Archive for the ‘economy’ Tag

Thoughts on China’s economy

Did you know that red was Karl Marx's favorite color?  Anyway, the PRC has a good flag.

Did you know that red was Karl Marx's favorite color? Anyway, the PRC has a pretty good flag.

Jonah Goldberg, editor and columnist for National Review Online, raises some interesting questions about the Chinese economy.  He is skeptical of all the claims that China will surpass the United States economically in 2027 (or whatever year people are now predicting) on account of some serious structural problems with China’s institutions.

Ask yourself this: Why are we in this financial crisis?

Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.

Does anyone honestly think China doesn’t have these problems ten times over? It has no free press, no democratic accountability, and no truly independent regulators.

After every Chinese earthquake, we discover that safety inspectors couldn’t be trusted to oversee the construction of schools and hospitals. And we’re supposed to believe that China’s corrupt model produces toxic baby formula but spic-and-span finances?

Goldberg calls China’s entire economy “one big Fannie Mae” and suspects it won’t be anytime soon that the People’s Republic surpasses the United States as the world’s leading economy, just as predictions in the 1980s that Japan would do so proved incorrect.

People selling their bodies to make ends meet in bad economy

MSNBC has a story about people selling their bodies for money to make ends meet in the current economy:

Increasingly, industry officials say people are hoping to trade spare body fluids, tissues and other parts for payments that can range from $20 to $50 a pop for blood plasma to $60 to $100 for a shot of sperm, $200 for a shiny ponytail and up to $7,000 for a fertile egg.

At the Seattle Sperm Bank alone, donor applications have tripled from 50 to 150 a month during this financially precarious autumn, staff members said, while officials at egg donation agencies from Chicago to Houston estimate that calls are up at least 30 percent over last year.

Apparently, sperm donors can make $60 a pop ten times per month.  But according to one industry insider, only 9 out of 1000 applicants are finally approved (medical reasons and failing a background check are two possible pitfalls for would-be sperm donors).

If you clicked on this post thinking it was about prostitution, you need not be disappointed.  ABC News reports that Nevada’s brothels, which operate legally, are seeing a big increase in the number of women applying.  (In the video report one brothel owner said she had a 72-year old woman apply!)  While demand for prostitutes has remained steady, incomes are down as the customers have less money to spend.

I hope I’ll be excused for not including any images with this post, but Nevada’s flag is really lame.

Eliot Spitzer: bailouts a bad idea

Eliot Spitzer, the former Attorney General and Governor of New York State who resigned the later office amid a prostitution scandal, has an interesting op-ed on the current bailouts and America’s economic problems in general.

[C]urrent bailouts—a remarkable $7.8 trillion in equity, loans, and guarantees so far—may merely perpetuate a fundamentally flawed status quo. So far, at least, we are simply rebuilding the same edifice that just collapsed. None of the investments has even begun to address the underlying structural problems that are causing economic power to shift away from the United States, sector by sector.

This long-term change frames the question we should be asking ourselves: What are we getting for the trillions of dollars in rescue funds? If we are merely extending a fatally flawed status quo, we should invest those dollars elsewhere. Nobody disputes that radical action was needed to forestall total collapse. But we are creating the significant systemic risk not just of rewarding imprudent behavior by private actors but of preventing, through bailouts and subsidies, the process of creative destruction that capitalism depends on.

Spitzer argues that, instead of rescuing these financial giants as they currently are, we should take this opportunity to rethink how these institutions are set up.  He says the gigantic financial institutions that currently exist create three problems: (1) they become too bloated and inefficient; (2) with fewer banks and other institutions competition is decreased; and (2) they become “too big to fail.”  The first problem could be solved by market forces, given time; the later two cannot.

The erstwhile governor argues that “the better policy is to return to an era of vibrant competition among multiple, smaller entities—none so essential to the entire structure that it is indispensable.”  If we’d done that previously, we might not have to throw trillions of dollars at these companies now and could dedicate the funds to solving other problems like:

  • our incredibly low, if not negative, household savings rate;
  • our huge trade deficit;
  • our huge budget deficit; and
  • middle class stagnation.

It’s an interesting article.  Unfortunately, it does a much better job demonstrating the problems than pointing out their solutions.

Divided government

Conservative Washington Post columnist George F. Will has a recent op-ed in which he says that the possibility of divided government is good for John McCain. Since the Second World War, 19 of 31 election cycles have resulted in divided government–one party controlling the presidency and the other controlling the Congress; Americans seem to like this and, as there is little chance that Republicans will control Congress in January, the only chance for divided government is a McCain victory.

Will brings this up again in a more recent editorial, where he points out that over the past 50 years government spending has increased an average of 1.73 percent annually during periods of divided government, but that rate more than triples, to 5.26 percent, for periods of unified government.

Using a similar type of analysis, Slate has a recent article in which they point out that the economy seems to do better under Democratic presidents than under Republican ones–using metrics that conservatives find most important. Looking at the post-1959 economy, they report that Democratic presidents have been better than Republican ones on GDP growth (4.09% vs. 2.94%), inflation (3.81% vs. 4.5%), defense spending (higher under Dems), non-defense spending (lower under Dems), and a better federal budget deficit/surplus situation (-1.21% vs. -2.7%). Only federal taxes (slightly lower under Reps) were more in line with conservative ideals under Republican presidents.

There are too many variables to draw terribly firm conclusions from the data in the Slate article; there isn’t a large enough data set anyway. But it implies that perhaps the ideal situation is a Democratic president and a Republican congress, which is what did occur during six of the eight Clinton years during which the economy did quite well indeed.