The Downfall of China (Updated)

Do you recall that I mentioned “China permabears”, commentators who were reliably anti-Chinese? I singled Gordon Chang out by name. In a piece at 1945 after explaining China’s present economic situation, Mr. Chang provides his prediction for China’s near future:

Most analysts just assume growth will moderately decline in the years ahead. That assessment looks wrong, however. “We would not just be reverting to the sustainable growth rate, but we would also be reversing much of the previously recorded unsustainable growth,” Michael Pettis of Peking University’s Guanghua School of Management predicted in a September 3 tweet.

Pettis, also a senior fellow at the Carnegie Endowment for International Peace, has politely suggested with his tweet that China’s economy will begin an extended period of contraction. Given the country’s massive debt overhang, a slowdown in reality means a crisis.

Last fall’s failure of Evergrande Group, which effectively triggered other defaults in the crucial property sector, is a warning of what will happen country-wide.

Mr. Chang has been predicting a catastrophic collapse for China for more than 20 years. This time he may be right.

I honestly don’t know what will happen. What I think should happen is that China should rely more on consumer spending and less on government spending. In particular it should abandon its insistence on food self-sufficiency.

It has been suggested that the reason China has not adopted that strategy is that it would cause the Chinese Communist Party to lose control over the country. I suspect that rather than becoming more like other economies, the Chinese authorities will increasingly centralize authority in Beijing, as Mr. Pettis suggested in a piece to which I linked last week.

Update

I think this post by Christopher Carothers at The National Interest is relevant, too:

Why has Xi led so many policies that directly harm China’s economy? Analysts have often portrayed Xi’s moves as misguided attempts to avoid larger economic ills. Xi’s crackdowns on the technology and real estate sectors aimed to prevent bubbles and rebalance the economy. Zero-Covid is an attempt to protect the country’s weak healthcare system from going overboard. New rules on the education and gaming industries are investments in the health of China’s future workers.

Yet these explanations miss the big picture. Economically costly policies have all served to enhance the regime’s political and ideological control, both over the economy and over society.

Crackdowns on tech giants are driven less by distaste for monopolies, as in the United States, and more by fears that these companies are “insufficiently committed to promoting the goal advanced by the Chinese Communist Party,” as Harvard researcher Josh Freedman found. Similarly, restrictions on real estate borrowing and cryptocurrencies reflect fears that private market forces are too powerful, and that the state is losing its leading role in the economy and its free hand to dictate policy.

Said another way, the objective is continued control of China by the CCP. Economic growth and prosperity are just means to that end.

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Why Are the Democrats So Old?

I agree with the point that Katha Pollitt is making in her piece in The Nation. The Democratic Congressional leadership is too old:

Dianne Feinstein is 89. Steny Hoyer is 83, Nancy Pelosi and Pat Leahy are 82, and Bernie Sanders is 80. Ben Cardin is 78, Richard Blumenthal is 76, Jeanne Shaheen is 75, Elizabeth Warren and Ron Wyden are 73; Debbie Stabenow is 72 and Chuck Schumer is 71. And that’s just the Democrats. In total, 46 percent of Senate Democrats and 40 percent of Democrats in the House are 65 or over. (Republicans in Congress are also way up there, but that’s their problem.) Unlike Europe, where leadership is comparatively youthful, America is a gerontocracy: President Biden is 79, and the average age of current Congress members is the highest it’s been in 20 years. That’s not good!

I had to laugh at this:

Half the US population is under 40. With the best will in the world, someone born during the Truman administration can barely grasp what life is like for them.

How about someone born during Franklin Roosevelt’s third term, like Bernie Sanders or Ben Cardin? Or during his second term like Nancy Pelosi or Pat Leahy? Or during his first term, for goodness sake, like Dianne Feinstein?

To be sure there are problems with her analysis. 22% of the U. S. population is under 18 and ineligible to vote for that reason. If what she’s saying is true, is she advocating the elimination of the age requirement for voting or serving in the Congress or is she saying that representative democracy is inherently flawed?

However, she fails to connect the dots. Why is the Democratic leadership so old?

There are multiple reasons. One of them is that like all presidents, Barack Obama picked and chose the parts of the job he cared to do and one of the things he did not care to do was cultivate a new generation of Democratic politicians. Indeed, the 2002 midterms were a bloodbath for younger members of Congress from which the party has yet to recover.

A second reason is the seniority system in the Congress. There are big benefits to serving a long time.

A third reason is that, like many members of the Silent Generation, the Democratic leadership is very insecure. I’m not entirely sure what they’re insecure about. Loss of livelihood? Loss of power? That everything will collapse without them?

The average age of the members of Congress is a full ten years older than that of the members of the Bundestadt, the French Assembly, or British Parliament. There’s a lot less difference between the average ages of Germans, the French, or people in the U. K. and their elected representatives compared with the U. S. We should ask ourselves why.

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Did It End or Was It Killed?

At Atlantic Annie Lowrey has a combination of a profile of Brad DeLong and a review of his long-awaited book, Slouching Towards Utopia, the thesis of which, apparently, is that the age of continuing GDP growth and increasing prosperity in the United States which began, according to Dr. DeLong’s reckoning, in 1870, ended in 2010.

It’s not entirely clear to me how the date 1870 was selected other than “after the Civil War” makes a convenient starting point. Here’s a graph of U. S. GDP per capita from 1790 to 2000:

which shows a rather remarkable continuity in growth going all the way back to 1790.

How he picked 2010 is easier:

Here’s my question. Did that growth just “end” or was it killed?

I think the latter and several explanations occur to me, all of which are probably true in varying degrees. For the first imagine a U. S. economy that consisted primarily of financial services and personal service that could not easily be imported. That is the world of the failed experiment called “Chimerica” and 2010 is as good a date as any to place as its beginning. For some that was a utopian vision. For me it was dystopian in the extreme. Just to cite one reason I think it dystopian, that’s a U. S. of extreme inequality in income—a handful of very, very wealthy individuals, some highly credentialed and licensed professionals, and a lot of the working poor.

Another explanation is that 2010 is when it became quite clear that the federal government would bail out big companies however poorly they performed, particularly banks.

A third explanation is that 2010 is when the federal debt went above 100% of U. S. GDP for the first time in our history.

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Which Mythology?

Heather C. McGhee and Victor Ray’s New York Times op-ed on the purpose of the public schools begins with a point with which I agree:

Why do we have public schools? To make young people into educated, productive adults, of course. But public schools are also for making Americans. Thus, public education requires lessons about history — the American spirit and its civics — and also contact with and context about other Americans: who we are and what has made us.

The original purpose of the public schools, as anyone who has read John Dewey who laid their foundation can tell you, was to acculturate the children of immigrants and inculcate American values in them, making them into good American citizens.

I was fortunate that the American history I learned in grade school and high school had considerable continuity with the American history my parents had learned in grade school but, since I was reared in a skeptical household, I also learned that the bowdlerized, mythologized history we were taught was not the entire story. The mythology included Parson Weems—that George Washington chopped down a cherry tree and never told a lie and that Abe Lincoln was a rail-splitter and that America was the last best hope of earth. I also knew about racism and the race riots of the 1920s (including the Tulsa riots) and I knew that the Founders and, indeed, no politicians were perfect. My parents taught me that racism was a terrible sin.

The question is not whether public school students will be taught a mythical history. They will be. As Korzybski put it, the map is not the territory. The questions are which mythology will they be taught and who decides?

I agree with the authors that there are aspects of American history to which students should be exposed at age-appropriate points including slavery, racism, bigotry, Jim Crow, and ongoing racism. However, I do not think that students or the country will be well-served by teaching them the mythology of the 1619 Project which includes that slavery is one of the founding principles of the United States, that slavery and racism are basic to American society, or that the United States is distinctive in its racism.

I think they’d be better off learning Parson Weems.

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Our Economic Problems Predate the Pandemic

Consider this piece at the Wall Street Journal by Nicholas Eberstadt:

Since Labor Day 2021, unfilled nonfarm positions have averaged over 11 million a month. For every unemployed person in the U.S. today, there are nearly two open jobs, and the labor shortage affects every region of the country. Major sectors are now wide open to applicants without any great skills, apart from the ability to show up to work, regularly and on time, drug-free.

Why the bizarre imbalance between the demand for work and the supply of it? One critical piece of the puzzle was the policy response to the pandemic.

In 2020-21, Washington pulled out all the monetary and fiscal stops to avoid an economic collapse. Those extraordinary interventions may have forestalled world-wide depression. But they also created disincentives for work as never before.

Padded by transfer payments, disposable income in America spiked in 2020 and 2021, reaching previously unattained heights despite the economic crisis. And after the initial steep but temporary plunge in consumer spending from the Covid shock, the stimulus-funded rebound pushed consumer demand well above its pre-Covid trend line.

Americans actually had more money in their pockets during pandemic emergency years than they cared to spend—so their savings rates doubled. In 2020 and 2021, a windfall of more than $2.5 trillion in extra savings was bestowed by Washington on private households through borrowed public funds. That nest egg could supplement earnings—or substitute for them.

Before the pandemic, as my study “Men Without Work” details, work rates for men of prime working age (25 to 54) had already collapsed to late-Depression-era levels, driven down mainly by a half-century-long “flight from work.” For each jobless prime-age man looking for work, another four were neither working nor looking by 2019.

But the current manpower shortage highlights the new face of the flight from work in modern America. With pre-Covid rates of workforce participation, almost three million more men and women would be in our labor force today. Prime-age men account for only a small share of this shortfall: Half or more of the gap is owing to men and women 55 and older no longer working. Strangely, workforce participation rates for the 55-plus group remain lower now than in summer 2020, before the advent of Covid mRNA vaccines. Why?

That can’t be explained by continuing in higher education. Young men are simply dropping out of the economy. It can’t entirely be explained by early retirement since the numbers are too large.

IMO this change is aligned with the increase in suicides:

I’m open to explanations as to why this should be. Something we’re doing isn’t working.

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How Do You Measure the Wealth of Nations?

In a piece at the Wall Street Journal Stella Yifan Xie explains why the size of China’s economy may not exceed that of the United States:

HONG KONG—The sharp slowdown in China’s growth in the past year is prompting many experts to reconsider when China will surpass the U.S. as the world’s largest economy—or even if it ever will.

Until recently, many economists assumed China’s gross domestic product measured in U.S. dollars would surpass that of the U.S. by the end of the decade, capping what many consider to be the most extraordinary economic ascent ever.

But the outlook for China’s economy has darkened this year, as Beijing-led policies—including its zero tolerance for Covid-19 and efforts to rein in real-estate speculation—have sapped growth. As economists pare back their forecasts for 2022, they have become more worried about China’s longer term prospects, with unfavorable demographics and high debt levels potentially weighing on any rebound.

Some say that China’s economy is already larger than that of the United States, relying on “purchasing power parity”. Based on purchasing power parity assessments of their economies, for example, the World Bank counts the Chinese GDP as $27 trillion while that of the U. S. is $23 trillion.

IMO that’s a misuse of purchasing power parity and that is particularly true in the case of China. “Purchasing power parity” is a method of comparing currencies by comparing the a “basket of goods” in the countries. It’s a method of comparing economic productivity and standard of living. How do you do that in the case of China that is quite opaque and does not have a exchangeable currency?

Furthermore, when you use PPP as intended, the figure to consider is the purchasing power parity per capita. Turning to the World Bank again, China’s per capita PPP is about a third that of the United States.

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Inflation Reduction Act: Next Steps

The Washington Post has a lengthy editorial, 2-3 times longer than their typical editorial, on what’s next in the climate change aspects of the Inflation Reduction Act. They provide a very sanguine prediction:

The Princeton University ZERO Lab, which models the effects of climate policies, reckons the law will reduce yearly emissions by roughly 1 billion metric tons by 2030. Before the law, the country’s emissions were set to decline by 27 percent from 2005 levels by the end of the decade. Now, Princeton’s experts predict a 42 percent cut — nearly reaching the Biden administration’s goal of halving emissions by 2030.

My prediction is somewhat different. I think that the effect of the Inflation Reduction on carbon emissions will approximate zero by 2030. The editors themselves present my reasoning:

The law foresees a vast buildout of industrial-scale solar, wind and other facilities, along with miles of new heavy-duty transmission lines to zip electricity across the country and thousands of new electric-vehicle charging stations. Because the wind does not blow and the sun does not shine in all places at all times, and because wind and solar facilities occupy more land than fossil-fuel-fired power plants, Americans will see a lot of new energy infrastructure — and, in a country in which NIMBYism is practically the national pastime, renewables operators will have to fight bitter state and local opposition to build it. Another complication: Most of the nation’s deposits of lithium and other critical minerals lie near Native American reservations, raising questions about whether and how quickly they can be tapped.

I think that most of the 7+ years between now and 2030 will be taken up by litigation opposing the constructions they approach. Some of the litigation will be on the part of environmentalists. Furthermore, the model proposed by the Princeton ZERO Lab assumes 24/7 carbon-free electricity production which does not actually exist at present and for which the prospects are actually dimming. They also do not take the increase in carbon emissions required by all of the construction required for solar and wind facilities into account.

What I think will actually happen is similar to what happened with the COVID-19 Paycheck Protection Program. There will be a sort of gold rush to secure the funds made available under the IRA. There will be inadequate oversight of the disbursement of funds resulting in billions of fraudulent or useless grants. There will be little monitoring of effectiveness.

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Allahpundit to the Dispatch (Updated)

There aren’t a lot of of bloggers who’ve been blogging continuously as long as I have. One of them is Allahpundit. I used to read his stuff occasionally because he was witty, 17 or 18 years ago when he was a solo blogger. Sixteen years ago he joined Hot Air and I don’t think I’ve read any of his stuff since. Now he’s leaving Hot Air for The Dispatch (where he’ll fit in more congenially). I found this passage in his valedictory post worth linking and quoting:

Partisan media serves two masters, the truth and the cause. When they align, all is well. When they conflict, you choose. If you prioritize the truth, you’re a traitor; if you prioritize the cause, you’re a propagandist. One recent example of the latter is the left mocking Republicans who accepted PPP loans during the pandemic for opposing Biden’s student debt bailout. The differences between those two programs would be evident to a reasonably intelligent fourth-grader but the imperative to serve the cause by rationalizing Biden’s giveaway forced liberals to treat it as a smart own. I think some even talked themselves into believing it. Propagandists lie to others, then lie to themselves to justify propagating the original lie. Propaganda rots the brain, then the soul.

That’s one reason why, when I’ve been forced to choose, I preferred to be a traitor than a propagandist. Here’s another: What is the right’s “cause” at this point? What cause does the Republican Party presently serve? It has no meaningful policy agenda. It literally has no platform. The closest thing it has to a cause is justifying abuses of state power to own the libs and defending whatever Trump’s latest boorish or corrupt thought-fart happens to be. Imagine being a propagandist for a cause as impoverished as that. Many don’t need to imagine.

The GOP does have a cause. The cause is consolidating power. Overturn the rigged elections, purge the disloyal bureaucrats, smash the corrupt institutions that stand in the way. Give the leader a free hand. It’s plain as day to those who are willing to see where this is going, what the highest ambitions of this personality cult are. Those who support it without insisting on reform should at least stop pretending that they’re voting for anything else.

I agree with others who say that, fundamentally, the last six years have been a character test. Some conservatives became earnest converts to Trumpism, whatever that is. But too many who ditched their civic convictions did so for the most banal reasons, because there was something in it for them — profit, influence, proximity to power, the brainless tribalism required by audience capture. “Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket,” Eric Hoffer wrote. We’ve all gotten to see who the racketeers are.

I agree with just about every word of that.

I do my damnedest not to be a propagandist. I try to give a wide range of points of view as fair a shake as I can. As Allahpundit observes necessarily that makes many readers, whether they lean left or right, see me as a traitor. That goes with the turf. It also makes my readership, shall we say, select.

Update

James Joyner’s take is not unlike mine. He goes on to remark:

About that: that he managed to keep his identity secret for so long (AllahPundit’s Wikipedia page still has him as “anonymous”) was remarkable enough in its own right but even more so given his professional prominence. Even by the time he started his personal blog in 2003, it was too late for him to be a failed writer. How he managed to be so prolific a daily blogger while continuing his day job is beyond me.

It also explains why he refused to accommodate the Trumpers. Intellectual honesty is the sine qua non for the scholar. We’re human, of course, prone to all manner of biases that create barriers to changing our mind. But defending ideas that you not only don’t believe but find anathema would be soul-crushing.

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Point/Counter-Point on Germany

In his Washington Post column Fareed Zakaria heaps praise on Germany:

But Germany has not given in. Confronted with these massive challenges, it has patiently sought to diversify away from a dependence on Russia, investing even more in green technology, buying liquefied natural gas, reopening coal-fired plants and even debating whether to keep its last three nuclear power plants running longer than planned. (It should.) The European Union has suggested a 15 percent reduction in the consumption of natural gas this winter. Germany is trying to achieve a 20 percent cut just to be safe. German industry is being resourceful about energy efficiency, and companies are even thinking about sharing resources with competitors, all to get through the crisis.

Initially Scholz was regarded as a lightweight, unable to match the gravitas and leadership skills of his predecessor Angela Merkel. But Merkel herself was seen in similar ways when she came to power. Over time she developed the skills and stature to gain respect from all quarters. She might have erred in trying to develop too conciliatory a relationship with Moscow, but when Russia invaded Ukraine in 2014, she was at the forefront in condemning it and persuading Europe to impose an ambitious program of sanctions. She also led the world in responding to the Syrian refugee crisis, reassuring her country by declaring, “We can do this.” As of mid-2021, Germany hosts more than 1.2 million refugees, half of whom are from Syria. In fact, Germany has managed this stunning act of integration with minimal problems.

We always underestimate modern-day Germany and its leadership. The federal republic has had a remarkable run of leaders in the post-World War II era, from its first chancellor, Konrad Adenauer, to Willy Brandt to Helmut Schmidt to Merkel — and now, let’s hope, to Scholz. Can any other country compare over the past seven decades?

but George Friedman isn’t as enthusiastic:

Germany’s foreign minister suggested this week that Germany cannot send more of its own weapons to Ukraine because it has deficient supplies. If this story is true, it means that Germany, with the largest economy in Europe, does not have the facilities to rapidly produce more weapons – despite pledging money for the production of weapons for Ukraine. The money matters, but only to an extent. The capacity of other NATO countries to provide weapons to Ukraine has production limits as well.

and

Germany’s weapons deficit reveals as much. Given its position as the largest European economy and as a NATO member, it is reasonable to have expected Germany to maintain or build weapons production facilities out of a sense of responsibility. It could have also led the EU writ large in creating weapons production capacity or fostering the growth of a European military. Since the EU’s annual gross domestic product is roughly the same as America’s, that would have allowed the Europeans to absorb the risk of waging a Ukrainian war with European weapons and forces.

Since a war in Europe was farfetched when the EU really got rolling, no one wanted to fund such an undertaking, leaving it to NATO, and therefore the United States – a most cost-effective measure. But the underlying truth is that the EU consists of members who don’t much trust each other. The command structure of a European military would be hotly contested, and the growing power of some countries would surely be discussed.

It is dangerous to be rich and weak. Such nations are frequently seen as a tasty meal. That is how Europe appears to global predators. The United States, which is both rich and strong, has to defend Europe because the wealth, technology and knowledge of Europe in the hands of other states might imperil the United States. The Europeans have for centuries mastered the art of using weakness effectively.

IMO it’s too early to tell for certain what’s going on with Germany. I think that the Germans are hoping that the war will end soon and they won’t need to reduce their oil and gas imports from Russia as as much as they’ve promised they would. It’s a lot easier to be bold when you know that the United States will pay to defend you.

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Okay, What Was the “Bad Policy”?

I materially agree with Libby Watson’s op-ed in the New York Times. I agree that to whatever degree Amazon actually thinks it can solve the problems with our health care system, it’s either mistaken or selling snake oil. Here’s the meat of the op-ed:

Any company claiming its innovation will revolutionize American health care by itself is selling a fantasy. There is no technological miracle waiting around the corner that will solve problems caused by decades of neglectful policy decisions and rampant fraud. And a fix aimed at just the upper crust of employer-sponsored health coverage has no hope of making health care more accessible to those who are truly being left behind.

And I agree that we’ve had a half century or more of bad healthcare policy.

However, the problem with our healthcare system cannot be that it is employer-based. Germany’s healthcare system is employer-based. So is Switzerland’s. It also cannot be that we don’t have a single-payer system. Neither Germany nor Switzerland have single-payer systems.

Here’s her conclusion:

Amazon is right about one thing: American primary care is troubled. Reams of evidence show that good primary care improves health and lowers costs, yet primary care is one of the worst-paying fields in medicine. Independent practices are increasingly being absorbed by larger hospital systems, which can more easily make money on referrals to their specialists; this process further drives up health care costs. America spends more than twice what other wealthy countries spend on health care, while also having worse health outcomes. We have it all backward.

This imbalance results from a thicket of incomprehensible financing systems. Hospitals say they lose money on treating Medicaid and Medicare patients, and therefore must charge private insurance more to make up the shortfall. Prices are negotiated with insurers for thousands of individual procedures and services, but even the hospitals themselves might not know how those numbers relate to any real costs incurred. Insurance companies make an increasing portion of their huge profits running Medicare Advantage plans, which have received billions in inflated payments for claiming their patients are sicker than they are. Wealthy hospitals abound in rich areas while rural hospitals close.

Note that the explanation she provides doesn’t point to a way to reduce costs or slow the rate at which they’re increasing. Her explanation also has a hard time justifying why physicians continue to accept Medicare patients at all. Only 1% of non-pediatric physicians have actually opted out of Medicare.

I think the underlying problem is that the U. S. is a very large, very diverse country with very low social cohesion. Wishing that we were a small, compact homogeneous country with high social cohesion doesn’t help.

I wish I had a neat, plausible solution to the problem but I don’t. At least not one that’s politically possible.

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