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Quotulatiousness

January 20, 2011

In case you weren’t worried enough about the rise of China

Filed under: China, Economics, Government, Media, USA — Tags: , , , — Nicholas @ 16:23

The Wall Street Journal rounds up the leading indicators of the current “USA sliding down the ladder” worries:

Of all the differences between dictatorship and democracy, probably none is so overlooked as the ability of the former to project strength, and the penchant of the latter to obsess about its own weakness.

In 1957 the Soviets launched Sputnik and the U.S. went into a paroxysm of nerves about our supposed backwardness in matters ballistic. Throughout the 1980s Americans lived with “Japan as Number One” (the title of a book by Harvard professor Ezra Vogel, though the literature was extensive) and wondered whether Mitsubishi’s purchase of Rockefeller Center qualified as a threat to American sovereignty.

Now there’s China, whose President is visiting the U.S. this week amid a new bout of American hypochondria. In an op-ed last week in these pages, Andrew Kohut of the Pew Research Center noted that a plurality of Americans, 47%, are under the erroneous impression that China is the world’s leading economy. News reports regarding Chinese military strides, or the academic prowess of Shanghai high school students, contribute to Western perceptions of Chinese ascendancy. So does the false notion that Beijing’s holdings of U.S. debt amounts to a sword of Damocles over Washington’s head.

Oh, we nearly forgot: Tough-as-nails Chinese mothers are raising child prodigies (a billion of them!) while their Western counterparts indulge their kids with lessons in finger-painting.

There you go, more than enough to keep you up late tonight worrying about the inevitability of China’s rise to top economic dog in the pack. Of course, most of it is misinterpretation of the facts, but you can worry about it if you want.

H/T to Jon, my former virtual landlord, for the link.

November 25, 2010

Even China may not be able to afford their High Speed Rail network

Filed under: China, Economics, Japan, Railways, Technology — Tags: , — Nicholas @ 00:24

By way of Hit and Run, a brief note of caution about the headlong pace of construction of China’s High Speed Rail:

The Chinese Academy of Sciences (CAS) reported to the State Council recently, urging the large-scale high-speed railway construction projects in China to be re-evaluated. The CAS worries that China may not be able to afford such a large-scale construction of high-speed rail, and such a large scale high-speed rail network may not be practical.

[. . .] Under the current plan, the central government has approved to build, by 2020, 16,000 km of high speed rail providing access to about 90% of the Chinese population.

[. . .]

The report submitted by the Chinese Academy of Sciences said China’s high-speed rail construction has caused debt that has already reached unsustainable levels; particularly since the end of 2008, the government introduced a stimulus plan to fight the global economic crisis and the size of local government borrowing is already very high

As Ronald Bailey points out, China is now occupying the same position in American thoughts that Japan did thirty years ago — the economic juggernaut that is poised to crush weak and defenceless American business. The recent gushing about how wonderful China’s HSR system is and how America should build one too are really just echoes of the 1980’s lament on how Japan’s economic model worked so much better than messy US mixed-market capitalism.

Back in the 1980s, I was a producer for a national weekly PBS foreign policy show called American Interests. We ran a lot of nifty programs on various aspects of the Cold War. Another abiding obsession of the chattering classes was the coming triumph of Japan Inc. over a hapless America. We regularly broadcast shows featuring the likes of Robert Reich, Chalmers Johnson (see H&R obit from yesterday), and Clyde Prestowitz predicting that the wise bureaucrats at the helm of Japan’s Ministry of International Trade and Industry deftly deploying their industrial policy jujitsu would soon bury us Yanks. As evidence, critics of undirected American capitalism pointed out that Japan’s economy was growing at 6 to 8 percent per year. Japan was exporting its way to prosperity and the U.S. was running a huge trade deficit with the East Asian powerhouse. Japan could do no wrong and America could do no right. Then the Japanese bubble burst.

Twenty years later, the new meme of would-be industrial policy mavens is China Inc. Promoters include Thomas Friedman and Clyde Prestowitz. China is growing at a blistering pace of 10 percent per year and exporting its way to prosperity. Once again, we are told that East Asian capitalism directed from the top by wise bureaucrats is going to outcompete the United States and toss us into the dustbin of histoy.

September 29, 2010

Austin Bay summarizes the demographic problems China is facing

Filed under: China, Economics, Environment — Tags: , , , — Nicholas @ 09:11

This is all old hat if you’ve been reading the blog for a while, but it’s always good to see a good summary of key points, like this list by Austin Bay:

Internal Disorder: China’s primary threat is not the United States, or any other foreign power, but internal disorder. There are more angry people in China every day, and the government knows that this could blossom into widespread uprisings. It has happened so many times before in Chinese history. Protesting factory workers are an indicator.

Corruption: Corruption is the biggest complaint among China’s discontented; government officials, who are more interested in enriching themselves than in taking care of “the people” are particular targets. Many of the demonstrations and labor disruptions are the result of corruption among local officials, including the police.

The Communications Dilemma: In 2007, Chinese Internet use grew to over 210 million users. Cell phones are also increasingly available. China is the world’s largest cell phone market. The Internet is an economic and educational tool. However, it also undermines an authoritarian government’s ability to control (deny and spin) information. China’s 2010 “war with Google.com” illustrated this dilemma.

Ethnic Minorities and Language: China has a population of 1.4 billion. Han Chinese (“ethnic Han”) constitute approximately 92 percent of China’s population. China also has 55 “minority nationalities,” however, amounting to 100 million people. The 2009 Uighur riots in Xinjiang province (western China) and resistance in Tibet are symptomatic of the problem. They are resisting “Hanicization.”

Pollution and Water: In early 2008, China began shutting down “high pollution” factories. The reason? To clear the air for the 2008 Beijing Olympics. The growing wealth of the Chinese people is causing enormous pollution problems and water shortages. Effective pollution controls mean more expensive production methods. That makes Chinese goods less competitive.

The Marriage Gap: China’s “one child” policy crimped population growth, all right. More boys were born than girls; Chinese culture “favors” sons. As a result, there is a serious imbalance between men and women. In some places, there are 120 men per 100 women. Marriageable daughters are, reportedly, going largely to the upper social groups within each village or district. The sons of the poorest families are, to an extent, not finding wives. This is an indicator of future social trouble.

As I’ve said several times before, I’m not anti-Chinese: China has accomplished economic marvels in amazingly short time spans . . . but not without serious costs. Urban and coastal dwellers have benefitted disproportionally from the growth: rural and inland Chinese have suffered to provide the means for that growth. China is still not a free economy, and still represses dissent, imprisons critics, and controls far too much of the country’s economy both directly and indirectly. Corruption is rife, despite the savage punishment meted out to (some of) the (accused) perpetrators.

China’s miracle can’t continue for much longer unless the government starts to address these problems with the same kind of single-mindedness that they’ve brought to other problems. Introducing the rule of law would be an excellent first step, but it would directly challenge too many powerful men, some of whom (literally) have armies.

July 15, 2010

Reasons not to get angsty over China’s growth

Filed under: China, Economics, Government, USA — Tags: , , , — Nicholas @ 10:02

The ever-sensible and highly entertaining Monty points out that Americans fretting over the growth of the Chinese economy are bothered over (comparatively) minor issues:

The angst over China’s economic ascent continues to smell rather strongly of the same panic the US felt over Japan in the 1980’s. I respond to this panic in two ways: 1) I am happy for the average Chinese citizen, who is finally seeing some benefit from their labor after 400 years of failure and ineptitude — they deserve any success that comes their way; and 2) America is in the enviable position of being able to worry about unlikely hypotheticals because we are the world’s largest economy and will continue to be so for much of the 21st century and perhaps beyond. We face severe problems — public spending being #1 among them — but our competitors also have problems, in many cases more dire than our own. We as a people have a habit of overestimating our own problems and underestimating those of our adversaries. Don’t begrudge the Chinese people some measure of success; just hope that they can cast off their Communist government and move towards being a freer people. There may come a time when the US and China square off as enemies rather than just competitors, but that outcome is not inevitable.

Fitch agrees with me about taking the whole “China is taking over the world” thing with a grain of salt. The Chinese are hiding an enormous amount of bad debt. If China hopes to succeed beyond their export-driven economy, their finances are going to have to become more transparent. And when/if this happens . . . look out below. That crash is going to make our little economic vacation of the past couple of years look mild in comparison.

I know that it may appear that I’m anti-Chinese based on some of my past economic postings, but that’s not true. I’m actually quite positive about China in the long term — once they manage to get rid of the last trappings of authoritarian government and overcome the huge dead hand of army-controlled crony capitalism. Most Chinese markets are not yet free, but they’re in most cases far more free than they were a decade ago. That’s wonderful, both for ordinary Chinese people and for the rest of the world. China has immense untapped resources of skills, talents, and ideas that can’t be accessed in a controlled economy. If-and-when their economy becomes as free as typical western markets, sit back and watch all that human ingenuity go to work.

On the down side, while China is becoming a bit more free, many western countries are becoming less so: piling on regulations and creating additional barriers to economic growth (Canada, for the most part, has not been doing this . . . it’s a significant factor in Canada’s escape from recession). If these trends continue, perhaps the worriers-about-China will see the Chinese economy vault into first place as the American government tries to control everything.

June 21, 2010

China’s latest currency move

Filed under: China, Economics, USA — Tags: , , , , — Nicholas @ 10:31

The always entertaining Monty has a few thoughts that are worth considering:

BNP Paribas forecasts parity (and below!) for the poor, unloved Euro. The Euro is like the easy girl in every town: popular enough when she was young and cute, but now that she’s looking like nine miles of bad road, no one wants to be seen with her or has a kind word to say about her.

After insisting for months that they weren’t keeping the Yuan artificially devalued via the dollar-peg, the Chinese lift the peg, shout Squirrel!, and run away.

Meanwhile, a floating Yuan may not work out quite the way the US thinks it will. This happens to be my view — I think the export-driven Chinese economy is a lot weaker than they’re letting on (or may even realize themselves), and they have severe internal economic problems that the authoritarian government has been papering over for years. There will be a huge banking crisis in China at some point when the huge numbers of bad loans come to light — they can’t hide them forever. Further, the recent labor troubles in China may be only the leading edge of a big wave.

Of course, if you’ve been following Quotulatiousness for any time, you’ll know that I’m fully in agreement with Monty about the Chinese economy. In the long term, I’m quite hopeful about China and their ongoing liberalization and modernization, but in the short- to medium-term I think there are many problems that need to be resolved and that will cause a great deal of upheaval and disturbance.

Remember that even with the best good will in the world, China’s economy is still moving painfully from state-run to private enterprise, and the most common stop on that road is crony capitalism (that’s like capitalism without the rule of law but with private armies). The good news is that a greater proportion of the economy is adjusting to free(r) markets, but there’s still lots of zombie corporate entities set up and run by various branches of the government . . . and the army.

In the latest move, the exchange rate change may not be the panacea that too many American politicians are hoping for:

China’s decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street’s most closely followed economists, said Saturday.

China said Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.

It won’t fix the underlying trade issues, even if the yuan moves in the “desired” direction, as the problem is much more rooted in American policy than in Chinese currency rates. As long as the American government insists on increasing the debt load, piling on additional regulatory regimes, and directly interfering in corporate decisions, the longer the economy will be unsettled. Stability is a key condition for economic recovery, yet the American government demonstrates a knee-jerk reaction against stability for every opportunity that arises.

Oh, and if you think the US banking system has bad loan issues, wait for the other shoe to drop:

China’s banking regulator warned Tuesday that the nation’s banking system faces risks from bad loans, particularly among those made to local governments and to the real-estate sector.

In its 2009 annual report, the China Banking Regulatory Commission urged banks to use cause and scientific risk analysis in their lending, and warned of dangers to the sector, both from lending in the past year and from development in the future.

March 25, 2010

Another tidbit on military reform in China

Filed under: China, Military — Tags: , , , — Nicholas @ 08:50

In an article briefly discussing the not-widely-reported unrest in ethnic Uighur regions, a mention of some progress in reducing corruption in China’s military hierarchy:

There’s a lot of corruption remaining in the military as well. For over a decade, the government has worked to eliminate the worst of the theft and moonlighting. The most outrageous examples of this have been curbed. Thus military officers no longer use cash from the defense budget to set up weapons factories they run and profit from. Big chunks of procurement cash no longer disappear into the offshore bank accounts of generals and admirals. But there’s still a lot of corruption. Much is still for sale, like promotions. Lower ranking officers and NCOs can still be found selling weapons and equipment that is reported “destroyed” or “mission.” Commanders who are not doing so well, can pay to have reports of their performance upgraded. Senior government officials still have doubts about how effective the military would be in another war. It was noted, usually by journalists, that the army response to several recent national disasters (which usually employ troops for disaster relief) had problems. This is not supposed to be reported, but the journalists discuss it among themselves, and some of this knowledge gets onto the Internet and outside the country. People love to gossip, especially in a police state like China.

In response to the corruption, and uncertainly about how the military reform (and modernization) program is going, this year’s defense budget only went up 7.5 percent. For over a decade, the annual increases were in the double digits. But another reason for the stall is the impact of the worldwide recession. While the Chinese economy continued to grow, the rate was less.

The usual caveats apply about any official statistics used in discussions about China: if you’ve somehow managed to avoid seeing ’em before, there’s a roundup here.

February 5, 2010

Crying “Wolf!” about China

Filed under: China, Economics, Politics — Tags: , , — Nicholas @ 08:38

Jon, my former virtual landlord sent me a link to this article by Robert Fogel, suggesting that it was “time for another one of your ‘whistling past the graveyard / you can’t trust the numbers’ posts”. And he’s quite right.

As with just about every other “forward looking” report on China, Fogel focuses on current trends which cannot continue in a straight line:

In 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000. China’s per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan. In other words, the average Chinese megacity dweller will be living twice as well as the average Frenchman when China goes from a poor country in 2000 to a superrich country in 2040. Although it will not have overtaken the United States in per capita wealth, according to my forecasts, China’s share of global GDP — 40 percent — will dwarf that of the United States (14 percent) and the European Union (5 percent) 30 years from now. This is what economic hegemony will look like.

Maybe. Or maybe the demographics that this ultra-expansionist scenario depends on won’t play out the way Fogel thinks. There’s also the problem of depending (in any meaningful way) on official government statistics:

Most accounts of China’s economic ascent offer little but vague or threatening generalities, and they usually grossly underestimate the extent of the rise — and how fast it’s coming. (For instance, a recent study by the Carnegie Endowment for International Peace predicts that by 2050, China’s economy will be just 20 percent larger than that of the United States.) Such accounts fail to fully credit the forces at work behind China’s recent success or understand how those trends will shape the future. Even China’s own economic data in some ways actually underestimate economic outputs.

[. . .]

though it’s a common refrain that Chinese data are flawed or deliberately inflated in key ways, Chinese statisticians may well be underestimating economic progress. This is especially true in the service sector because small firms often don’t report their numbers to the government and officials often fail to adequately account for improvements in the quality of output. In the United States as well as China, official estimates of GDP badly underestimate national growth if they do not take into account improvements in services such as education and health care. (Most great advances in these areas aren’t fully counted in GDP because the values of these sectors are measured by inputs instead of by output. An hour of a doctor’s time is considered no more valuable today than an hour of a doctor’s time was before the age of antibiotics and modern surgery.) Other countries have a similar national accounting problem, but the rapid growth of China’s service sector makes the underestimation more pronounced.

Well, then, at least Fogel accepts the notion that the official data may not be accurate. That’s better than a lot of commentators, although he’s still looking at it as if the official numbers were some sort of “baseline”. They’re not (although he does make a very good point that GDP numbers don’t capture improvements in quality . . . but that’s true for all economies, not just China’s). They’re even more pure fiction than the Climate Research Unit’s imaginary data.

It’s not even a deliberate lie: it’s a natural artifact of the current Chinese economic model. China’s economy is much more free now than it was ten years ago, but it’s not a free market economy yet. The central planners still attempt to control the “levers” of the economy — and they have some pretty crude ways of doing that. During the modernization of the industrial sector, probably the biggest driving force was the Peoples’ Liberation Army (PLA). They needed huge quantities of equipment, and the government didn’t want to buy everything from former Soviet and Warsaw Pact inventories (for one thing, the quality was generally poor and the technology was at least a generation behind the West).

This meant that the PLA needed — and got — much more say in what was produced and where it was produced. In other centrally planned economies, the state handled this sort of industrial policy. In China, the PLA got directly involved. A Soviet arms factory might have a military liason office with a general, several staff officers, and some GRU/KGB/NKVD oversight. The Chinese equivalent would have the general directly in charge of the factory, running it like a division of the army.

In this way, the PLA stopped being just the customer/end user. They cut out the middleman and absorbed the entire supply chain. The PLA became a significant economic player in the Chinese industrial economy . . . and this is still true today. The generals aren’t formally in charge, but they own the companies that do military production.

So what? So let’s look at how a civilian corporation’s incentives differ from one owned directly by the army. In a civilian corporation, the CEO runs the business with an eye to generating the largest profit possible while staying (for the most part) within the law. A CEO who deviates from this to ride a favourite hobby horse will eventually face the wrath of the stockholders who want that maximized profit. There are natural limits on how much freedom to invest in uneconomic activity any CEO will be given. Sensible stockholders don’t try to micromanage the firm, but do raise questions if too much of the company’s efforts are devoted to things clearly not related to the company’s long term benefit. Company accounts can be rigged, for a time, to show misleading results, but eventually (Enron, Worldcom, etc.) the truth will out.

A Chinese firm that’s owned by the army? Profit may be nice, but the “CEO” reports to a different master: the guys with the guns. The company accounts will show exactly what the guys with the guns want them to show . . . and the oversight and auditing committee members carry submachine guns. You’re told that your target is 10% growth? Don’t you think that the reported result will be at least 10%? Because your life may depend on the reported results being acceptable.

If the PLA had scaled back their involvement in the economy as the economy liberalized, this might only be a problem in old fashioned “heavy” industries. There’s not much evidence that this happened, however. The PLA’s portfolio may not include all sectors of the economy (even the PLA must have limits), but the official stats can’t indicate what portion of reported growth is from freer parts of the economy and what portion is from the 47th PLA industrial army.

Then there’s the other factor that will hobble China’s reported growth, demographics:

It’s the same story with the relative decline of a Europe plagued by falling fertility as its era of global economic clout finally ends. Here, too, the trajectory will be more sudden and stark than most reporting suggests. Europe’s low birthrate and its muted consumerism mean its contribution to global GDP will tumble to a quarter of its current share within 30 years. At that point, the economy of the 15 earliest EU countries combined will be an eighth the size of China’s.

Europe does indeed have a falling birthrate: most population growth in Europe these days is from immigration and the vastly higher birth rate of recent immigrants. Set aside the immigrants and the immigrant birth rate and most EU countries are well below replacement rate — they’ve stopped growing and started shrinking in population. Is it any wonder that Europe’s predicted share of the world GDP is poised to shrink as well?

China has a different demographic problem, and one that has the potential to cause disruptions far beyond their own borders: the aftermath of the famous “one child” policy. China has a vast disproportion of males, because Chinese parents opted to keep boy babies and abort girl babies. This may be another case where we can’t depend on the official numbers, but even if you do think they’re close to accurate, it doesn’t paint a pretty picture:

To say that China’s one-child family policy has been a disaster is an understatement. A report released earlier this month by the nation’s top think tank — the Communist Government’s Chinese Academy of Social Sciences (CASS) — says that the policy has created a huge gender imbalance with significant implications for future social stability.

Indeed, according to the report, 24 million men reaching marriageable age by 2020 will never marry because of the sex imbalance. Think of it in these terms: what if the entire population of New York City or of Australia was never able to marry. Imagine the social implications in a city or nation that large where no one can marry. Imagine if that city or country is comprised solely of 24 million men; men with no homes to return to at night; men without the responsibilities of a family to keep them engaged in productive pursuits.

Military adventurism may be in the near future for China’s neighbourhood. It’s one of the traditional ways to control and direct the excess of young males away from domestic social disruption. Fogel still prefers the rosy glow of the positive scenario, however:

Of course, China faces its own demographic nightmares, and skeptics point to many obstacles that could derail the Chinese bullet train over the next 30 years: rising income inequality, potential social unrest, territorial disputes, fuel scarcity, water shortages, environmental pollution, and a still-rickety banking system. Although the critics have a point, these concerns are no secret to China’s leaders; in recent years, Beijing has proven quite adept in tackling problems it has set out to address. Moreover, history seems to be moving in the right direction for China. The most tumultuous local dispute, over Taiwan’s sovereignty, now appears to be headed toward a resolution. And at home, the government’s increasing sensitivity to public opinion, combined with improving living standards, has resulted in a level of popular confidence in the government that, in my opinion, makes major political instability unlikely.

I’m not too sure that the Taiwan situation is even close to a peaceful resolution, but that’s a different topic altogether.

Anyway, speaking of hobby horses, I guess this topic counts as one of mine:

March 9, 2019

Old posts (from the old blog) about Chinese official economic statistics

Filed under: China, Economics, Media — Tags: , , , , , — Nicholas @ 03:00

This post at Continental Telegraph a few days back reminded me I wanted to get around to gathering some of my older posts about the reasons to take the official GDP numbers from the Chinese government with more than just a pinch of salt. Here’s my very first rant on the topic from 10 August, 2004 (original expired URL – http://bolditalic.com/quotulatiousness_archive/000323.html):

On my way in to work this morning, I heard a stock advisor doing his best to make reasonable assumptions about what the average listener needed to know about the economy. This guy has been pretty level-headed in the past, but this morning’s talk just got my head ready to explode.

The topic of discussion was the Chinese economy and how the Chinese central bank was having to take greater efforts to rein in economic expansion. He talked about how many different sectors of the North American economy were, to greater or lesser degree, depending more and more on Chinese growth to increase their own investments and output. The idea that the Chinese economy was "overheating" was bandied about. He closed by indicating that a slight drop in the official growth rate from 9.8% to 9.6% showed that the Chinese central bank was seeing some results from their intervention in the economy.

There are so many things wrong here that I’m almost at a loss where to start. While there is no doubt that China is a fast-growing economy, the most common mistake among both investors and pundits is to assume that China is really just like South Carolina or Ireland … a formerly depressed area now achieving good results from modernization. The problem is that China is not just the next Atlanta or Slovenia. China is still, more or less, a command economy with a capitalist face. One of the biggest players in the Chinese economy is the army, and not just in the sense of being a big purchaser of capital goods (like the United States Army, for example).

The Chinese army owns or controls huge sectors of the economy, and runs them in the same way it would run a division or an army corps. The very term "command economy" would seem to have been minted to describe this situation. The numbers reported by these "companies" bear about the same resemblance to reality as those posted by Enron or Worldcom. With so much of their economy not subject to profit and loss, every figure from China must be viewed as nothing more than a guess (at best) or active disinformation.

Probably the only figures that can be depended upon for any remote accuracy would be the imports from other countries — as reported by the exporting firms, not by their importing counterparts — and the exports to other countries. All internal numbers are political, not economic. When a factory manager can be fired, he has his own financial future at stake. When he can be sentenced to 20 years of internal exile, he has his life at stake. There are few rewards for honesty in that sort of environment: and many inducements to go along with what you are told to do.

Under those circumstances, any growth figures are going to be aggregated from all sectors, most of which are under strong pressure to report the right numbers, not necessarily corresponding with any real measurement of economic activity. So, if the economic office wants to see a drop in the economy, that’s what they’ll get.

Basing your own personal financial plans on numbers like this would quickly have you living in a cardboard box under a highway overpass. Companies in the soi-disant free world have shareholders or owners to answer to. Companies in China exist in a totally different environment.

I returned to the same topic on October 25, 2004, triggered by yet another talking head on the radio under the heading “More Economic Voodoo — or is that Feng Shui?” (original URL – http://www.bolditalic.com/quotulatiousness_archive/000580.html):

Again this morning, I was listening to my local jazz radio station on the way in to work. As usual, they had a broker from CIBC Wood Gundy giving portfolio advice at about 9:20 a.m. Today’s talk was about investing in China, and how the markets have been reacting to the recent small drop in the official GDP growth figures released by the Chinese central bank.

This time, the emphasis was on the idea that in spite of the breathtaking growth figures, Chinese firms still are not particularly profitable and that therefore there are better ways of investing your money to benefit from all that growth. Unlike the last time I addressed this issue, this time I thought that the advisor was actually making pretty good sense. The incredible transformation of China from a pure command-driven economy to a mixed economy will certainly provide lots of opportunities for people to get rich; it will also provide even more opportunities to lose big money.

Much of the problem is that even now, the Chinese economy is not particularly free: the official and unofficial controls on the economy provide far too many opportunities for rent-seeking officialdom to play favourites and cripple antagonists (and for once, "cripple" is not just a bit of hyperbole). Any numbers provided by the Chinese authorities cannot be depended upon, and should probably only be viewed as an indication of what the Chinese government wants the outside world to believe.

Even in a relatively free economy like Canada, the underground economy can be huge, with plenty of economic activity happening out of reach of the taxman. In China, where everybody was raised in an environment where providing the "wrong" answer to your leader could get you imprisoned (or executed) as an economic criminal, the numbers upon which the bankers and financial officials depend can only be described as extremely unreliable.

Update 26 October: The Last Amazon asks a highly pertinent and pointed question:

    In the past week, the Globe and Mail has been featuring the economic engine that China has become. Its economy is thriving so much so that Chinese government owned companies like China Minmetals Corp (which had revenues in 2003 of USD$11.7 billion) is currently negotiating to buy outright 100% of the stock of the Canadian mining corporation, Noranda Inc. The total stock is estimated at approximately CDN$6.7 billion.

    If the Chinese government can afford to buy Noranda Inc. why hasn’t anyone asked when China will reimburse the overburdened Canadian taxpayers of this fair land for the Cdn$65.4 million that has been given to China as foreign aid?

I managed to stay away from the topic until April 13, 2007, when I posted “The Chinese Economy”, which largely quoted from my first two posts (old URL – http://bolditalic.netfirms.com/quotulatiousness_archive/003649.html):

Everyone must have heard many different variations on how incredible the Chinese economy is: spectacular growth, innovations galore, etc., etc. And there’s much truth to it — China has been industrializing at a mind-croggling pace. At least, the visual evidence says so. The economic data coming out of China is, to be kind, not as dependable as similar data from most other countries. […]

Three years on, I must retract a tiny bit there … Enron’s and Worldcom’s figures, while deliberately misleading, were refutable (and the culprits taken to court). […]

Samizdata links to a brief Tyler Cowen post which includes this quote:

    …of the 3,220 Chinese citizens with a personal wealth of 100 million yuan ($13 million) or more, 2,932 are children of high-level cadres. Of the key positions in the five industrial sectors – finance, foreign trade, land development, large-scale engineering and securities – 85% to 90% are held by children of high-level cadres.

That’s even higher than I expected. But it’s an excellent example of what I originally wrote about back in 2004: the economy isn’t free, and the beneficiaries are disproportionally those who are politically well-connected. Caveat investor.

And that was when I discovered that my “full” backup of files from the old site is actually missing nearly a year of posts from May 2008 to May 2009 (when I moved to the current site). I vaguely recall that Jon (my former virtual landlord) was having problems with limited storage on that site — I was just a freeloading guest — so perhaps one of the things we lost was the auto-archiving after we reached a certain capacity.

Thanks to the Wayback Machine, I found a couple of other entries but they were often just rehashes of the first two posts interspersed with quotations from articles I felt were being too Pollyanna-ish about the Chinese economic numbers, like this one from May 2, 2008:

Those untrustworthy Chinese economic numbers

Regular readers will know that I’ve been a long-term skeptic about the economic figures reported by the Chinese government (for example, here and here back in 2004). As a result, this post at the Economist is not very surprising:

    As China’s importance in the global economy increases, investors are paying more attention to its economic numbers. Yet the country’s official statistics are notoriously ropy. Some commentators accuse China’s government of overstating GDP growth for political reasons, others complain that the official inflation rate is fraudulently low. So which data can you trust?

    One reason to be suspicious of GDP figures is that China is always one of the first countries to report them, usually only two weeks after the end of each quarter. Most developed economies take between four and six weeks to produce them.

However, The Economist still feels that the Chinese economy is larger than reported. My sense of distrust in the figures argues for it being neither as big nor as robust as the reported figures indicate. They’re professional economic reporters … I’m a guy typing a blog entry. I wonder what the long-term odds are for either of us to be closer to the truth?

It’s tough to disagree with this, though:

    The prize for the dodgiest figures goes to the labour market. The quarterly urban unemployment rate is meaningless because it excludes workers laid off by state-owned firms as well as large numbers of migrant workers, who normally live in urban areas but are not registered. Wage figures are also lousy. There has recently been much concern about the faster pace of increase in average urban earnings. But this series does not cover private firms, which are where most jobs have been created in recent years.

    Now that China is such an engine of global growth, it urgently needs to improve its economic data. Only a madman would drive a juggernaut at full speed with a faulty speedometer, a cracked rear-view mirror and a misty windscreen.

By this point, Jon was referring to my obsession with bogus Chinese economic statistics as my “hobby horse” … yet it wasn’t unknown for him to send me links to articles on that very topic. Here’s another post, courtesy of the Wayback Machine, from January 23, 2009:

China’s economic situation

There’s an article at The Economist today that shows a touching belief in the magic of the Chinese economy. The reported Gross Domestic Product has fallen to “only” 5.8%. The Economist‘s writer spends much of the article worrying about this gloomy report:

    New figures show that China’s GDP growth fell to 6.8% in the year to the fourth quarter, down from 9% in the third quarter and half its 13% pace in 2007. Growth of 6.8% may still sound pretty robust, but it implies that growth was virtually zero on a seasonally adjusted basis in the fourth quarter.

    Industrial production has slowed even more sharply, growing by only 5.7% in the 12 months to December, compared with an 18% pace in late 2007. Thousands of factories have closed and millions of migrant workers have already lost their jobs. But there could be worse to come. Chinese exports are likely to drop further in coming months as world demand shrinks. Qu Hongbin, an economist at HSBC, forecasts that exports in the first quarter could be 19% lower than a year ago. 2009 may well see the first full-year decline in exports in more than a quarter of a century.

    Economists have become gloomier about China’s prospects, with many now predicting GDP growth of only 5-6% in 2009, the lowest for almost two decades.

I’ve blogged about the Chinese economy on a few occasions (most recently here), generally with the same concern: that the numbers reported cannot be relied upon. The same is true here. Interestingly, the Economist article I linked to back in May makes this point quite well, yet today’s article appears to treat the Chinese government’s numbers as solid.

China has changed substantially from twenty years ago, and in many ways for the better. Most ordinary Chinese today are more free — economically anyway — than they were a generation ago, and there is a lot more opportunity for individuals to set up businesses and to succeed without needing Party connections. All this is indisputable … yet vast swathes of the Chinese economy are a legacy of the worst command-and-control period. It’s not an exaggeration to say that we can expect to discover the “official numbers” have absolutely no relationship to reality, because the numbers are compiled from various sources including both free-r quasi-capitalist companies and tottering government-owned (and often People’s Liberation Army-owned) conglomerates which cannot be depended upon to report anything accurately.

An example from this article: “a fall in electricity output of 6% in the year to the fourth quarter, down from average annual growth of 15% over the previous five years.” That’s not just a reduction in the rate of growth, that’s a reported drop in output of 6%. Imagine what the state of a European or Japanese/Korean economy running at only 94% of electricity … it’d be something you’d only see at times of severe economic contraction, not as a sign of a slow-down in growth.

Finally, on May 22, 2009, a final post on the topic at the old blog:

Official Chinese statistics

If you’ve read the blog for a while, you’ll know that I’m pretty skeptical about how believable the official statistics coming from the Chinese government may be. The Economist is somewhat undecided on the matter … sometimes publishing articles that treat the official numbers as legitimate and other times, showing more doubt:

    Part of the recent optimism in world markets rests on the belief that China’s fiscal-stimulus package is boosting its economy and that GDP growth could come close to the government’s target of 8% this year. Some economists, however, suspect that the figures overstate the economy’s true growth rate and that Beijing would report 8% regardless of the truth. Is China cheating?

    Economists have long doubted the credibility of Chinese data and it is widely accepted that GDP growth was overstated during the previous two downturns. In 1998-99, during the Asian financial crisis, China’s GDP grew by an average of 7.7%, according to official figures. However, using alternative measures of activity, such as energy production, air travel and imports, Thomas Rawski of the University of Pittsburgh calculated that the growth rate was at best 2%. Other economists reckon that Mr Rawski was too pessimistic. Arthur Kroeber of Dragonomics, a research firm in Beijing, estimates GDP growth was around 5% in 1998-99, for example. The top chart, plotting the official growth rate against estimates by Dragonomics, clearly suggests that some massaging of the government statistics may have gone on. The biggest adjustment seems to have been made in 1989, the year of political protests in Tiananmen Square. Officially, GDP grew by over 4%; Dragonomics reckons it actually declined by 1.5%.

Of course, The Economist doesn’t want to lose sales in China, so the last paragraph of the article blithely re-assures readers that things are improving and that the official numbers are much harder to fudge now than they used to be. That may well be true (I rather hope it is), but in the same way that you can get much more impressive growth from a very small base, you can become much more honest with your numbers when you’re starting from pure fiction.

[…] Let’s just say that I’m still unconvinced.

After that, my hobby-horse rides can be found by searching for “china economy” (or just click this link) on the current blog, or you can just peruse the China category.

May 1, 2024

Trudeau appeals to US-based podcasters to help him bring misguided Canadians to their senses

Filed under: Cancon, Media, Politics, USA — Tags: , , , , — Nicholas @ 03:00

Tristin Hopper outlines Prime Minister Justin Trudeau’s latest attempt to get his message out to the growing number of Canadians who are “misguided” enough to not want him back for another term in office:

Last week, Trudeau was the featured guest on two U.S. podcasts: Vox’s Today, Explained and Freakonomics Radio, where he outlined his plans to bring “fairness” to the Canadian economy and hold the line against what he framed as a populist uprising.

“I’m not worried about innovation and creativity,” he told Vox against claims that his budget would scare away investment. “I’m worried about people being able to pay their rent and eventually buy a home.”

Trudeau also described Canada as being seized by a focus on “individualism that I think is counterproductive to the kind of world we need to build”.

The Vox interview began with an actor doing a faux Canadian accent and pretending to be a kind of Trudeau-esque superhero. The Freakonomics interview introduced Trudeau as “possibly the most polite prime minister in the world; he most definitely stands on guard for thee”. So it’s clear from the outset that the interviewers only have a cursory knowledge of Canada and its contemporary political situation.

As such, Trudeau was able to get away with claims that even the friendliest of Canadian interviewers wouldn’t have tolerated.

Below, a quick summary of how Trudeau his pitching his re-election in the U.S.

He frames opposition to his government as a form of mass hysteria

Both interviews did note at the outset that Trudeau is polling quite poorly and that he faces likely defeat in the next election. As to why this is happening, Trudeau described his citizenry as being in the grip of a worldwide trend towards irrational populism, and expressed his hope that Canadians would ultimately come to their senses.

“In every democracy we’re seeing a rise in populists with easy answers that don’t necessarily hold up to any expert scrutiny. But a big part of populism is ignoring experts and expertise, so it sort of feeds on itself and relies on a lot of misinformation and disinformation,” he told Vox.

While he never mentions Conservative Leader Pierre Poilievre by name, Trudeau says he’s facing opponents who offer naught but “easy shortcuts”, “buzzwords” and “clever TikTok videos”. The Conservatives, he said, are arguing that “everything I’ve done” is “why life is difficult right now.”

“When in actual fact … all those things have made life better in meaningful ways and it would be much worse if we hadn’t done all those things,” he said.

I don’t know why everyone is down on Justin Trudeau. His brilliant economic and environmental plan is working to perfection: Canadians are eating less unhealthy food (because they’re eating less food overall except for what they can shoplift from Loblaws). Businesses are closing down left and right, which significantly reduces our harmful production of CO2, to allow China and India to build more coal power plants. Community-oriented businesses like pawnshops, used clothing stores, needle exchanges, and food banks are booming all across Canada, increasing our community involvement. Poor, uneducated, undocumented immigrants are flooding into the country to take advantage of the free food, free housing, free healthcare, and income subsidies our munificent governments make available to non-citizens. The first post-national country on the planet — which actively discourages out-of-date patriarchal white-supremacist ideas like individual pride and patriotism — continues to follow the wise guidance of the World Economic Forum, whose goal is a much smaller world population devoted to serving the elites hand-and-foot.

February 26, 2024

QotD: Lockdown rebuttal

Filed under: Government, Health, Media, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

First, lockdowns were neither prudent nor essential. It’s not as if government officials considered the collateral damage to be inflicted on the economy, society, and health – not all health problems are caused by covid – by the lockdowns and then rationally concluded that the benefits of locking down outweighed these costs. No. The collateral damages were ignored. As the New York Times‘s Joe Nocera and Vanity Fair‘s Bethany McLean – authors of the just-released The Big Fail – write, “But there was never any science behind lockdowns – not a single study had ever been undertaken to measure their efficacy in stopping a pandemic. When you got right down to it, lockdowns were little more than a giant experiment.”1 In no universe is such a policy prudent.

Nor were lockdowns “essential”. As Nocera and McLean note,

    … the weight of the evidence seems to be with those who say that lockdowns did not save many lives. By our count, there are at least 50 studies that come to the same conclusion. After The Big Fail went to press, The Lancet published a study comparing the COVID infection rate and death rate in the 50 states. It concluded that “SARS-CoV-2 infections and COVID-19 deaths disproportionately clustered in U.S. states with lower mean years of education, higher poverty rates, limited access to quality health care, and less interpersonal trust – the trust that people report having in one another.” These sociological factors appear to have made a bigger difference than lockdowns (which were “associated with a statistically significant and meaningfully large reduction in the cumulative infection rate, but not the cumulative death rate”.)

Second, the lockdowns were, contra Mr. Orrell’s claim, utterly unprecedented. Isolating individuals known to be infected, such as Typhoid Mary, is a categorically different measure than locking down whole societies. Such lockdowns were never used until China locked Wuhan down in early 2020. Here again are Nocera and McLean: “On April 8, 2020, the Chinese government lifted its lockdown of Wuhan. It had lasted 76 days – two and a half months during which no one was allowed to leave this industrial city of 11 million people, or even leave their homes. Until the Chinese government deployed this tactic, a strict batten-down-the-hatches approach had never been used before to combat a pandemic. Yes, for centuries infected people had been quarantined in their homes, where they would either recover or die. But that was very different from locking down an entire city; the World Health Organization called it ‘unprecedented in public health history’.”

It’s jarring to encounter in an essay that features many excellent arguments – as Mr. Orrell’s does – such irrational and utterly uninformed claims as Mr. Orrell offers about lockdowns.

Donald J. Boudreaux, responding to an article by Brent Orrell in Law & Liberty, 2023-10-31.

February 7, 2024

A disturbing proportion of scientific publishing is … bullshit

Filed under: Economics, Media, Science — Tags: , , , , , , , — Nicholas @ 04:00

Tim Worstall on a few of the more upsetting details of how much we’ve been able depend on truth and testability in the scientific community and how badly that’s been undermined in recent years:

The Observer tells us that science itself is becoming polluted by journal mills. Fools — intellectual thieves perhaps — are publishing nonsense in scientific journals, this then pollutes the conclusions reached by people surveying science to see what’s what.

This is true and is a problem. But it’s what people publish as supposedly real science that is the real problem here, not just those obvious cases they’re complaining about:

    The startling rise in the publication of sham science papers has its roots in China, where young doctors and scientists seeking promotion were required to have published scientific papers. Shadow organisations – known as “paper mills” – began to supply fabricated work for publication in journals there.

    The practice has since spread to India, Iran, Russia, former Soviet Union states and eastern Europe, with paper mills supplying ­fabricated studies to more and more journals as increasing numbers of young ­scientists try to boost their careers by claiming false research experience. In some cases, journal editors have been bribed to accept articles, while paper mills have managed to establish their own agents as guest editors who then allow reams of ­falsified work to be published.

Indeed, an actual and real problem:

    The products of paper mills often look like regular articles but are based on templates in which names of genes or diseases are slotted in at random among fictitious tables and figures. Worryingly, these articles can then get incorporated into large databases used by those working on drug discovery.

    Others are more bizarre and include research unrelated to a journal’s field, making it clear that no peer review has taken place in relation to that article. An example is a paper on Marxist ideology that appeared in the journal Computational and Mathematical Methods in Medicine. Others are distinctive because of the strange language they use, including references to “bosom peril” rather than breast cancer and “Parkinson’s ailment” rather Parkinson’s disease.

Quite. But the problem is worse, much, much, worse.

Let us turn to something we all can agree is of some importance. Those critical minerals things. We all agree that we’re going to be using more of them in the future. Largely because the whole renewables thing is changing the minerals we use to power the world. We’re — to some extent, perhaps enough, perhaps not enough — moving from using fossil fuels to power the world to using rare earths, silicon, copper and so on to power the world. How much there is, how much useable, of those minerals is important. Because that’s what we’re doing, we’re changing which minerals — from fossil to metallic elements — we use to power the world.

Those estimates of how much there is out there are therefore important. The European Union, for example, has innumerable reports and task forces working on the basis that there’s not that much out there and therefore we’ve got to recycle everything. One of those foundational blocks of the circular economy is that we’ve got to do it anyway. Because there’s simply not enough to be able to power society without the circular economy.

This argument is nads*. The circular economy might be desirable for other reasons. At least in part it’s very sensible too – if it’s cheaper to recycle than to dig up new then of course we should recycle. But that we must recycle, regardless of the cost, because otherwise supply will vanish is that nads*.

But, folk will and do say, if we look at the actual science here we are short of these minerals and metals. Therefore etc. But it’s the science that has become infected. Wrongly infected, infested even.

Here’s the Royal Society of Chemistry and their periodic table. You need to click around a bit to see this but they have hafnium supply risk as “unknown”. That’s at least an advance from their previous insistence that it was at high supply risk. It isn’t, there’s more hafnium out there than we can shake a stick at. At current consumption rates — and assuming no recycling at all which, with hafnium, isn’t all that odd an idea — we’re going to run out sometime around the expected date for the heat death of the universe. No, not run out of the universe’s hafnium, run out of what we’ve got in the lithosphere of our own Earth. To a reasonable and rough measure the entirety of Cornwall is 0.01% hafnium. We happily mine for gold at 0.0001% concentrations and we use less hafnium annually than we do gold.

The RSC also says that gallium and germanium have a high supply risk. Can you guess which bodily part(s) such a claim should be associated with? For gallium we already have a thousand year supply booked to pass through the plants we normally use to extract our gallium for us. For germanium I — although someone competent could be a preference — could build you a plant to supply 2 to 4% of global annual germanium demand/supply. Take about 6 months and cost $10 million even at government contracting rates to do it too. The raw material would be fly ash from coal burning and there’s no shortage of that — hundreds of such plants could be constructed that is.

The idea that humanity is, in anything like the likely timespan of our species, going to run short in absolute terms of Hf, Ga or Ge is just the utmost nads*

But the American Chemistry Society says the same thing:

    * As ever, we are polite around here. Therefore we use the English euphemism “nads”, a shortening of “nadgers”, for the real meaning of “bollocks”.

January 17, 2024

“The thing liberals don’t understand about the average Republican voter in 2024 is that they hate the Republican Party”

Filed under: Media, Politics, USA — Tags: , , , , , , — Nicholas @ 04:00

In The Free Press, Batya Ungar-Sargon attempts to explain at least one aspect of the inexplicable-to-liberals Trump appeal for many Republican voters:

Donald Trump addresses a rally in Nashville, TN in March 2017.
Photo released by the Office of the President of the United States via Wikimedia Commons.

To the surprise of no one and the dismay of the liberal commentariat class, former president Donald Trump has crushed the first GOP primary election.

Iowa, which voted twice for Barack Obama before flipping to Trump in 2016, gave Trump a decisive win Monday night. And in Iowa, as in the Republican Party and the country more generally, the class divide was the defining feature of the night.

According to MSNBC’s early entrance polls, Trump won voters without a college degree by 65 percent, to Florida governor Ron DeSantis’s 17 percent and former UN ambassador Nikki Haley’s scant 8 percent. Trump won college grads, too, but by a much slimmer margin — just 35 percent caucused for Trump. Haley, meanwhile, got nearly as many — 33 percent, with DeSantis trailing at 23 percent. The AP had a similar breakdown.

That’s a 30-point gap in support for Trump — and a 25-point gap for Haley. It’s the gulf separating the college-educated from the working-class, who don’t just have different candidates of choice but different concerns, different struggles, and different priorities.

Working-class Americans are worried about the economy, immigration, our foreign entanglements, and the disappearing American Dream — all issues Donald Trump not only talks about but has a solid record on. Haley represents the GOP that Trump replaced — the free-market, chamber-of-commerce, nation-building version of the party that is dominated by a donor class whose interests are completely at odds with those of the working class.

Unfortunately for Haley, her party is now the party of the working class. In 2020, Bloomberg found that truckers, plumbers, machinists, painters, corrections officers, and maintenance employees were among the occupations most likely to donate to Trump (Biden got the lion’s share of writers and authors, editors, therapists, business analysts, HR department staff, and bankers.) As much as the Republican donor class wishes Haley were the party’s nominee, there’s no going back for your average corrections officer.

The thing liberals don’t understand about the average Republican voter in 2024 is that they hate the Republican Party. The average liberal feels well-represented by the Democratic Party because the Democrats’ base, like the party leadership, are college-educated elites. They share the same list of priorities. But the average Republican voter is working class and truly loathes the Bush-era version of the Republican Party, which meant tax cuts for the rich, failed wars, and an economic agenda that outsourced jobs to China.

Whether they realize it or not, this is why Democrats truly hate Trump. Without him, the left would soon have had a pretty permanent monopoly on power.

But if Iowa is any indication, not so soon after all.

Should Trump manage not to get thrown off the ballot (or sent to jail) by the time the election rolls around, he can’t count on Justin Trudeau for support:

Prime Minister Justin Trudeau says voters in the United States will face a choice later this year between optimism for the future or nostalgia for a past that never existed.

Trudeau made the comments in Montreal today to a business crowd in reference to Donald Trump’s victory Monday in the Iowa Republican caucuses, which gives the former president an early lead for the Republican nomination ahead of the November election.

The prime minister says a second Trump presidency would be difficult for the Canadian government, as there are many issues on which he and former president disagree.

On Monday, a majority of Iowa Republican supporters said they back Trump’s “Make America Great Again” movement.

Though he didn’t mention Conservative Party Leader Pierre Poilievre by name, Trudeau said Canadians will face a similar choice to American voters when they head to the polls.

November 16, 2023

The US military may need to find a modern-day Patroclus

Filed under: Media, Military, Politics, USA — Tags: , , , — Nicholas @ 03:00

John Carter explains why the sudden swerve in US military recruitment from all-diverse-all-the-time to an ad that might have been created in the 1960s … and why it still won’t help:

He is the very essence of a modern major general.

    Sing, o muse, of the wrath of Achilles, son of Peleus, that brought countless ills upon the Achaeans …

Thus opens the foundational epic of European civilization.

Achilles is angry because his woman, Briseis, has been appropriated by Agamemnon, the leader of the Greeks. He expresses this discontent by going on strike. While the rest of the Greek army fights and dies outside the walls of Troy, Achilles lounges in his tent, content to sit out the combat until Agamemnon comes to his senses and returns his war bride. If Achilles were simply any other warm body with a spear, this wouldn’t be such a big deal, but he is Achilles – the greatest warrior of the Heroic Age. Without him, the Greeks are at a severe disadvantage. Achilles’ petulance is therefore a problem for Agamemnon.

The lesson is hardly a subtle one. Kings and generals need to keep their soldiers happy. They especially need to keep their best soldiers happy. If they don’t – for instance, by taking their women from them – morale will suffer, and they may well find themselves without the crucial support of their warriors when it most matters.

Washington seems to have missed that lesson, and now, they’re paying the price.

For the last decade they have been relentlessly and mercilessly whipping American whites: defaming them as racists, mocking their intelligence and manliness, tearing down their statues, erasing the names of their ancestral heroes, replacing their fictional archetypes with diverse doppelgangers in the media, disadvantaging them in education and employment, demanding that they attend racial struggle sessions. The list of outrages and humiliations is long and all too familiar, permeating as it does every one of our institutions.

But now, the Empire of Lies faces a problem.

War has returned to the world. History, its rumoured demise notwithstanding, once again stalks the land. Russia mauls the Ukraine; Israel is beset with enemies; the Empire’s influence in Africa frays by the day; China salivates over Taiwan.

Meanwhile the American domestic economy, long since hollowed out by the extractive rent-seeking of financial parasites, lurches from one crisis to the next. The Great Satan remains powerful, for the present, but the young bucks can scent that the silverback is not what he used to be. Their provocations increase in daring and intensity. If they aren’t slapped down, their boldness will only increase.

The criminal regime that has insinuated itself into the halls of American power is running against a clock. They must have a war to cover the slow collapse of their fake economy. They must have a war to prevent rival regimes from displacing their American golem. But their golem is crumbling. Therefore they must have a war sooner rather than later, because with every moment of delay America becomes weaker, while China and Russia become stronger.

Their problem is that no one wants to fight for them.

The core warrior population of America has always been the Scots-Irish of the Appalachian regions, the good ol’ boys of the South, and the farm boys of the Midwest. Hillbillies and rednecks, in other words. Many families from these areas have multi-generational traditions of service. Dad served in Vietnam, Grampa in WWII, Great-Grandpa in the Great War, and Great-Grandpa’s Pappy fought under Lee in the War of Northern Aggression.

These are precisely the white populations that have been singled out for the most unrelenting and vicious racial abuse over the last several decades. They are the one group that it’s okay to defame in the media, depicted as ignorant, bigoted, backwards, and inbred. The people running Hollywood seem to have a special disgust for them. For generations they have born this with a sort of stoic good cheer, accepting their role as the heel in the great kayfabe of American political drama even as they shouldered a disproportionate burden of blood, tears, and sweat in America’s imperial wars.

The events of the last two decades seem to have put an end to that. It wasn’t just the psychotic frenzy of race communism that gripped the regime’s mind, although that certainly played a factor as the military has hardly been immune to it. Who wants to serve in an armed forces that has thrown meritocracy in the trash to make sure the commissioned ranks include as many strong black lesbians as possible, that spends more time making sure the enlisted ranks understand the nuances of pronoun usage and the finer points of critical race theory than training for war? Demoralizing as all that has been, the absolutely pointless debacle of the Neocon Forever War in the Middle East has played at least as large a role.

September 25, 2023

QotD: The economics of American slavery

Filed under: Economics, History, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

Growing cotton … unlike sugar or rice, never required slavery. By 1870, freedmen and whites produced as much cotton as the South produced in the slave time of 1860. Cotton was not a slave crop in India or in southwest China, where it was grown in bulk anciently. And many whites in the South grew it, too, before the war and after. That slaves produced cotton does not imply that they were essential or causal in the production.

Economists have been thinking about such issues for half a century. You wouldn’t know it from the King Cottoners. They assert, for example, that a slave was “cheap labor”. Mistaken again. After all, slaves ate, and they didn’t produce until they grew up. Stanley Engerman and the late Nobel Prize winner Robert Fogel confirmed in 1974 what economic common sense would suggest: that productivity was incorporated into the market price of a slave. It’s how any capital market works. If you bought a slave, you faced the cost of alternative uses of the capital. No supernormal profits accrued from the purchase. Slave labor was not a free lunch. The wealth was not piled up.

The King Cotton school has been devastated recently in detail by two economic historians, Alan Olmstead of the University of California at Davis and Paul Rhode of the University of Michigan. They point out, for example, that the influential and leftish economist Thomas Piketty grossly exaggerated the share of slaves in U.S. wealth, yet Edward Baptist uses Piketty’s estimates to put slavery at the center of the country’s economic history. Olmstead and Rhode note, too, from their research on the cotton economy that the price of slaves increased from 1820 to 1860 not because of institutional change (more whippings) or the demand for cotton, but because of an astonishing rise in the productivity of the cotton plant, achieved by selective breeding. Ingenuity, not capital accumulation or exploitation, made cotton a little king.

Slavery was of course appalling, a plain theft of labor. The war to end it was righteous altogether — though had the South been coldly rational, the ending could have been achieved as in the British Empire in 1833 or Brazil in 1888 without 600,000 deaths. But prosperity did not depend on slavery. The United States and the United Kingdom and the rest would have become just as rich without the 250 years of unrequited toil. They have remained rich, observe, even after the peculiar institution was abolished, because their riches did not depend on its sinfulness.

Dierdre McCloskey, “Slavery Did Not Make America Rich: Ingenuity, not capital accumulation or exploitation, made cotton a little king”, Reason, 2017-07-19.

September 8, 2023

QotD: Rents and taxes in pre-modern societies

Filed under: Economics, Europe, History, Middle East, Quotations — Tags: , , , , , , — Nicholas @ 01:00

In most ways […] we can treat rent and taxes together because their economic impacts are actually pretty similar: they force the farmer to farm more in order to supply some of his production to people who are not the farming household.

There are two major ways this can work: in kind and in coin and they have rather different implications. The oldest – and in pre-modern societies, by far the most common – form of rent/tax extraction is extraction in kind, where the farmer pays their rents and taxes with agricultural products directly. Since grain (threshed and winnowed) is a compact, relatively transportable commodity (that is, one sack of grain is as good as the next, in theory), it is ideal for these sorts of transactions, although perusing medieval manorial contacts shows a bewildering array of payments in all sorts of agricultural goods. In some cases, payment in kind might also come in the form of labor, typically called corvée labor, either on public works or even just farming on lands owned by the state.

The advantage of extraction in kind is that it is simple and the initial overhead is low. The state or large landholders can use the agricultural goods they bring in in rents and taxes to directly sustain specialists: soldiers, craftsmen, servants, and so on. Of course the problem is that this system makes the state (or the large landholder) responsible for moving, storing and cataloging all of those agricultural goods. We get some sense of how much of a burden this can be from the prominence of what seem to be records of these sorts of transactions in the surviving writing from the Bronze Age Near East (although I should note that many archaeologists working on the ancient Near Eastern economy are pushing for a somewhat larger, if not very large, space for market interactions outside of the “temple economy” model which has dominated the field for quite some time). This creates a “catch” we’ll get back to: taxation in kind is easy to set up and easier to maintain when infrastructure and administration is poor, but in the long term it involves heavier administrative burdens and makes it harder to move tax revenues over long distances.

Taxation in coin offers potentially greater efficiency, but requires more particular conditions to set up and maintain. First, of course, you have to have coinage. That is not a given! Much of the social interactions and mechanics of farming I’ve presented here stayed fairly constant (but consult your local primary sources for variations!) from the beginnings of written historical records (c. 3,400 BC in Mesopotamia; varies place to place) down to at least the second agricultural revolution (c. 1700 AD in Europe; later elsewhere) if not the industrial revolution (c. 1800 AD). But money (here meaning coinage) only appears in Anatolia in the seventh century BC (and probably independently invented in China in the fourth century BC). Prior to that, we see that big transactions, like long-distance trade in luxuries, might be done with standard weights of bullion, but that was hardly practical for a farmer to be paying their taxes in.

Coinage actually takes even longer to really influence these systems. The first place coinage gets used is where bullion was used – as exchange for big long-distance trade transactions. Indeed, coinage seemed to have started essentially as pre-measured bullion – “here is a hunk of silver, stamped by the king to affirm that it is exactly one shekel of weight”. Which is why, by the by, so many “money words” (pounds, talents, shekels, drachmae, etc.) are actually units of weight. But if you want to collect taxes in money, you need the small farmers to have money. Which means you need markets for them to sell their grain for money and then those merchants need to be able to sell that grain themselves for money, which means you need urban bread-eaters who are buying bread with money, which means those urban workers need to be paid in money. And you can only get any of these people to use money if they can exchange that money for things they want, which creates a nasty first-mover problem.

We refer to that entire process as monetization – when I talk about economies being “monetized” or “incompletely monetized” that’s what I mean: how completely has the use of money penetrated through this society. It isn’t a one-way street, either. Early and High Imperial Rome seem to have been more completely monetized than the Late Roman Western Empire or the early Middle Ages (though monetization increases rapidly in the later Middle Ages).

Extraction, paradoxically, can solve the first mover problem in monetization, by making the state the first mover. If the state insists on raising taxes in money, it forces the farmers to sell their grain for money to pay the tax-man; the state can then take that money and use it to pay soldiers (almost always the largest budget-item in an ancient or medieval state budget), who then use the money to buy the grain the farmers sold to the merchants, creating that self-sustaining feedback loop which steadily monetizes the society. For instance, Alexander the Great’s armies – who expected to be paid in coin – seem to have played a major role in monetizing many of the areas they marched through (along with breaking things and killing people; the image of Alexander the Great’s conquests in popular imagination tend to be a lot more sanitized).

Bret Devereaux, “Collections: Bread, How Did They Make It? Part IV: Markets, Merchants and the Tax Man”, A Collection of Unmitigated Pedantry, 2020-08-21.

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