Quotulatiousness

November 14, 2011

Beating up on the Boomer generation

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

Walter Russell Mead has a bit of vitriol to spit at the Baby Boomers:

But at the level of public policy and moral leadership, as a generation we have largely failed. The Boomer Progressive Establishment in particular has been a huge disappointment to itself and to the country. The political class slumbered as the entitlement and pension crisis grew to ominous dimensions. Boomer financial leadership was selfish and shortsighted, by and large. Boomer CEOs accelerated the trend toward unlimited greed among corporate elites, and Boomer members of corporate boards sit by and let it happen. Boomer academics created a profoundly dysfunctional system that systemically shovels resources upward from students and adjuncts to overpaid administrators and professors who by and large have not, to say the least, done an outstanding job of transmitting the cultural heritage of the past to future generations. Boomer Hollywood execs created an amoral morass of sludge — and maybe I’m missing something, but nobody spends a lot of time talking about the towering cultural accomplishments of the world historical art geniuses of the Boomer years. Boomer greens enthusiastically bet their movement on the truly idiotic drive for a global carbon treaty; they are now grieving over their failure to make any measurable progress after decades spent and hundreds of millions of dollars thrown away. On the Boomer watch the American family and the American middle class entered major crises; by the time the Boomers have finished with it the health system will be an unaffordable and dysfunctional tangle — perhaps the most complicated, expensive and poorly designed such system in the history of the world.

All of this was done by a generation that never lost its confidence that it was smarter, better educated and more idealistic than its Depression-surviving, World War-winning, segregation-ending, prosperity-building parents. We didn’t need their stinking faith, their stinking morals, or their pathetically conformist codes of moral behavior. We were better than that; after all, we grokked Jefferson Airplane, achieved nirvana on LSD and had a spiritual wealth and sensitivity that our boorish bourgeois forbears could not grasp. They might be doers, builders and achievers — but we Boomers grooved, man, we had sex in the park, we grew our hair long, and we listened to sexy musical lyrics about drugs that those pathetic old losers could not even understand.

What the Boomers as a generation missed (there were, of course and thankfully, many honorable individual exceptions) was the core set of values that every generation must discover to make a successful transition to real adulthood: maturity. Collectively the Boomers continued to follow ideals they associated with youth and individualism: fulfillment and “creativity” rather than endurance and commitment. Boomer spouses dropped families because relationships with spouses or children or mortgage payments no longer “fulfilled” them; Boomer society tolerated the most selfish and immature behavior in its public and cultural leaders out of the classically youthful and immature belief that intolerance and hypocrisy are greater sins than the dereliction of duty. That the greatest and most effective political leader the Baby Boom produced was William Jefferson Clinton tells you all you need to know.

November 13, 2011

Tyler Cowen on traditional values

Filed under: Economics, Liberty, USA — Tags: , , , — Nicholas @ 12:54

In his latest New York Times column, Tyler Cowen looks at the relationship of wealth to traditional values of self-discipline and hard work:

The Occupy Wall Street movement has raised important questions about the respect paid to wealth in our society. There is a good deal of unfairness in the American economy, and by deliberately targeting the “top 1 percent,” the demonstrators have opened up a dialogue that is quite useful.

Nonetheless, as someone from a conservative and libertarian background, I find that I am hearing too much talk about riches and not enough about values. It’s worth recalling why so many Americans have respected the wealthy in the first place.

The United States has always had a culture with a high regard for those able to rise from poverty to riches. It has had a strong work ethic and entrepreneurial spirit and has attracted ambitious immigrants, many of whom were drawn here by the possibility of acquiring wealth. Furthermore, the best approach for fighting poverty is often precisely not to make fighting poverty the highest priority. Instead, it’s better to stress achievement and the pursuit of excellence, like a hero from an Ayn Rand novel. These are still at least the ideals of many conservatives and libertarians.

The egalitarian ideals of the left, which were manifest in a wide variety of 20th-century movements, have been wonderful for driving social and civil rights advances, and in these areas liberals have often made much greater contributions than conservatives have. Still, the left-wing vision does not sufficiently appreciate the power — both as reality and useful mythology — of the meritocratic, virtuous production of wealth through business. Rather, academics on the left, like the Columbia University economists Joseph E. Stiglitz and Jeffrey D. Sachs among many others, seem more comfortable focusing on the very real offenses of plutocrats and selfish elites.

November 2, 2011

QotD: The evolution of the public sector

Filed under: Bureaucracy, Economics, Education, Quotations, USA — Tags: , — Nicholas @ 00:03

The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers. Some on the left have convinced themselves that this “success” can lay the foundation for a broader middle-class revival. But if a bloated public sector were the blueprint for a thriving middle-class society, then the whole world would be beating a path to Greece’s door.

Our entitlement system, meanwhile, is designed to redistribute wealth. But this redistribution doesn’t go from the idle rich to the working poor; it goes from young to old, working-age savings to retiree consumption, middle-class parents to empty-nest seniors. The Congressional Budget Office’s new report on income inequality points out that growing Medicare costs are part of the reason upper-income retirees receive a larger share of federal spending than they did 30 years ago, while working-age households with children receive “a much smaller and declining share of transfers.” Absent reforms, this mismatch will only grow more pronounced: by the 2030s, Medicare recipients will receive $3 in benefits for every dollar they paid in.

Then there’s the public education system, theoretically the nation’s most important socioeconomic equalizer. Yet even though government spending on K-to-12 education has more than doubled since the 1970s, test scores have flatlined and the United States has fallen behind its developed-world rivals. Meanwhile, federal spending on higher education has been undercut by steadily inflating tuitions, in what increasingly looks like an academic answer to the housing bubble. (If the Occupy Wall Street dream of student loan forgiveness were fulfilled, this cycle would probably just continue.)

The story of the last three decades, in other words, is not the story of a benevolent government starved of funds by selfish rich people and fanatical Republicans. It’s a story of a public sector that has consistently done less with more, and a liberalism that has often defended the interests of narrow constituencies — public-employee unions, affluent seniors, the education bureaucracy — rather than the broader middle class.

Ross Douthat, “What Tax Dollars Can’t Buy”, New York Times, 2011-10-30

November 1, 2011

Niall Ferguson on the West’s “killer applications”

Filed under: Economics, History, Liberty — Tags: , , — Nicholas @ 13:08

Niall Ferguson points to several key institutional innovations that were key to the rise of the West, compared to the rest of the world:

The West first surged ahead of the Rest after about 1500 thanks to a series of institutional innovations that I call the “killer applications”:

1. Competition. Europe was politically fragmented into multiple monarchies and republics, which were in turn internally divided into competing corporate entities, among them the ancestors of modern business corporations.

2. The Scientific Revolution. All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry, and biology happened in Western Europe.

3. The Rule of Law and Representative Government. An optimal system of social and political order emerged in the English-speaking world, based on private-property rights and the representation of property owners in elected legislatures.

4. Modern Medicine. Nearly all the major 19th- and 20th-century breakthroughs in health care were made by Western Europeans and North Americans.

5. The Consumer Society. The Industrial Revolution took place where there was both a supply of productivity-enhancing technologies and a demand for more, better, and cheaper goods, beginning with cotton garments.

6. The Work Ethic. Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation.

For hundreds of years, these killer apps were essentially monopolized by Europeans and their cousins who settled in North America and Australasia. They are the best explanation for what economic historians call “the great divergence”: the astonishing gap that arose between Western standards of living and those in the rest of the world.

October 19, 2011

Questioning the “income inequality” argument

Filed under: Economics, Media, Politics, USA — Tags: , , , — Nicholas @ 09:19

James Pethokoukis doesn’t find the income inequality talk particularly convincing, and has a few reasons why:

Sorry, the story just doesn’t hold together. According to left-wing think tanks, columnist and bloggers — and, of course, the Occupy Wall Street radicals — the top 1 percent have been exploiting the 99 percent for decades. The rich have been getting richer at the expense of the middle class and poor.

Really? Just think for a second: If inequality had really exploded during the past 30 to 40 years, why did American politics simultaneously move rightward toward a greater embrace of free-market capitalism? Shouldn’t just the opposite have happened as beleaguered workers united and demanded a vastly expanded social safety net and sharply higher taxes on the rich? What happened to presidents Mondale, Dukakis, Gore, and Kerry? Even Barack Obama ran for president as a market friendly, third-way technocrat.

Nope, the story doesn’t hold together because the financial facts don’t support it. And here’s why:

[. . .]

5. Set all the numbers aside for a moment. If you’ve lived through the past four decades, does it really seem like America is no better off today? It doesn’t to Jason Furman, the deputy director of Obama’s National Economic Council. Here is Furman back in 2006: “Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn’t have any of the now virtually standard items like air conditioning or tape/CD players?”

No doubt the past few years have been terrible. But the past few decades have been pretty good—for everybody.

October 16, 2011

The argument for value-added taxes

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 10:37

In an article about the Canadian copy-cat protests, Mike Moffatt addresses some of the demands to increase taxes on the wealthy and explains why value-added taxes (like the much-hated Harmonized Sales Tax) are more efficient:

The Occupy Canada protests which began Saturday took place in over a dozen cities with mostly modest turnouts. They also lacked a cohesive goal or message, as their critics in the media are fond of pointing out. The protests did, however, address a number of important societal issues, such as the growing gap between the rich and the poor. As has been acknowledged by both Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty, rising income inequality in Canada is a real and legitimate concern.

Over the last 30 years, the income gap between the top 1 per cent (or more accurately, the top 0.1 per cent) and the rest of us has increased substantially. Furthermore, this inequality is growing faster in Canada than it is in most other countries, including the United States. The Conference Board of Canada has reported that Canada has fallen to 12th out of 17 countries in its peer group when it comes to income inequal-ity. Between 1980 and 2005, before tax earnings increased by 16 per cent for the top 20 per cent, but fell by over 20 per cent for the bottom 20 per cent. The Occupy Canada protests are the product of a rising tide only lifting a few boats.

[. . .]

So how do we reduce inequality? The obvious place to start would be to borrow solutions from countries where after-tax income inequality is relatively low. Three countries that consistently score well on income inequality measures are Denmark, Finland and Sweden. These three Nordic countries share very similar tax structures, featuring moderate-to-low marginal corporate tax rates, moderate-to-high income tax rates and very high value added sales tax rates (VATs, similar to Ontario’s HST). The average VAT in these three countries is 25 per cent, a rate nearly twice that of the average Canadian federal GST plus provincial sales tax or HST. A onepercentage-point increase in the HST alone would raise $5 billion to $6 billion per year for the federal government, so increases by a few percentage points could adequately fund programs designed to reduce inequality. No country on Earth has been able to find a way to fund the kind of social programs and redistribution needed for “reasonable” levels of inequality without VAT rates significantly higher than Ontario’s HST.

Why are high sales taxes needed to fund social programs rather than higher corporate taxes or higher income taxes? Put simply, VATs are the hardest taxes to avoid paying. Higher income taxes reduce labour effort by the taxed. Higher corporate tax rates reduce investment. Canada’s corporate income tax rate was, not so long ago, twice what it is today. Adjusted for the inflation and the size of the economy, however, the higher corporate tax rates brought in similar levels of revenue then as they do now. There are some ways to avoid the HST, of course, but these are far more limited than they are for other taxes. The HST, as with all VATs, is a cash cow that provides governments with the necessary resources to tackle important societal issues.

September 25, 2011

Mecca is becoming a “playground for the rich”

Filed under: History, Middle East, Religion — Tags: , , — Nicholas @ 10:30

Jerome Taylor looks at the vast changes being wrought in Mecca and Medina:

Over the past 10 years the holiest site in Islam has undergone a huge transformation, one that has divided opinion among Muslims all over the world.

Once a dusty desert town struggling to cope with the ever-increasing number of pilgrims arriving for the annual Hajj, the city now soars above its surroundings with a glittering array of skyscrapers, shopping malls and luxury hotels.

To the al-Saud monarchy, Mecca is their vision of the future — a steel and concrete metropolis built on the proceeds of enormous oil wealth that showcases their national pride.

Yet growing numbers of citizens, particularly those living in the two holy cities of Mecca and Medina, have looked on aghast as the nation’s archaeological heritage is trampled under a construction mania backed by hardline clerics who preach against the preservation of their own heritage. Mecca, once a place where the Prophet Mohamed insisted all Muslims would be equal, has become a playground for the rich, critics say, where naked capitalism has usurped spirituality as the city’s raison d’être.

Few are willing to discuss their fears openly because of the risks associated with criticising official policy in the authoritarian kingdom. And, with the exceptions of Turkey and Iran, fellow Muslim nations have largely held their tongues for fear of of a diplomatic fallout and restrictions on their citizens’ pilgrimage visas. Western archaeologists are silent out of fear that the few sites they are allowed access to will be closed to them.

But a number of prominent Saudi archaeologists and historians are speaking up in the belief that the opportunity to save Saudi Arabia’s remaining historical sites is closing fast.

September 21, 2011

“Our existing income tax structure is nothing short of crazy”

Filed under: Cancon, Economics, Government — Tags: , — Nicholas @ 12:50

That’s Kevin Milligan in the Globe and Mail talking about the Canadian tax structure:

Here are five nuggets of information Canadians should keep in mind as the high income taxation discussion unfolds. [. . .]

Second, our existing income tax structure is nothing short of crazy. The graph shows the marginal tax rate (the tax owed on the last dollar earned) across different income levels for a two-child family in Manitoba in 2010, the clawback of both federal and provincial refundable tax credits. (Similar graphs for more provinces are here.) What redistributive goal is such a bizarre tax structure designed to achieve? A strong argument can be made that we should improve and reform our existing income tax structure before slapping more confusion on top of it.

Third, the threshold at which one reaches the highest tax bracket is exceedingly low in Canada compared to other countries. In the United Kingdom, one reaches the highest tax bracket of 50 per cent at the Canadian dollar equivalent of $234,000. In the United States, currently the highest federal rate of 35 per cent is reached at incomes of $379,150 (U.S.). In Canada, the highest federal rate is 29 per cent, reached only at $128,800. Just to reach the level of income tax progressivity observed in the United States under President George W. Bush, Canada would need to increase this high income threshold dramatically.

August 25, 2011

Look at what they actually do, not what they say

Filed under: Economics, Europe, France, Government — Tags: , , — Nicholas @ 09:36

Tim Worstall peers behind the curtain of those noble, generous French fat-cats who wrote the letter to the French government, insisting that they be taxed more. It’s not a pretty picture:

All very jolly and public-spirited you might think, but applying a little bit of economic theory reveals that they’re somewhere along the “speaking with forked tongues” to “lying toads” continuum.

That bit of economics is the concept of “revealed preferences”: translated out of the jargon it just means don’t look at what people say, look at what they do. For example, Liliane Bettencourt, the L’Oreal heiress, is one signatory calling for higher taxes on herself: it’s also been widely reported that she has received tax refunds under French “fiscal shield” provisions intended to limit taxes on the wealthy to 50 per cent. Madame, if you really want to pay higher taxes, just don’t cash those cheques.

We see the same sort of call everywhere of course. All sorts of people call for higher taxes: it’s just that very few actually pay higher amounts of money. We can see this in both the UK and US.

The US has an account, “Gifts to the United States”, specifically for charitable-minded citizens. Send them a cheque, they’ll cash it and spend the money on government. Last time I checked, the figures they received were $2,671,628.40. Roughly speaking, 1 cent per head of population. OK, so, yes, taxes were too low in the US that year. By exactly that amount.

The UK numbers aren’t even that good. In the same year only five Brits sent in cheques to the Treasury and four of those people were deceased. No, the fifth was not Polly Toynbee, despite the impression one might get from her columns (well, I don’t know it wasn’t her but I’m sure she would have urged the rest of us to do the same if it were).

An FOI request revealed that from 2002 to 2009 actual living people contributed £7,349.90 to the Treasury, over and above their legally due taxation. No, not each or per year… but in total.

There’s literally nothing stopping people from paying more taxes than they actually owe: every jurisdiction appears to allow people to give more money voluntarily. The US government even allows it to be done electronically. So, if you feel you’re not paying “your rightful share”, go right ahead and give it to the government. If you don’t, you’re demonstrating that you really don’t feel under-taxed after all.

July 19, 2011

Tax-wary millionaires flee to . . . Canada?

Filed under: Cancon, Economics, Liberty — Tags: , , , — Nicholas @ 12:56

Jason Kirby is either smoking some really premium weed, or the world is changing even faster than we thought it was, in an article titled “The Great White tax haven”:

For decades, Canadians have been told this country is a high-tax, unwelcoming place for business people and the wealthy. It’s a reputation we came by honestly. But a shift has taken place both here and abroad, say experts. While Canada is reforming and lowering its taxes, politicians in other developed countries — those faced with crushing debt loads and economic stagnation — are turning a hungry eye to the bank accounts of their richest citizens. At the same time, instability in the Middle East and Asia means wealthy individuals are looking for a safe place to move their families. Where they might have flocked to the U.S. in the past, many now see Canada as the better option. Tax specialists even use terms like “the Great White tax haven” and “Switzerland of the North” when talking about Canada.

The world’s rich are restless, says Lesperance, whose clients are worth between $30 million and $1 billion. Most work in financial services, but in every sector and every country wealthy individuals are on the move. Lesperance calls these ultra-rich the Golden Geese, arguing that wherever they go, they generate economic benefits—they start companies, buy real estate, keep restaurants busy and spend money on big-ticket items. Along with Ian Angell, a professor at the London School of Economics, he’s writing a book entitled Flight of the Golden Geese, which argues that as countries squeeze wealthy taxpayers, they will pull up stakes and flee. “Canada has an unprecedented, once-in-several-generations opportunity to put up its hand and offer itself as an alternative,” he says.

The migration is well under way. Last year, nearly 12,000 people moved here under the federal government’s Immigrant Investor Program, up from 4,950 a decade ago, according to Citizenship and Immigration Canada. (The figure includes spouses and dependents.) To qualify, immigrants must have a minimum net worth of at least $1.6 million, and are required to “invest” $800,000 with the government, which is returned after five years. (Ottawa says the money is used to fund economic development programs, though critics call it a cash grab.)

March 1, 2011

The shifting tide of extreme wealth

Filed under: Economics, Europe, France, Politics — Tags: , , , — Nicholas @ 07:07

Ever wonder how the children of wealthy foreign potentates fit in with “ordinary” wealthy westerners? Anne Applebaum says the relationship has shifted from bare toleration all the way out to sycophancy, but its most noticeable change is the way they can buy influence and apologists:

Money, even foreign money (and particularly that Saudi money), has always been able to buy access to Western statesmen. But in the last decade or so, the proportions have subtly shifted. The democratic West has become relatively poorer, while a clutch of undemocratic “emerging” markets have become richer. To put it more bluntly, Western politicians, ex-politicians, and even aristocrats have become much, much poorer than the very, very rich businessmen emerging from the oil-and-gas states of Central Asia, Eastern Europe, and the Middle East. Twenty years ago, no retired British or German statesman would have looked outside his country for employment. Nowadays, Blair advises the governments of Kuwait and the United Arab Emirates, among others; Gerhard Schröder, the former German chancellor, collects a paycheck from Gazprom, the Russian energy behemoth.

True, there is a legitimate argument for maintaining contacts with dictators: Blair helped persuade Col. Qaddafi to give up his nuclear weapons program in 2003, and in the last 10 days he has twice called the dictator and asked him to stop shooting his people. It hasn’t helped, of course, but it can’t hurt to try.

But there is no justification for taking dictators’ money or befriending their offspring, especially not while simultaneously playing politics with their parents. This is not just a British problem, either. Frank Wisner, the U.S. envoy sent by President Barack Obama to negotiate with Hosni Mubarak in the early days of the Egyptian revolution, also works for Patton Boggs, a law firm that has worked for the Egyptian government. The administration was reportedly angry when he unexpectedly opined that Mubarak “must stay” just a few days before Mubarak fled Cairo. But should anyone have been surprised? Meanwhile, Michelle Alliot-Marie, the French foreign minister, has just lost her job because she went on holiday in Tunisia during the revolution, hitched a few rides on a private plane belonging to a friend of the Tunisian president, and helped her father do a business deal there. When she got back, she tactfully suggested that the French help their friends in the Tunisian police put down the riots.

February 3, 2011

Urban China: growth market for luxury goods

Filed under: China, Economics — Tags: , — Nicholas @ 07:42

The most liberalized areas of China have become a magnet for the purveyors of ostentatious luxury items:

The Chinese may have an age-old reputation as great savers, but China’s young people are now making up for generations of lost spending time.

Compared with the austere youth of China’s older generations, who went through the turmoil of the Cultural Revolution and strove to build savings in a nation without a social safety net, the young, raised in an unprecedentedly wealthy China, are spending freely.

[. . .]

As the world’s fastest growing luxury market, China’s appetite for high-end Western branded goods is fast becoming insatiable, with predictions by Boston Consulting Group suggesting that within five years, 29 percent of global luxury product consumption will come from China. And while European and US luxury sales are making a slow recovery after the global financial crisis, China—relatively untouched and still optimistic—remains the most important market for luxury retailers. Indeed, this was the theme behind last year’s 5th Annual China Luxury Summit, which was given the grandiose subtitle of ‘China Luxury Market: An Oasis of Hope and Possibility’.

China as the deus ex machina of the luxury world is a concept familiar to European retailers. Last Saturday, for example, the Italian luxury brand Prada staged its first fashion show in Beijing. Like French cosmetics and perfume brand L’Occitane, which listed in Hong Kong last year, Prada is expected to have an initial public offering in Hong Kong.

No need to reiterate that this is only a phenomenon in the urbanized areas of China: the vast majority of Chinese consumers are unable to access the fast growing markets and still live to a large extent under the direct control of the party.

January 27, 2011

Viewing the new plutocrats: Indian and Chinese variants

Filed under: China, Economics, Government, India — Tags: , — Nicholas @ 07:40

The Economist has a compare-and-contrast piece on how the ultra-rich are viewed in India and in China:

India’s movers and shakers all seem to know each other. The Indian elite have created their own islands, frowns a cabinet minister: “It’s a bit unhealthy.” They send their kids to private schools. They have their own water and electricity. So they barely notice how bad the government is at delivering power, water and schooling to the other 1.2 billion Indians.

Yet to many Indians the nation’s tycoons are heroes. A few made their fortunes corruptly, but the software moguls of Bangalore created a huge export industry out of nothing, and many others helped to spur India’s galloping growth. Ratan Tata, the soon-to-retire boss of a conglomerate that produces everything from tea to cars, lives modestly and treats his employees well. The brothers Anil and Mukesh Ambani are more controversial, but they have turned the family business into two global giants, with interests from chemicals to entertainment.

Some Indian gazillionaires are flashy. Mukesh Ambani’s house has 27 stories, three helipads and three floors of hanging gardens. Vijay Mallya, a beer-and-airlines magnate, constantly amuses the newspaper-reading public with his speedboats and sports teams. But for most of the country’s elite the most conspicuous item of consumption is sending their children to university in America.

India’s super-rich are very different from their Chinese counterparts, however:

The relationship between rich and poor in China is different. China’s stellar growth has lifted some 500m people out of poverty. Much of the credit belongs to Chinese entrepreneurs. Since Mao’s boot was lifted from their necks, they have built marvels, from the skyscrapers of Shanghai to the factories of Guangdong. Yet mainland Chinese business leaders operate in the shadow of a secretive and unaccountable ruling party. To get on, many join it. Some do so reluctantly, to avoid being crushed. Others do so gladly, hoping to use the power of the state to enrich themselves.

Individual party members are not entirely above the law. If a local bigwig behaves so appallingly that the resulting protests are heard in Beijing, the party may cut him down to size. In October last year the son of Li Gang, a senior police officer in Baoding, killed a pedestrian while allegedly drink-driving. He sped off, shouting, “report me if you dare; my dad is Li Gang!”

News of the incident went viral in the Chinese blogosphere. Pop songs with the refrain “My dad is Li Gang!” quickly circulated. Li Gang was forced to make a televised apology. His son was arrested. China’s leaders would like the 95% of the population who are not members to think that the party cares. But the most revealing fact is that Mr Li junior evidently thought he could get away it.

January 23, 2011

Lawrence Solomon on the coming crash in China

Filed under: China, Economics, Government — Tags: , , — Nicholas @ 12:17

If you think I’ve been too chipper and dismissive on the medium-to-long term issues that could cause a Chinese meltdown, you’ll enjoy Lawrence Solomon’s article:

In China, the resentments are palpable. Many of the 300 million people who have risen out of poverty flaunt their new wealth, often egregiously so. This is especially so with the new class of rich, all but non-existent just a few years ago, which now includes some 500,000 millionaires and 200 billionaires. Worse, the gap between rich and poor has been increasing. Ominously, the bottom billion views as illegitimate the wealth of the top 300 million.

How did so many become so rich so quickly? For the most part, through corruption. Twenty years ago, the Communist Party decided that “getting rich is glorious,” giving the green light to lawless capitalism. The rulers in China started by awarding themselves and their families the lion’s share of the state’s resources in the guise of privatization, and by selling licences and other access to the economy to cronies in exchange for bribes. The system of corruption, and the public acceptance of corruption, is now pervasive — even minor officials in government backwaters are now able to enrich themselves handsomely.

[. . .]

The corruption extends to the enforcement of regulatory standards for health and safety, which few in China trust. In recent years China has endured a tainted milk scandal and a tainted blood scandal, each of which implicated corrupt officials in widespread death and debilitation. In a devastating 2008 earthquake, some 90,000 perished, one-third of them children buried alive in 7,000 shoddily built “tofu schools” that skimped on materials. Nearby buildings for the elites that met building standards, including a school for the children of the rich, were largely unscathed.

[. . .]

China is a powder keg that could explode at any moment. And if it does explode, chaos could ensue — as the Chinese are only too well aware, the country has a brutal history of carnage at the hands of unruly mobs. For this reason, corrupt officials inside China, likely by the tens of thousands, have made contingency plans, obtaining foreign passports, buying second homes abroad, establishing their families and businesses abroad, or otherwise planning their escapes. Also for this reason, much of the middle class supports the government’s increasingly repressive efforts.

Compared to my rather milder criticisms, this is strong stuff indeed.

H/T to my former virtual landlord for the link, who referred to this as my “hobby horse in full gallop”.

January 22, 2011

How many “rich people” are there?

Filed under: Economics — Tags: — Nicholas @ 12:12

The Economist tries to tally up the world’s rich people, and discovers there are more millionaires than Australians:

Credit Suisse [. . .] uses a less stringent (and more obvious) definition: a millionaire is anyone whose net assets exceed $1m. That includes everything: a home, an art collection, even the value of an as-yet-inaccessible pension scheme. The Credit Suisse “Global Wealth Report” estimates that there were 24.2m such people in mid-2010, about 0.5% of the world’s adult population. By this measure, there are more millionaires than there are Australians. They control $69.2 trillion in assets, more than a third of the global total. Some 41% of them live in the United States, 10% in Japan and 3% in China.

How did these people grow rich? Mostly through their own efforts. Only 16% of high-net-worth individuals inherited their stash, according to Capgemini. The most common way to get rich is to start a business: nearly half (47%) of the world’s wealthy people are entrepreneurs.

You do not have to be a genius to build a million-dollar business, but it helps if you are intelligent and extremely hard-working. In their book “The Millionaire Next Door”, Thomas Stanley and William Danko observed that a typical American millionaire is surprisingly ordinary. He has spent his life patiently saving and ploughing his money into a business he founded. He does not live in the fanciest part of town — why waste money that you can invest? And his tastes are so plain that you can barely tell him apart from his neighbours. He buys $40 shoes, and his car of choice is a Ford.

It shouldn’t need to be pointed out that a millionaire today isn’t the same sort of person as a millionaire 30 years ago: with rising housing costs, anyone living in a paid-off home in downtown Toronto is already well on the way to being a millionaire. A multi-millionaire of the 1970s occupied the lower end of the range of what today is probably the billionaire club. Today’s millionaire is a well-off professional or middle class person, not a globe-trotting plutocrat.

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