Dissenting View on how Economic Turmoil will affect China

From Time Magazine:

"You can tell that the senior leaders know political change will come to China eventually and that the Party can't hang on indefinitely," says the diplomat. "That's why 90% of their children are in business, not working their way up the Communist Youth League or whatever. But that change is 15, 20 years down the road. That's not going to happen now, even if it is a very bad downturn. Change will come to China. But not yet. Not now."

I get the sense though that communications technologies are becoming increasingly difficult for the Party to monitor and control. The point about the kids of Senior Members is an interesting one however - and while it is an indication of how things have changed in where Party members see that they can accumulate the most wealth, money/prestige, it's also part of the problem. From China Digital Times, in 2006:

90 percent of China’s billionaires are children of senior officials. There are about 2,900 senior officials’ children in China, with total wealth amounting to two trillion yuan. Their businesses mainly cover 5 areas: finance, foreign trade, land development, large-scale projects, and bonds and securities. They either own their businesses or are senior managers in big companies.

What Not to Do

New Jersey (WSJ).

Like Shooting Fish in a Barrel

Johan Norberg debunking left-wing 'hero' Naomi Klein (via Instapundit):

Silver Lining: Why the Global Economy may Rebound Faster than Some Think

Amid all the doom and gloom mutterings, here's a somewhat refreshing and hopeful opinion from the Wall Street Journal on why we may experience a rebound faster than anticipated:

Consumers in many parts of the world are in relatively good shape. That statement might strike many as absurd, given the mantra of "consumers have been living beyond their means." But it's not just the third of American households that have no mortgage, or the 50% savings rate in China, or the still massive wealth accumulation in the Gulf region, Brazil and Russia. It's that the credit system, even at its most promiscuous, didn't allow consumers to take on the obscene leverage that financial institutions did. Millions of people who shouldn't have been lent money were, either in mortgages or through credit cards. But they couldn't be levered 40-to-1 as investment banks and funds were.

People have also reacted swiftly to the current problems, paying down debt and paring back purchases out of prudence or necessity. That's a short-term drag on economic activity, but it will leave consumer balance sheets in good shape going forward. Low energy prices and zero inflation will boost spending power. Even if unemployment reaches 9% or more, consumer reserves in the U.S. and world-wide are deeper than commentary would suggest. Household net worth in the U.S. is down from its highs but is still about $45 trillion. As the credit system eases, historically low interest rates also augur debt refinancing and constructive access to credit for those with good histories and for small business creation in the year ahead. Entrepreneurs often thrive when the system is cracking.

Chinese Corruption Meets the Internet

From the WSJ's China Journal:

China’s Internet vigilantes have been known to cost individuals their privacy, peace of mind, and jobs for engaging in anti-social behavior, animal cruelty, adultery or perceived slights towards China. This has led to some soul-searching about the appropriate limits of China’s free-wheeling Internet culture, with a couple of recent lawsuits pointing the way to greater regulation of netizen behavior.

Lately, though, the infamous ‘human flesh search engines’ seem to be setting their sights somewhat higher, as a string of recent high-profile cases involving officials attests.

More here (ChinaStakes). There's also a somewhat scary downside to how quickly Chinese netizens are being stirred to action. I have to imagine that at least some within the Party who are getting nervous about this - especially when there isn't an easy way that popular discontent gets managed as it does in democracies. Who knows if this will make a difference? My sense is that it will only drive the activity that is generally quite blatant, underground.

Idealists, Mercenaries and Commerce

Glenn Kelman, the CEO of Redfin writes it far better than I ever could (TechFlash):

Yes, money is the lifeblood of a startup, but in trying to convince us it is everything else too, the mercenaries are attacking what they've always hated most about us: our soul.

Read the whole thing. This also ties into the whole silly microfinance commercialization debate. Nick Kristof had a column in the NYT a few days ago asking "if a businessman rakes in a hefty profit while doing good works, is that charity or greed? Do we applaud or hiss?". What is it about businesses who profit in the process of doing good that brings out the nastiest in some people? Especially those who supposedly claim to do what they do for far purer motives (but in far less efficient and in thoroughly unprofitable ways?).

It's almost as if some people think that if you make money at it, regardless of how much good you do, it just doesn't count. Apparently being a bloodsucking profiteer is a far greater sin than being entirely (or perhaps just more) ineffective. The related issue that Kelman brings up, is that among profit motivated firms, firms with purpose often outperform (though admittedly the evidence seems more anecdotal than empirical). I totally agree (and want to believe), but then again, I'm an idealist.

Update: Forbes explores yet another related question - why Americans give so much to charity relative to the rest of the world: "The other cynical motive often attributed to givers is that they are building monuments to themselves: They desire to be remembered. But I can't see how this kind of self-interested giving is a bad thing. In some cultures, tradition dictates that the wealthy extend lavish hospitality in exchange for respect; this has the benefit of spreading food and resources around."

Chinese Food: As American as Motherhood and Apple Pie?

Another cool video from TED that reveals strange and interesting facts about Chinese food and its permutations in the US (many of which also apply to Canada):

Er, well, someone has to pay for it...

As governments bail out all these companies that are supposedly 'too big to fail' guess who ends up having to pay for it? (Five Million Dots) I'm surprised not more people get this idea that the money has to come from somewhere. They're going to have to tax someone. I guess for most people, they think it's going to be the other guy?

Blame China...

For having the temerity to save (NYT)? There are lots of reasons why you might criticize Chinese policies (that have also generated millions of jobs and brought millions of families out of poverty while improving the standards of living for hundreds of millions around the world), but this one being trotted out by the New York Times is pretty absurd.

The New Deal, Government Spending and Rent Seeking

The New Deal was "clean" and free of corruption, at least according to Paul Krugman? Perhaps not so much (EconLib). Does it really surprise anyone, particularly given how widespread earmarking is (PorkBusters), that individuals and companies would now seek to profit from the US government's new interest in spending trillions of dollars?

Bizarrely, despite the fact "the Federal Register, a list of regulations, reached an all-time high of nearly 79,000 regulations, up from nearly 64,000 in 2001; [and] new regulations have mounted rather than diminished under the Bush administration," (David Polanyi, RealClearPolitics via Forbes) there are those who think that "laissez faire economics is to blame" (Huffington Post). Quoting Polanyi, Forbes' Karlgaard notes:

Huffington argues, in effect, that communism and "laissez-faire" (minimal-intervention) capitalism are equivalent ideological extremes. Sure, one of these philosophies spurred the murder and misery of hundreds of millions worldwide; the other promotes liberty, innovation and welcomes foreigners to lounge around in expansive mansions paid for by their former oil baron husbands. [Note: Huffington, for those of us who aren't avid political buffs, happens to be such a foreigner]

Given the choices in the last US Presidential election, it's clear that opponents of markets have won a battle (I'm under no illusions that McCain would have done any better but possibly even worse given the most recent events). Bloomberg profiles the Chicago School of Economics in the midst of this mess (via Freakonomics):

At the University of Chicago, once ascendant free-market acolytes are finding themselves in an unusual role: They’re battling a wave of government intervention more sweeping than any since the Great Depression as the U.S. struggles with the worst recession in seven decades.

So what's the motive, for blaming markets/capitalism, if opponents are so wrong? Most importantly power with which they seek to profit (the Bailout of the UAW being a case in point, via Instapundit and IBD). According to Kargaard:

As you partake of the media, look for “the worse, the better” bias in everything you see or read. Know that the Manhattan media (what's left of it) and the Washington political establishment are itching to expand their influence and control over American life. They are at war with the entrepreneurs, small-business owners, libertarians and church-going families who donate the highest proportions of their income to charities.

For the media and political classes, it's "the worse the better," even if one must fudge the worse.

I'm all for Innovating but... "Bio-Hacking" in your Garage?

Not that I think we can or should do anything about this, but it's sort of cool (and downright scary) that it's now possible to 'tinker with the basic building blocks of life... in your garage' (Yahoo! via Instapundit):

Many of these amateurs may have studied biology in college but have no advanced degrees and are not earning a living in the biotechnology field. Some proudly call themselves "biohackers" — innovators who push technological boundaries and put the spread of knowledge before profits.

In Cambridge, Mass., a group called DIYbio is setting up a community lab where the public could use chemicals and lab equipment, including a used freezer, scored for free off Craigslist, that drops to 80 degrees below zero, the temperature needed to keep many kinds of bacteria alive.

(Beata, that may explain any odd looking animals lurking about your 'hood).

Not Sure How I Missed This...

But this is a Christmas everyone can celebrate! Just Lovin' It (via I Believe in Advertising):

Working Out When You're Sick

I wish I knew this (NYT) before I got my cold as I was coming home for Christmas.

More on Paul Ehrlich and John Holdren

From Ross Douthat (the Atlantic), via Instapundit:

It is, I suppose, possible to find a "key insight" about population growth in Ehrlich's book that's anodyne enough to qualify as "elementary" and irrefutable. But there's a pretty good reason that the book is remembered primarily for its mix of hysteria and moral idiocy: When you kick off your argument by predicting that "the battle to feed all of humanity is over," and that "in the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now," and then proceed to argue for mass sterilization programs, the quarantine and abandonment of countries too overpopulated to save from total collapse, and various other "triage" methods (honestly, The Population Bomb has to be read to be believed), you pretty much forfeit the right to be praised for your prescience forty years down the line.

Merry Christmas!

For many of us on the north eastern seaboard (in North America) it was as if Will Stanton joined the signs a day early - first it snowed like crazy and then it rained for a day. Hope you're having a Merry Christmas, find yourselves with close friends and family, and are enjoying holidays that haven't been too back breaking!

Technology Hacking for the Bottom of the Pyramid

Profiles of two cool ideas (yes, I'm in the process of clearing out my tabs):

1. Using a cheap camera phone to detect blood borne diseases (CrunchGear)
2. DIY adjustable glasses to help the world see better, at a target cost of a dollar each. (Guardian)
   

How Trade Affects Jobs

There have been lots of articles that have compared the profit margins of Apple versus those of some of their manufacturing partners, but what about American jobs? From the Economist Blog:

The authors found iPods employed 41,170 people worldwide. About 27,000 of those jobs went overseas, but most of those were the low-wage and low-skill jobs involved in production. Only 30 Americans had jobs involved in iPod production. But 13,890 jobs were created in the engineering or retail sector. These Americans earned $753m from iPods, while overeases employees earned $318m. Americans earned more because Apple kept the high-skill jobs (the R&D side) at home and sent its manufacturing abroad. But America's lower-skill workers also benefited, mainly in the retail, non-professional sector. These jobs earned American workers more than $220m.

As long as America has a labour force of competitive, skilled workers, it will still reap the benefits of innovation and benefit from trade. An interesting question is what wages and jobs would have been if more production had taken place in America. If that had been the case, iPods would have been more expensive. Apple would have faced less demand for the new models that are constantly being trotted out. This probably would have meant fewer well-paid skilled jobs.

Unfortunately as is usually the case in economic downturns, trade barriers are mounting (Washington Post) - this despite the overwhelming evidence that trade creates more jobs than it destroys, makes us wealthier and makes life more affordable for the poor. With China's rapid economic deterioration (Economist Blog reporting growth possibly dropping down to 0% from an originally forecast 5-8%), one possible silver lining is that it's not only China's leaders who are worried about social unrest.

Why Paul Ehrlich's Unsustainable Bet Still Matters

John P Holdren, the lesser known participant in the Julian Simon-Paul Ehrlich bet, has been appointed Science Advisor to Obama's Administration. As John Tierney points out on what the bet matters (NYT):

[The bet] was about a fundamental view of how adaptable and innovative humans are, and whether a rich modern society is “sustainable.” Dr. Holdren and his collaborator, Paul Ehrlich, were the pessimists.

The world's problems will be dealt with in two ways:

1. With a raft of regulations to restrain behaviour, by so doing, doubting the the ability of humanity to adapt and assuming humanity to be limited to the imaginations of regulators or,
   
2. Ensuring incentives exist that allow society to adapt and innovate as they have since the dawn of time.
   

Dr. Holdren's past choices and published views leave little doubt of how he views the world. Despite Obama's his otherwise moderate appointments in key areas of Defense and Treasury thus far, appointments like these make me think that Holman Jenkins' predictions will hold true: Get ready for a Lost Decade (WSJ).

Best Description I've Seen for What's Happening in the Capital Markets

From Rich Karlgaard at Forbes:

Capital is on strike now. It is one of the causes of the crash of 2008 and the fourth-quarter mini-depression. [...] It goes on strike when it is attacked or when the rules are unclear.

The solution? Make it more worthwhile to invest money by cutting capital gains. Heritage Institute excerpts from Clive Crook in the FT, Michael Malone in the WSJ and Frederick Smith from FedEx writing in the FT:

• From Clive Crook:
  

  It also requires an investment of political capital and a willingness to advocate open domestic markets as the best way to secure long-term US prosperity. The new president has plenty of capital, and if anybody can persuade the public of the virtues of liberal trade, it is Mr Obama. But this is a message that much of the country and most of his political allies are in no mood to hear.

• From Michael Malone:
  

  From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators [...] The new laws and regulations have neither prevented frauds nor instituted fairness. But they have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship. [...] If Mr. Obama is serious about getting the country out of this recession using something more than public make-work projects, he should restore the integrity of the new company creation cycle: rewrite full disclosure, throw out options expensing, make compliance with Sarbanes-Oxley rules voluntary, and if he won't cut it, then at least leave the capital gains tax rate alone.

• From Frederick Smith:
  

  Our tax system is particularly onerous for asset-intensive, industrial businesses such as manufacturers and transport companies. For example, Caterpillar, Boeing, FedEx, commercial airlines and carmakers produce goods and services and provide jobs for millions. But to maintain or increase jobs and compete globally, these companies must be able earn an acceptable return on capital expenditure.

  How can we make US companies more competitive and increase their ability to offer good jobs? Two things: accelerate the expensing of capital investment; and reduce the corporate income tax rate.

Of course, not to be outdone, the New York Times has (to put it charitably), misquoted an academic on why capital gains should be taxed (Donald Luskin). Perhaps sadly, the coming administration appears to have little interest in ensuring that dissenting views on a massive spending package for stimulus are heard (Greg Mankiw) though the empirical data suggests that in the very least tax cuts should be considered (Marginal Revolution). In the very least, a more considered approach rather than what appears (at least from a distance) to be absolute panic spending hundreds of billions of dollars in hopes that the carnage will stop, would appear to be too much to hope for. I just hope Americans are prepared for the risk of massive inflation and higher taxes in years to come.

What China Fears Most

The reason democracies are considered one of the most stable forms of government is that people have an outlet for discontent beyond a violent overthrow. As the economy was rising people in China ignored the technocrats and their suspect gains because everyone was getting wealthier (or at least the opportunities were abundant to do so). With the economy collapsing, people won't nearly be as forgiving.

While there has always been sporadic labour unrest at any number of private factories, strikes have become increasingly frequent and it would appear the legions of cabbies going on strike is just the beginning (WSJ). My guess is that the government will become increasingly desperate to respond - and if their fiscal stimulus proves to be insufficient (given their inability to change the structure of their economy fast enough), they will increasingly rely on scapegoating foreigners (China Law Blog) and seek populist measures (too bad they can't blame Canada (Metacafe)). More inconveniently, I worry they'll blame Japan and Taiwan (and unlike South Park, they may actually mean it). It's just beginning.