Tag Archives: political economy

A Hot Hand

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As economic managers, Chinese leaders have been in a league of their own for the past quarter century.

They’re the product of a bureaucratic system that, at its best, weeds out underperformers, rewards achievement and prizes experience. By the time they reach the very top, most leaders have run provinces the size of whole countries. Their image of competence has been reassuring at home—and acknowledged abroad—at times of crisis. And they’ve delivered success: China’s economy grew faster, and for longer, than any in history.

That’s how Andrew Browne opened his recent piece in The Wall Street Journal. Then he added,

Now, as growth slows sharply and markets fear more bad news, the stewards of the world’s second-largest economy appear to be losing some of their golden touch.

No. There are some misapprehensions here. One is tacitly acknowledged, apparently without recognition, by Browne:

According to international economists who have been briefed at a high level in Beijing, it became clear that regulators didn’t have a clear picture of huge money flows from the banking system to the stock market that were inflating a bubble.

That’s just it: central planners never have a clear picture of huge money flows, whether from the banking system to the stock market (which is puny, in any event, relative to the PRC’s economy when it’s compared with, say, the DAX, or FTSE, or NYSE, or…), or to any place else, or from any place else. Central planners have no clear picture of any aspect of the economy they’re pleased to mess with regulate.

The PRC’s economy, though, grew faster and longer than any in history? It grew from very deep depths, a bottomed-out baseline that featured frequent famines and mass starvations, backyard iron mills, and the like. And it grew on the largest population in history. Against that basement-level baseline and that population on which to erect an economy, a high schooler learning to spell economics could have “regulated” the thing in that kind of growth.

The PRC’s economy, though, grew faster and longer than any in history? It grew from those depths in an era of unprecedented free trade and globalized and entangled economies. The PRC’s cheap labor, coupled with easy shipping and already developed manufacturing techniques coming in from outside the PRC potentiated the growth.

That bureaucratic system that has weeded out underperformers and rewarded achievement and experience—brought to the top guys who’ve run provinces the size of whole countries? Define “achievement” and “experience.” These guys have achieved a lot in the political game, in the game of rising to the top of economies, and of doing so where the cost of money—actual budgeting—has never been a factor. These guys have not achieved overmuch in business, much less in economics; their experience here is…low.

No, as any poker player can recognize, the PRC was just the guy at the table who got to play a hot hand. Now the PRC’s economy has grown up a lot, the stakes have gotten larger and more complex, and the Chinese central planners, like all central planners, have gotten in over their heads, and their lucky streak has played out.

Trump and Immigration

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Republican Presidential candidate Donald Trump wants to deport all illegal aliens and sharply restrict legal immigration. I’ll leave the foolishness of the first for another post; I’m more interested in the restriction on legal immigration Trump is proposing here.

He also calls for “a pause” in all immigration, for an unspecified period.

That was buried in the WSJ op-ed at the link. I’ve not seen anything even remotely definitive on Trump’s plans for Social Security, so I have to ask: how does he plan to fund that program?

When Social Security was created, it was an income supplement program, retirees had an average lifespan in retirement of around five or six years, and there were seven workers paying into the system for every retiree taking out. Today, Social Security is an income replacement program (if not at a 100% rate), retirees have an average lifespan in retirement of around fifteen years, and there are only three workers paying into the system for every retiree taking out, and that number is falling toward two.

How does Trump plan on increasing the supply of workers paying into the system, absent increased immigration? Alternatively, how does Trump plan on funding Social Security payout per retiree at current the current level? Alternatively, how far does Trump plan on reducing the Social Security benefit payout?

There are a lot of ways to deal with Social Security; I’d like to hear Trump’s way in combination with his immigration policy.

Democrat Disingenuosity

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An example is provided by a Wall Street Journal op-ed.

President Obama says that critics of his plan to decarbonize the economy are “the special interests and their allies in Congress” repeating “the same stale arguments” about “killing jobs and businesses and freedom.” He adds that “even more cynical, we’ve got critics of this plan who are actually claiming that this will harm minority and low-income communities.”

His EPA, though, has let the cat out of the bag in its Clean Power Plot Plan:

The EPA authors are careful to reiterate that “its benefits will greatly exceed its costs.” (Sure.) But then they ever so gingerly observe that “it is also important to ensure that to the extent there are increases in electricity costs, that those do not fall disproportionately on those least able to afford them.”

The actual cynicism is in the Democratic Party’s assumption that Americans are so stupid we won’t see, or won’t care about, this naked redistribution plan. On the other hand, Obama’s EPA did very carefully bury the plan 1,500 pages in to its 1,560-page Plan.

Blunder or Opportunity?

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Russia has filed a claim for some 463,000 square miles of Arctic Sea “coastal” shelf, extending more than 350 nautical from Russia’s Arctic Sea shore. Russia intends to exploit the vast oil and natural gas deposits below the sea floor.

Senator Dan Sullivan (R, AK) thinks has demurred, thinking this in combination with Russian military force transfers into its northwest coupled with our own military drawdown is a “strategic blunder.”

Aside from Russia’s land claim and the military contrast not being particularly related to each other, Sullivan is badly overstating the implications of Russia’s seabed claim before the UN. In fact, this is a vast opportunity for us, did we have an administration astute enough to take advantage of it.

Certainly, we should oppose the claim itself, if only to retain the accesses to those deposits, along with the rest of the sea bed’s deposits, for ourselves and for our friends and allies. However, Russia’s Exclusive Economic Zone already extends for 200 of those 350 miles; reaching another 150 is significant, but if the territorial claim is blocked, it’s not that big a deal.

Now. Notice that phrase “vast…deposits.” Recall, too, that Russia’s economy is almost exclusively an extractive one, that is, the revenue Russia earns from trading with the world is almost exclusively from selling physical assets—and physical assets have finite supply. In his case, those Russian assets are oil and natural gas (much of it underneath Siberia and as yet undeveloped), and Siberian timber. Finally, recall that Russia needs oil prices to be above $110/barrel in order to balance its budget (as long as it’s as dependent on oil exports as it is), while oil prices following the shale and fracking boom in the US and Canada have been in the $50-$60 range for the last couple of years, and it will remain so for the foreseeable future.

While we should oppose the claim itself, we should be helping Russia develop and extract all that oil and natural gas (while retaining access to the technology itself. Russia already has played out most of the oil and gas that it can with its own technology; it needs western—or Chinese—technology in order to extract the rest, like that below Siberia, for which it’s working on a deal with the PRC). With that large increase in supply, the price of oil (and of natural gas) will remain depressed compared to what Russia needs to balance its budget if the price doesn’t fall further from this supply increase.

This could be a big win for us.

The FTC Misunderstands

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The Federal Trade Commission in its 100-year history has never agreed on formal principles for policing companies engaged in “unfair” competition. That looks set to change.

Members of the FTC are close to a bipartisan agreement to lay out for the first time how the commission views its authority to bring cases against businesses it believes compete unfairly, according to people familiar with the deliberations.

An accord would be a breakthrough for Democrat and Republican commissioners who have clashed over when and how the FTC should deploy the century-old Section 5 of the FTC Act in enforcement matters. The provision declares “unfair methods of competition in or affecting commerce” to be unlawful. But the agency has faced criticism that with no formal guidelines or parameters, it is hard for anyone—businesses as well as regulators—to know what may be considered unfair.

“Unfair” in this context is a purely legal definition, and there already are laws on the books governing what is and is not permissible in our commerce. We have anti-trust laws that govern abuse of monopoly power. We have truth-in-advertising laws that govern how businesses can market their products. We have contract laws that sanction dishonesty in contract negotiations and that define liability when mistaken, but fundamentally honest, statements are made in those negotiations.

That’s all that we need, that’s all the FTC needs, and the FTC has had that for well over 100 years, dating at least to the Sherman Antitrust Act. This new “accord” will be just another bureaucratic nightmare, adding layers of compliance requirements and determinations to any FTC action—and so elevating costs for any business the FTC contemplates violating in some way.

Underlying all of that is all of this: Americans don’t need a rule, or a “guideline,” to govern every aspect of every action in their lives.