and aid flowing to southern cities, Chile today began to assess the industrial and economic cost of its earthquake.

After meeting business leaders, President Michelle Bachelet announced a grim summary of damaged industrial plants, ports and destroyed bridges. The cost could be as high as $30bn.

Significant amounts of damage impacted the grape growing areas, as they were in the middle of harvesting the grapes when the quake struck:

Southern ports were closed and inside dozens of bodegas, or wine stores, a river of wine soaked into the soil, raising concerns about damage to the industry. Initial estimates put the quantity of lost wine at 100m bottles, or roughly a sixth of the country’s annual export. Antonio Larrain, general manager of the Chilean Wine Corporation, estimated that 20% of Chile’s stored wine may have been lost. He calculated the value at $300m, which did not include the widespread damage to infrastructure ranging from underground irrigation tubing to warehouses.

Wines of Chile, an industry group, held an emergency meeting today and announced that 12% of the country’s wine production had been lost. Reports from individual wineries suggest that does not represent the true scale of the disaster. “Many wineries that lost 80% of their production are publicly saying just 15% was lost,” said one wine executive who asked not be named, citing the fear that distributors would terminate distribution contracts with wineries most heavily damaged. “This is an incredibly touchy subject,” he said.

The Chilean wine export trade has been a huge growth sector over the last twenty years, and the potential lost revenues could make recovery even more difficult.

Update, 4 March: Ironically, the LCBO’s latest issue of their Vintages magazine features Chilean wine:

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