Sunday, July 26, 2009

Sometimes You Need to Take a Step Back Before You Move Forward

Or at least that's how I would prefer to think of some of events happening in the US and China. Here are a few developing stories:

  • "Forget about a stock bubble, China's entire economy is about to burst" (FP). I think there's a bit of oversimplification here in terms of making broad generalizations about how easy it's been for China to stimulate its economy. I don't doubt however that the massive amounts of new credit will result in an equally massive amount of bad debt. Not helping things are the traditional levels of, er, inefficiencies in the economy as Victor Shih reminds us that 90 per cent of China's billionaires are the children of high-ranking officials.

    Update: China - Where wealth trickles up (WSJ): "Peasants and migrant workers, who compose more than 65% of China’s 1.3 billion people, aren’t benefiting much from this growth [...] according to official statistics, salaries and other income of workers and peasants as a percent of GDP declined to just 41.4% in 2006—the last year when data was available—from 53% in 1998; salaries typically are 50% to 60% of GDP in developed countries like the United States or Japan. "

  • On the other side of the pacific, things don't seem that much better as a recent poll suggests that half of the American public believe that the American dream is dead (theAtlantic). While I have to imagine that today's economy has something to do with it, I also think that it may end up getting worse before it gets better as Irwin Steltzer observes that in the Times UK "Trouble ahead as politics replaced market forces."

    The problem is that recessions are supposed to be cleansing events, washing the bad away to make way for the good - but this one is different with governments around the world intervening in the process playing favorites amongst companies and industries and centralizing decision making. The one at the top of the agenda today is healthcare. As Greg Mankiw points out, there are good reasons we should be concerned:
    I tend to distrust power unchecked by competition. This makes me particularly suspicious of federal policies that take a strong role in directing private decisions. I am much more willing to have state and local governments exercise power in a variety of ways than for the federal government to undertake similar actions. I can more easily move to another state or town than to another nation. (I am not good with languages.)
    To say nothing of the key argument that medicare administrative costs are lower than that of private insurance is simply false (Heritage).

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