The Wave-Particle Theory Applied to the Chinese Economy

Is it possible for the Chinese economy to be both unstoppable and unstable? Consider John Lee’s assessment in the Wall Street Journal:

The world has been watching as the Chinese real-estate giant Evergrande flails, and some have been asking whether Beijing will soon have a moment akin to 2008’s collapse of Lehman Brothers in America. Xi Jinping may manage to prevent the burst of the real estate bubble, but China’s economy isn’t heading for more-sustainable growth. Evergrande’s woes are a reminder that China’s political economy under Mr. Xi has become even more unstable, even as Beijing grows more impatient to displace America as the dominant power. Time is not on China’s side.

concluding

Any permanent slowing of credit and restrictive lending policies will mean that even more state-owned enterprises and property developers will struggle to meet their debt obligations, putting more firms in the Evergrande predicament. At the same time, credit-issuing institutions in the formal and shadow banking industries would suffer more defaults by borrowers, which will reduce their capacity to issue new loans. That would damage China’s only reliable way of generating the growth demanded by politics.

This means that the political economy will remain largely unchanged even if Evergrande is allowed to fail. Evergrande’s model of “three highs and one low”—high debt, high leverage, high turnover and low cost—will remain the Chinese modus operandi.

I agree with Mr. Lee that President Xi and, indeed, the Chinese Communist Party will do whatever is necessary to retain economic power. Over the last 40 years China’s rapid economic growth has been a means to an end and the is ensuring that the party retains power. Should growth require relinquishing power, growth is expendable.

Meanwhile, we’re left with a question. Can the Chinese economy simultaneously be an immovable object and an irresistible force? We may be about to find out.

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The Color Commentary

I thought you might enjoy Karl Rove’s color commentary on what’s going on in Washington now as expressed in his piece in the Wall Street Journal:

There are three possible explanations. The first is that the Democratic establishment is spent. After the presidencies of Bill Clinton and Barack Obama and the defeat of Hillary Clinton, the traditional leadership of Democrats may have run out of ideas, energy and self-confidence.

This failure of nerve and imagination has left extremists in charge. Mr. Biden is like the French politician during the Revolution of 1848, who, perhaps apocryphally, said: “There go my people. I must find out where they are going so I can lead them.” The president is bowing to what he believes is inevitable—a party led by Mr. Sanders and the Squad, with him as the frontman. If you aren’t sure where this will end, look at what Jeremy Corbyn’s rise did to the British Labour Party.

A second explanation is that many traditional Democrats fear their rowdy left-wing base, which is big enough to win primaries and deep-blue congressional districts, but not purple or red territory. This may help explain the large number of Democrats in swing districts retiring from Congress.

A third explanation is that after eight years in the Obama White House being marginalized, ignored and treated as a kindly, lovable goofus, Mr. Biden likes being cheered by Democrats and media as potentially the most transformational president since FDR.

I think it’s some combination of #2 and #3. I strongly doubt that we’ve heard the last from the “Democratic establishment” or that the reins of the party have actually changed hands.

I think that the Democratic Congressional majority is so tenuous that the White House recognizes that they need the progressives and believe, incorrectly, that they can restrain them.

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The Preponderance of the Evidence

In an op-ed in the Wall Street Journal Richard Muller and Steven Quay lay out their case that COVID-19 emerged due a a leak from a laboratory associated with the Wuhan Institute of Virology:

A coronavirus adapts for its host animal. It takes time to perfect itself for infecting humans. But a pathogen engineered via accelerated evolution in a laboratory using humanized mice would need no additional time after escape to optimize for human infection. In their Nature Medicine paper, Mr. Andersen and colleagues pointed to what they considered the poor design of SARS-CoV-2 as evidence of zoonotic origin. But a team of American scientists mutated the stem of the coronavirus genome in nearly 4,000 different ways and tested each variation. In the process they actually stumbled on the Delta variant. In the end, they determined that the original SARS-CoV-2 pathogen was 99.5% optimized for human infection—strong confirmation of the lab-leak hypothesis.

SARS-CoV-2 contains a key mutation: the “furin cleavage site,” or FCS. This mutation is sufficiently complex that it couldn’t have been the result of spontaneous changes triggered, for example, by a mutagen or radiation. It could, however, have been inserted by nature or by humans. In nature the process is called recombination—a virus exchanges chunks of itself with another closely related virus when both infect the same cell. The National Institutes of Health database shows no FCS in more than 1,200 viruses that can exchange with SARS-CoV-2.

As the Intercept recently reported, a 2018 grant proposal—written by the EcoHealth Alliance, a U.S.-based nonprofit, and submitted to the Defense Advanced Research Projects Agency, or Darpa—contained a description of proposed experiments that would involve splicing the FCS sequences into bat viruses so a research team could look for changes in infectivity. Darpa opted not to fund the grant, but the absence of the FCS in related coronaviruses, together with the apparent desire and capability of scientists to make such an insertion, strongly argues in favor of the laboratory origin thesis.

Based on the scientific evidence alone, an unbiased jury would be convinced that SARS-CoV-2 coronavirus escaped after being created in a laboratory using accelerated evolution (a k a gain of function) and gene splicing on the backbone of a bat coronavirus. Using standard statistical methods, we can quantify the likelihood of the lab-leak hypothesis compared with that of zoonosis. The odds enormously favor a lab leak, far more significantly than the 99% confidence usually required for a revolutionary scientific discovery.

I don’t know whether SARS-CoV-2 was released by an inadvertent leak from a laboratory, emerged naturally from animal hosts, or was carried to the Earth on a meteorite. I have long argued for civil suits claiming damages from the Chinese government and enterprises partially or wholly owned by the Chinese state on the grounds that the rules under which civil suits proceed are different than those in the scientific world or in the criminal courts. All that is needed to prevail is a preponderance of the evidence and, like Mssrs. Muller and Quay, I think the preponderance of the evidence supports the lab leak hypothesis. What supports the natural host theory is previous experience and theory or, said another way, there is no actual evidence supporting it. If you can think of a better way to encourage the open participation of the Chinese government in the search of its origins, I’m open to it. I think it would provide a powerful incentive—trillions of them in fact.

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Messy Reality

After a quick shout-out to a topic I’ve mentioned here occasionally, the “folk economics” views that most people hve, econ prof Paul H. Rubin gets to the main point of his Wall Street Journal op-ed, which is that the economically unsophisticated beliefs of progressives lead them down a primrose path of policies which have been demonstrated again and again not to work:

Zero-sum thinking was well-adapted to this world. Since there was no economic growth, incomes and wealth didn’t grow. If one person had access to more food or other goods, or greater access to females, it was likely because of expropriation from others. Since there was little capital, a “labor theory of value”—the idea that all value is created by labor alone—would have been appropriate, and there was little need to protect capital through property rights. Frequent warfare encouraged xenophobia.

Adam Smith and other economists challenged this worldview in the 18th century. They taught that specialization of labor was valuable, that capital was productive, and that labor and capital could work together to increase income. They also showed that property rights needed protection, that members of other tribes or groups could cooperate through trade, that wealth could be created with the proper incentives, and that the creation of wealth would benefit everyone in a society, not only the wealthy. Most important, they showed that a complex economy could work with little or no central direction.

Marx’s economic system was based on the primitive worldview of our ancestors. For him, conflict rather than cooperation between labor and capital defined the economy. He thought that the wealthy became rich only by exploiting the poor, that all income came from labor, and that the economy needed central direction because he didn’t believe markets were good at self-correction. The collapse of the Soviet Union, the largest and most expensive social-science experiment ever conducted, proved Smith right and Marx wrong.

Members of the woke left want to return to policies based on this primitive economic thinking. One of their major errors is thinking that the world is zero-sum. That assumption drives identity politics, which sees, among other things, an intrinsic conflict between blacks and whites. The Black Lives Matter movement and Critical Race Theory foment racial antagonism and resurrect xenophobia. Leftists vilify “millionaires and billionaires” like Bill Gates and Elon Musk as evil and exploitative. They should recognize them as productive entrepreneurs whose innovations benefit us all.

Dislike of the rich makes sense in a world where one can become rich only by exploiting others, but not in a society full of creativity and useful inventions. Changing tax laws to soak the rich makes sense with a labor theory of value, but not with a sophisticated understanding of continual investment and technological change.

Adopting counterproductive woke policies such as racial job quotas, high taxes, excessive regulation of business, and price controls on some goods may not send us all the way back to the subsistence economy of our ancestors. But if policies that penalize saving and investing and that involve excessive government control are adopted, social capital, wealth, and real income will decline. If we bow to this primitive ideology, there will be increased racial animosity and conflict, slow economic growth, and fewer inventions.

Have you ever noticed that people who derive their understandings from secondary or even tertiary sources frequently misunderstand the point of the primary sources? Adam Smith was, indeed, the father of modern economics but his works assumed, insisted on a moral framework for the exercise of markets. He didn’t believe in a rugged individual’s war of all on all; “nature red in tooth and claw”. His emphasis was on achieving the best possible outcomes for everyone rather than absolutely maximizing wealth which may well place it overwhelmingly in the hands of a few. No, Adam Smith did not believe that class conflict (or race conflict or gender conflict) was at the root of everything but he would recognize all of them when he saw them.

The problem with a purely market economics is not that it has been tried and found wanting but that it has been found difficult and not tried. And every attempted remediation of the evils of a purely market economics itself needs to be remediated as does that remediation and so on and so on.

We don’t and won’t have a purely market system. It would be intolerable as in no one would tolerate it. So we’re stuck with the messy, messy reality of harnessing and restraining the workings of the market and the human nature on which it is based. We can’t wave them away as socialists wish they could and we daren’t remove their restraints as anarchists and minarchists dream we could. The argument should be about fine-tuning rather than about absolutes.

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Nonetheless They Persisted

I was disappointed with Thomas B. Edsall’s latest New York Times offering, promising to explain why hardcore Trump supporters continue to believe that the election was stolen from him. It starts out well enough:

Just who believes the claim that Trump won in 2020 and that the election was stolen from him? Who are these tens of millions of Americans and what draws them into this web of delusion?

Three sources provided The Times with survey data: The University of Massachusetts-Amherst Poll; P.R.R.I. (the Public Religion Research Institute); and Reuters-Ipsos. With minor exceptions, the data from all three polls is similar.

Alexander Theodoridis, a political scientist at the University of Massachusetts, summed it up:

About 35 percent of Americans believed in April that Biden’s victory was illegitimate, with another 6 percent saying they are not sure. What can we say about the Americans who do not think Biden’s victory was legitimate? Compared to the overall voting-age population, they are disproportionately white, Republican, older, less educated, more conservative, and more religious (particularly more Protestant and more likely to describe themselves as born again).

After that it quickly descends into a variant on what I think of as the “when I believe irrational or unreasonable things it’s fine but those with whom I disagree believe irrational or unreasonable things it’s vile” school of opinion writing. The formal name for it is “special pleading” and it’s a fallacy.

My own explanation is that they have an extreme distrust of government institutions. That isn’t assuaged by judicial decisions disagreeing with them, lack of actual evidence, browbeating, or accusations of authoritarianism.

My own naïve strategy for convincing them would be to exert substantial efforts to making government institutions more transparent and trustworthy but I guess that’s just me. Somewhere I picked up the notion that persuasion and confidence-building exercises are better than vitriol. I don’t know where.

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De-Trumpification

It takes the editors of the Washington Post until the very end of their most recent editorial advising President Biden how he can “avoid Trump’s mistakes with China” to get around to offering any such advice. Most of the rest of the editorial is devoted to explaining why it makes sense for the Biden Adminstration to continue the policies that Trump put in place. Here’s their advice:

What could have created a truly impactful U.S.-led counterweight to Beijing was the 12-nation Trans-Pacific Partnership that President Barack Obama negotiated toward the end of his presidency. Mr. Trump spurned it and Mr. Biden, bowing to protectionist sentiment in his party, shows no signs of reviving it. The president should change that, or else he’ll be retaining not only what his predecessor got right about China — but also his mistakes.

That’t pretty weak tea. How am I to interpret that? I think they’re embarrassed to find themselves agreeing with the Biden Administration’s decision to continue the trade policies, tariffs included, that Trump put into place.

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Welcome to the Wild West

The mounting feud between Chicago Mayor Lori Lightfoot and Cook County States Attorney Kim Foxx over a daylight shootout in the Austin neighborhood in which SA Foxx has refused to file any charges against anyone is severe enough that even the editors of the Chicago Sun-Times are moved to comment:

This was a shocking incident, even in a city that seems increasingly inured to daily violence, caught on video and described by one source as “just like the Wild West.” More than 70 shell casings were found, and many more shots likely were fired. Police apparently arrived in time to witness at least part of the shootout.

Who can blame anybody for asking: “If charges can’t be filed in a case like this, when can they?”

Who can blame anybody for thinking that the handling of this case will embolden thugs to shoot and kill with even greater abandon?

Reporter Tom Schuba wrote in Monday’s Sun-Times that the firefight, which left one shooter dead and two suspects wounded, grew out of an internal dispute between two factions of the Four Corner Hustlers street gang, according to an internal police report and a law enforcement source with knowledge of the investigation.

At least three individuals reportedly jumped out of two cars and began to shoot into a brick house. Those inside the house fired back. When the shooting stopped, those in the house refused to come out until a SWAT team arrived.

Schuba’s source said police sought to charge all five suspects with murder and aggravated battery. But instead, after discussion with prosecutors, the suspects were released without charges. On Monday, police said an investigation is continuing.

Here’s the critical part of the editorial:

Late in the evening on Monday, Foxx responded with a statement that read in part: “The detectives reached out to our office on Friday and acknowledged at the outset that given the chaotic nature at the scene they were unable to determine how the events unfolded. We reviewed the evidence that was presented to us in consultation with the detectives and they agreed we were unable to approve charges based on the evidence presented.”

Nothing? No charges? Of any sort? Though the cops arrived at the scene before the shoot-out ended? Yes, let’s hope this is not the end on this case.

A police report reportedly stated Foxx’s office cited “mutual combatants” as a reason not to press charges. “Mutual combatants” is a phrase cops use to describe, for example, two people who agree to go outside a bar and fight. Police infamously used the concept as an excuse not to investigate the case of David Koschman, the young man who died in 2004 after being punched by a nephew of a former mayor.

But on Monday, lawyers with both defense and prosecutorial backgrounds told us the idea of “mutual combatants” simply does not apply here. Not when there’s a lethal firefight in broad daylight.

That no charges were filed is absurd. There is a law on the books in Illinois banning “aggravated discharge” of a firearm. At the very least such charges should have been leveled. There’s a pretty clear prima facie case for such charges in a number of cases. Refusal to file charges under the circumstances is, at the very last, unethical.

Back at election time I opposed the re-election of Kim Foxx on the grounds that she wasn’t particularly interested in filling the statutory role for states attorneys. Her actual interests were in a role that doesn’t exist, sort of an über public defender.

The Sun-Times endorsed her.

You can’t have it both ways. Either you think that illegal use of firearms is a serious problem or you don’t. If you think it is, then enforcing laws against such uses is a necessity. Enforcing the law is the job of a states attorney.

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Strategies, Ideologies, and Campaign Speeches

The editorial position of the Wall Street Journal is neither Republican nor Democratic, progressive nor conservative. It is pro-business and neoliberal. Without that understanding this editorial is incomprehensible. With that understanding it is completely clear. The editors don’t much care for the Biden Administration’s approach to China:

How would Mr. Biden’s approach to China differ from Donald Trump’s ? The Biden Administration, she said, would “strengthen our alliances through bilateral, regional, and multilateral engagement.” She cited a settlement this summer with the European Union that resolved a 17-year feud over subsidies for Boeing and Airbus. That’s great, but what else? She couldn’t say.

Mr. Biden has maintained the Trump tariffs on European steel and aluminum, which have harmed U.S. businesses and made it harder to present a united allied front against China. But Ms. Tai wouldn’t commit to lifting those tariffs. Her plan is to “take a situation of tension [with Europe] and work through it to convert it into a partnership and collaboration.” This isn’t marriage counseling.

Mr. Trump made a strategic and economic blunder by pulling out of the Trans-Pacific Partnership. The U.S. withdrawal weakened U.S. economic influence in the region, and the other countries went ahead with what has become the CPTPP. Last month China applied to join that trade deal. How will President Biden respond?

Ms. Tai responded with diplomatic mush: “The TPP, which is the basis for the CPTPP, was something that was negotiated several years ago now. . . . And the world economy has shown us realities in the intervening years that I think we really have to pay attention to. So, you know, in terms of our continued investment and engagement with our partners and allies in the Indo-Pacific, I think what we need to do is to fully engage and address the realities and challenges that we see today.”

Asked if she thinks it’s even possible for China to change its predatory trade habits, she replied: “I think, like with anything else in life, you’ve got to look at where you’ve come from to figure out, if you’ve not gotten to where you want to go, how you correct course.” The Biden Administration’s approach “is very much about being thoughtful.”

All of this reveals an Administration that doesn’t appear to have a strategy to deal with China beyond talking tough. One explanation may be that the Administration’s main—only—priority with China is gaining a pledge to reduce carbon dioxide emissions before the climate confab in Glasgow next month.

The Biden Administration is completely understandable, too. Doing the opposite of Trump is neither strategic nor ideological but completely political. When looked at as talking points in a campaign speech, it all makes perfect sense. As strategy or ideology? Not so much.

The difference between such “mush” and practical policy is that practical policy necessarily changes in response to changing events. That is the wisdom in Lord Palmerston’s quip, “We have no permanent allies only permanent interests” and the foolishness in being reflexively pro-Trump, reflexively anti-Trump, reflexively anti-China, or reflexively pro-China. If thy right eye offend thee, pluck it out. Pursuing strategic interest is everything. Politics and ideology are nothing.

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In One Sentence

Here’s how Washington Post columnist Henry Olson sees the present political situation in one sentence:

Redistricting complicates the House picture, but Democrats should expect to lose more than 20 seats and likely more than 30 on the current dismal data.

He expands on that a bit in his conclusion:

Progressives who say it’s more important to energize the base for the midterms are wrong. Democrats’ 2018 wave was fueled much more because they won independents by 12 points than by turning out more Democrats. The Republican 63-seat House pickup in 2010 was also fueled primarily by independents; the GOP won this demographic by a whopping 19 points that year. Tea party activists claimed the credit for the win, much as progressive women’s and youth groups garnered accolades for 2018, but in each case, it was the quiet independent voters who made the difference.

Biden won independents by 13 points in 2020. To go from plus-13 to minus-13 in less than a year is an epic disaster. Republicans are standing by, ready to pick up the pieces from a crumbling presidency.

I presume that progressives believe they are winning; my own view is that they’re piloting the Democratic Party into very risky waters with practically no electoral victories to bolster their claims.

There are those who don’t believe independent voters exist but that all politics today is strictly tribal. For them the independents to whom Mr. Olson refers are actually crypto-Republicans. I disagree with that view but I will ask a question: if that’s the case doesn’t that make the prognosis even worse for Democrats?

While affiliation is something I don’t believe it’s everything. Preference, local conditions, and candidates are important as well.

I have another question. Will a victory on one of his key issues (the “infrastructure bill”, the “Build Back Better” bill, the JCPOA, global warming) turn public opinion around for President Biden?

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If You Want to Send a Messsage, Use Western Union

The editors of the Washington Post gently chide the Biden Administration for sending “mixed messages” to prospective migrants:

An estimated two-thirds of undocumented immigrants have been in the United States for more than a decade, and many in that cohort arrived at least 15 years ago. It is preposterous to think that deportation agents would target those long-term unauthorized residents, the vast majority of whom pose no threat to public safety or national security.

Yet in announcing new deportation guidelines Thursday, the Biden administration left ambiguous the question of whether its arrest priorities would exclude most noncitizens who have spent years in U.S. communities as neighbors, workers, and, in some cases, owners of businesses and homes. In effect, the guidelines amount to an ill-defined, ongoing negotiation with Immigration and Customs Enforcement, the government’s deportation arm. With good reason, it will leave many unauthorized migrants concerned about their foothold in this country.

The message isn’t that mixed. When you align their words and their actions, the takeaway is that not much will be done to deter illegal migrants so why the heck not give it a try?

The editors rather clearly buy into the hoary “jobs Americans won’t do” trope. Reality is more complex. a reliable stream of new workers allows employers to keep wages lower than would otherwise be the case. A significant number of such workers allows them to substitute unskilled labor for capital investment-requiring automation. Lots and lot of these migrant workers looks okay until you realize that these are people, they have costs associated with them, and there’s no way that the taxes they’re able to pay will pay for the services they use.

Meanwhile in her Wall Street Journal column Mary Anastasia O’Grady advises:

A proactive approach to global migrant flows would address both push and pull factors. On the pull side, a greater supply of U.S. work visas are needed to resolve a labor shortage that acts as a magnet for eager foreign workers.

Pushing the migrants is a dearth of employment, a problem that can be addressed by the resumption of a robust U.S. free-trade agenda. Now is the time to do it because companies want to move away from China in favor of “near shoring” in Central America, the Dominican Republic and Haiti, particularly in textiles. The key is to eliminate trade barriers that make the manufacturing of apparel in these countries uncompetitive.

As a general matter I favor doing a lot more of our trade with our neighbors than we do. I also favor more substantial migrant worker programs but however expanded those need to be vigorously enforced. I see little stomach for doing that in the present administration.

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