China Has Problems

In 1990, I interviewed for a job at A. Tuck Business School, Dartmouth College. At lunch, someone brought up the need for business schools in the U.S. to adopt Japanese methods and teaching techniques.

Ever adept at making people like me, I snorted. "Japan is a giant economic bubble," I said. "And the only way that they have growth is by implicitly taxing their consumers with protectionism and diverting private saving into public investment. We ought to look at what Japan is doing, both publicly and privately, and do the exact OPPOSITE. Their growth is fake, and their business methods are short-sighted." (To be fair, I had gotten this view from my mentor Murray Weidenbaum; it was not original)

The reaction from the Tuckwads: Crickets. Utter disbelief. Would have been much better if I had loudly farted and then said, "Middle C! I usually can't hit that note!"

Finally, the Ass. Dean said, "(ahem). Dr. Munger, that would be a rather controversial opinion in these halls. We are trying to learn more about Japanese methods. I'm not sure you are really well versed in the latest research." (He was a Brit; just imagine the condescension ladled on to these words.)

No, I didn't get the job. But here is the growth path of Japan's economy:
Hey, Dean, you mother Tucker, bite me! I hope you lost your 180 thread count bespoke button-down shirt, you idiot!

All that is prologue (and yes I have been badly wrong on a dozen things in the meantime). Anyway, here is my current view:

China's growth is fake. Not as fake as Japan's, because the China doesn't have a zombie financial sector. That's because they have ZERO financial sector, at least in the sense of being able to generate liquidity on a consistent scale. And the threat of nationalization rules out private offerings of publicly traded stock.

It is true that they are producing mountains of stuff. But what they are doing is taking all private saving and expropriating it, converting it into capital for more semi-state-owned factories.

The problem is that there are three reasons wages can go up. (Real Wages are shooting up, over much of China, by the way. Perhaps an index number problem, since an increase from near zero is a big percentage, but still.).

Wage Increase Reason 1: Production process becomes more capital intensive.
Wage Increase Reason 2: Skills and human capital of workers increase
Wage Increase Reason 3: Unions such as UAW or SEIU steal higher wages, driving employment offshore, and devestating the economy. Minimum wage laws work, too, though they mostly harm the poor and economically marginal.

Now, the US chose #3 in northern states ranging from Mass to Mich, and everything in between. And now those states look like a post-apocalyptic wasteland. So, that is a bad idea.

I had been under the impression that China was struggling along under Reason #1. But this study suggests Reason #2 is bigger than I would have thought. Interesting.

"The Contribution of Human Capital to China's Economic Growth," John Whalley & Xiliang Zhao, NBER Working Paper, December 2010

Abstract: This paper develops a human capital measure in the sense of Schultz (1960) and then reevaluates the contribution of human capital to China's economic growth. The results indicate that human capital plays a much more important role in China's economic growth than available literature suggests, 38.1% of economic growth over 1978-2008, and even higher for 1999-2008. In addition, because human capital formation accelerated following the major educational expansion increases after 1999 (college enrollment in China increased nearly fivefold between 1997 and 2007) while growth rates of GDP are little changed over the period after 1999, total factor productivity increases fall if human capital is used in growth accounting as we suggest. TFP, by our calculations, contributes 16.92% of growth between 1978 and 2008, but this contribution is -7.03% between 1999 and 2008. Negative TFP growth along with the high contribution of physical and human capital to economic growth seem to suggest that there have been decreased in the efficiency of inputs usage in China or worsened misallocation of physical and human capital in recent years. These results underscore the importance of efficient use of human capital, as well as the volume of human capital creation, in China's growth strategy. (Nod to Kevin Lewis)

The point is that China is going to run up against a captial constraint, and may (this is delightful) actually follow the Marxist predictions about industrial capitalism. Marx didn't understand capital, but neither do our Chinese friends. Unless the Chinese can get huge amounts of liquidity to feed the need for physical investment, wages from increased human capital are going to start to squeeze them really bad. And there may actually be the worker's revolt that Marx predicted for Western Europe. Except it will happen in a communist country, precisely because it is not capitalist enough to have common stock offerings.

Sticking a Fork in the National Libertarian Party

As some of you people may remember, I was scornful of the LP's choice of Bob Barr as their presidential candidate in 2008.

Now comes the delicious word that Bob (still rockin' a porn stash for the ages) is in Haiti, REPRESENTING BABY DOC DUVALIER!!

Yes that's right, the Libertarian presidential candidate is helping out a notoriously corrupt and brutal ex-dictator.

I do not think that the party will soon recover from the complete and total sellout of libertarian principles that Barr's nomination represented. This is just icing on an ugly, ugly cake.

LP members: Check out this load of crap from your candidate:

Barr "will be representing" Duvalier "in bringing his message of hope to the world," the former Republican congressman's website says.

"I also am reminded of others who have risen from the ashes," Barr told reporters Friday. "The city of Atlanta is the Phoenix city. The people of Haiti, likewise, will rise from the problems created by last year's earthquake and emerge stronger and better than before. That I know is Mr. Duvalier's deep wish and something that he knows in his heart."

1. Baby Doc was a 15 year slow motion earthquake for the people of Haiti.

2. Baby Doc can't know anything in his heart because he does not HAVE a heart

3. If one finds themselves within 10 feet of Baby Doc, the only appropriate course of action would be to try and inflict as much physical damage on him as possible as opposed to the heinous butt kissing of Bob Barr.

How to live

(clic the pic for a more glorious image)

Look out Tyler, in Zimbabwe, Zombies have voting rights!

Yesterday, in a classic blog post, when asked to choose an anti-zombie weapon, Tyler chose "the rule of law" (second choice was "anti-zombie constitutional amendment"!!!!).

Grim news for him comes today from Zimbabwe where it is reported that "nearly 1/3 of Zimbabwe's voters are already dead" (this of course explains why Mugabe is still in power after 275 years, he's a Zombie)!!

So under PR, they'd be in a coalition government controlling several ministries!

Plus, during elections, they can eat the brains of non-Zombie voters while waiting to exercise their franchise.

How's that rule of law gonna save you Tyler, when Zombies vote?

Darwin Award, Honorable Mention (No Fatalities)

They were pouring gas directly into the carburetor.

From a bucket.

As they drove.

I'm almost sure these people must be kin to me, somehow.

The woman said she and her two friends had bought gas at a Factoria gas station, but were having trouble keeping the van running. She said they didn't have a gas can, so they filled an open bucket with two gallons of gas and put it in the van.
The engine cowling -- a piece of metal that covered the engine and which was located between the two front seats of the van -- had been removed, the woman said. The passengers used a water bottle to transfer gas from the bucket directly into the carburetor in order to keep the engine running.

(Nod to the Blonde, who assures nobody in MO acts like this. Perhaps because they don't actually have cars...)

UPDATE: KPC friend Andy Rutten emails a report I had missed:
"It's very rare that a car explodes, there's got to be a reason," said Bellevue police spokeswoman Officer Carla Iafrate.
Now THAT is police work, right there.

snorkeling & photography bleg

Over spring break, Mrs. Angus and I are going to a marine sanctuary off the coast of the Dominican Republic to do this for a week (clic the pic for a more glorious image):


We are good swimmers and have snorkeled before, but here are some things I don't know anything about:

wetsuits

good quality fins and masks

underwater photography

Any advice on any of these topics would be appreciated.

BTW, we've never lived on a boat for a week before either.

how not to multi-task

Movin' on up!

One of my favorite bands, Times New Viking, have a new album coming out on Merge records in April. Here's a video for one of the songs on the album. It's much calmer and quieter than what I expected, but I still really like it:

Tweet of the day

From Andy Borowitz:

"It must be weird for Hu Jintao to meet a Nobel Peace Prize winner who's not in prison"

and I say it's alright

People, this is so freakin' bad, even for the low standards of economic analysis of the NY Times.

In a recent article bemoaning the move of a solar panel plant from Massachusetts to China resides the following paragraph:

"Beyond the issues of trade and jobs, solar power experts see broader implications. They say that after many years of relying on unstable governments in the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun."

Alex has already mocked this brilliantly ("China monopolizes the sun!!"), but I gotta say a bit more.

First, the analogy is whack. The sun is (at least not yet) in Chinese possession. The analogy would work if we'd been buying oil rigs from the middle east and are replacing that now with buying solar panels from China.

Second, autarky is BAD, people, not good. A world where we are self sufficient for everything is a world quite a bit worse than the one we currently inhabit. There is nothing inherently "wrong" with importing oil; the problem is the effect using oil has on the environment, which is unchanged by where the oil comes from.

Third, China obviously has a comparative advantage on the US in low level manufacturing. Assembling solar panels is not a natural fit for the US in the global economy.

As Mungowitz has been saying, there isn't going to be a "green jobs machine" in the US, unless we are going to *massively* subsidize each job.

I Told You So, I Did

Now even the NYT admits that the idea of subsidizing "green jobs" isn't working, and can't work.

I did say this, myself.

(To be fair, that's not the NYT, really. That's Ed Glaeser. He's really really smart. Not sure how the NYT made the mistake of letting him write for them.)

(Nod to Anonyman, who has a green thumb)

Spain is so screwed!

Great chart from the Angry Bear Blog on the evolution of labor costs in the EU (clic the pic for a more glorious image):

The orange line that inexorably rises? Spain.

The green line on the bottom that ends up almost 30% below Spain? Germany.

Chances of Spain reversing this without years of economic and social pain given their membership in the Euro? Zero.

Facts Don't Matter

To the food nannies, actual facts are irrelevant.

Jacob Grier cites some of these facts.

I myself was so discombobulated I went all Boudreaux on the New and Observer, for this story.

Food Trucks Create Jobs

Interesting new business.

(Nod to Anonyman, who is going to stick with his LocoPops, thankyouverymuch)

So Close, and Yet....

Matt Yglesias comes tantalizingly close to making sense for some of these, and then flitters away like a butterfly.

His list of "Things I Support for Policy"

— More redistribution of money from the top to the bottom.
— A less paternalistic welfare state that puts more money directly in the hands of the recipients of social services.

If these were taken as a couplet, I could sort of go along. The first by itself is nonsense; it's not wrong, it's impossible. But if we were to take all the money now spent on welfare and social services for the poor, and split it 80% to the poor, 20% tax rebates for the rest of us, AND PUT ALL THE 80% INTO A NEGATIVE INCOME TAX...then W. Pareto would smile. This is pretty much the argument I make in a paper forthcoming in Basic Income Studies. The point being we don't need more redistribution from top to bottom. What we need to do is make sure some of it actually makes it to the bottom, by preventing Robin Hood's Merry Men in Washington from drinking it all up and spending it on hookers.

— Macroeconomic stabilization policy that seriously aims for full employment.
— Curb the regulatory privileges of incumbent landowners.

I literally have no idea what the first one means. And the second one is clear, but terrifying. Good God, man, have you no shame? Have you no shame, sir? "Curb regulatory privileges" is just a straightforward taking, only without all that expensive (but Constitutionally-mandated) compensation.

— Roll back subsidies implicit in our current automobile/housing-oriented industrial policy.
— Break the licensing cartels that deny opportunity to the unskilled.

Jeez. Wot hoppint? These not only make sense, they are essential pieces of the libertarian economic program. And they are both well and precisely stated. I find it surprising that Matt Y actually believes the second. *I* certainly think the second is a huge problem, but....wow. Matt: much proper respect and love. This is good work, here.

— Much greater equalization of opportunities in K-12 education.

Put "public" and I'm with you. I don't see a reason to cap how good private schools can be (necessary to "equalize"), but I don't see why there should be such enormous disparities in public education, even in the same state. Of course, the way to do this is vouchers and charter schools. It would be fast and effective. Not sure Matt would go that far, though, 'cause he believes in government PROVISION of education, where I would go no further than government FUNDING of education, and even there I have some worries.

— Reduction of the rents assembled by privileged intellectual property owners.

Sure, yes. Don't feed the trolls. Patents and copyrights need reformed.

— Throughout the public sector, concerted reform aimed at ensuring public services are public services and not jobs programs.

Holy smokes! Not sure how this squares with the "full employment" thing, but if this be reform, give me more of it! In fact, the more I read this one the happier it makes me. Focusing on public service means you might be able to judge if it is a public good, and if it is worth something. Focusing on "jobs" means that evaluations go like this: (1) Do you have a budget? Yes. GOOD! (2) Did you spend it? Yes. VERY GOOD! Evaluation: Excellent program.

— Taxation of polluters (and resource-extractors more generally) rather than current de facto subsidization of resource extraction

Absolutely. AB. SO. LUTE. LY. Stop feeding the oil pigs, the coal pigs who rip the tops off mountains, stop subsidizing extraction with foreign wars that waste our young people and our taxes. If oil and coal were charged out at anything like their true prices, we would not need to subsidize "green" alternatives. Gas would (and should be) $5 a gallon, and coal would be expensive enough that we would find other ways to generate power. Instead, just as Matt Y says, we subsidize the pigs, and then we subsidize the "alternative" fuels. Since all we have to do is STOP spending tax money on coal, oil, ethanol, and so on, this should be doable. Sure, energy prices would go up, but they should go up. And if we had an effective basic income scheme, poor people could still afford the energy.

Overall: well done. Very solid on the list; counting 1/2 's I would say I am with him on 6 of these. I'm pretty confident that there are zero Republicans politicians that would get a 6/10 from me. So, Matt Yglesias for President!

Riding the Sex Doll

A river mishap in Oz.

Insert your own joke here. (well, write in your own joke, then)

(Nod to the Blonde)

Green Jobs: They Don't Exist

Delicious. Rich. I told you so. (etc)

We gave Evergreen Solar millions and millions of dollars, nearly $50 million, to subsidize production of solar energy panels.

But they closed shop and moved to China.

Now the U.S. is mad at China...FOR SUBSIDIZING PRODUCTION OF SOLAR ENERGY PANELS! ("The cops finally busted Madame Marie, for telling fortunes better than they do...")

Look, if the only way you can make money is to pay more than 100% of the purchase price in subsidies, you don't want to be in that business.

(Nod to Anonyman)

MLK day 2.0

Great tweet this morning from novelist Rafael Yglesias:

"The assassination of MLK Jr. was the most devastating of the 60s. We lost a leader who was that rare man of grace: a merciful revolutionary."

I can surely add this too; MLK Jr. was one hell of a preacher!

MLK Day

Gosh, when did the observance of MLK day become a religious obligation? Gov of Maine suggests NAACP can give him a nice nether kiss. A petty, silly squabble. No doubt the Gov. will next say, "You know, I have a lot of black friends!" Still, the NAACP folks in Maine (a large group? probably not...there are only 16k black folks in the state of Maine, total) are pretty insistent: Gov MUST observe MLK day. Strange.

For my own part, that would be easy, because I am a fan of MLK day. I am not a fan of the parasites such as Jesse Jackson who have come to make a lavish living trading on their associations with Dr. King. The whole "Rent a Riot" business, and "Give me money or I'll call you a racist" extortion racket is actually an affront to the memory of the man. If the NAACP wants to go after someone who is shaming Dr. King, they should try to distinguish between Dr. King and Kingists (something like admiring Marx, but laughing at Marxists).

So, on this MLK day, let me suggest "The Letter From A Birmingham Jail." An excerpt:

We know through painful experience that freedom is never voluntarily given by the oppressor; it must be demanded by the oppressed. Frankly, I have yet to engage in a direct-action campaign that was "well timed" in the view of those who have not suffered unduly from the disease of segregation. For years now I have heard the word "Wait!" It rings in the ear of every Negro with piercing familiarity. This "Wait" has almost always meant 'Never." We must come to see, with one of our distinguished jurists, that "justice too long delayed is justice denied."

We have waited for more than 340 years for our constitutional and God-given rights. The nations of Asia and Africa are moving with jet-like speed toward gaining political independence, but we still creep at horse-and-buggy pace toward gaining a cup of coffee at a lunch counter. Perhaps it is easy for those who have never felt the stinging darts of segregation to say, "Wait." But when you have seen vicious mobs lynch your mothers and fathers at will and drown your sisters and brothers at whim; when you have seen hate-filled policemen curse, kick and even kill your black brothers and sisters; when you see the vast majority of your twenty million Negro brothers smothering in an airtight cage of poverty in the midst of an affluent society; when you suddenly find your tongue twisted and your speech stammering as you seek to explain to your six-year-old daughter why she can't go to the public amusement park that has just been advertised on television, and see tears welling up in her eyes when she is told that Funtown is closed to colored children, and see ominous clouds of inferiority beginning to form in her little mental sky, and see her beginning to distort her personality by developing an unconscious bitterness toward white people; when you have to concoct an answer for a five-year-old son who is asking: "Daddy, why do white people treat colored people so mean?"; when you take a cross-county drive and find it necessary to sleep night after night in the uncomfortable corners of your automobile because no motel will accept you; when you are humiliated day in and day out by nagging signs reading "white" and "colored"; when your first name becomes "nigger," your middle name becomes "boy" (however old you are) and your last name becomes "John," and your wife and mother are never given the respected title "Mrs."; when you are harried by day and haunted by night by the fact that you are a Negro, living constantly at tiptoe stance, never quite knowing what to expect next, and are plagued with inner fears and outer resentments; when you no forever fighting a degenerating sense of "nobodiness" then you will understand why we find it difficult to wait. There comes a time when the cup of endurance runs over, and men are no longer willing to be plunged into the abyss of despair. I hope, sirs, you can understand our legitimate and unavoidable impatience.

ATSRTWT, it's worth it. It's hard to read without getting tears in your eyes, in fact. The simple dignity of the claim, and of the man...wow.

This is the statement Dr. King was responding to..."Statement by Alabama Clergymen." The money quote:

Just as we formerly pointed out that "hatred and violence have no sanction in our religious and political traditions," we also point out that such actions as incite to hatred and violence, however technically peaceful those actions may be, have not contributed to the resolution of our local problems. We do not believe that these days of new hope are days when extreme measures are justified in Birmingham.

An interesting echo, down through the years. The clergymen thought non-violent actions and speech that might incite bad people to violence are immoral. Dr. King didn't think so.* To a reflective MLK holiday...

(*No, I won't try to connect this to the criticism after the Arizona shooting; you can do that yourself).

Ain't gonna bump no more....

Delta taking bump bids.

(Nod to Angry Alex)

I, Toaster

Interesting. A modern and video-ed update of "I, Pencil," though that is not what the author was thinking, I expect.

(Nod to JakeRuss)

He's Baa-ack

As amazing as this sounds, apparently Baby Doc is back in Haiti!

No word on what he was wearing.

I guess this guy was raised by Amy Chua

"I literally cannot imagine a more market-based, private-sector system for universal health insurance than the one that the Democrats implemented last fall."

--M.S., Democracy in America Blog, The Economist

(W.W. at the same blog, tries to help this individual out)

Augustine lives!

In today's NY Times, Christy Romer opines on "What Obama Should Say about the Deficit". Her idea is along the lines of "Lord, grant me chastity, but not yet".

Here's the exact quote:

"He should make clear that the issue is spending and taxes over the coming decades, not spending in 2011"

Wow, "the coming decades". So spending will become an issue in 2021? Good to know.

I actually hope Obama does NOT follow her advice, as the current pool of Republican candidates is so mutant that I am hoping President O can get hisself re-elected.

Telling America that spending won't be an issue for the rest of his first term and all of his second term is not a path to electoral success.