Quote for the day – John Adams

The science of government it is my duty to study, more than all other sciences; the arts of legislation and administration and negotiation ought to take the place of, indeed exclude, in a manner, all other arts. I must study politics and war, that our sons may have liberty to study mathematics and philosophy. Our sons ought to study mathematics and philosophy, geography, natural history and naval architecture, navigation, commerce and agriculture in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry and porcelain.

When will China overtake the US economically?

http://piaohaoreport.sampasite.com/blog/When-will-China-overtake-the-US.htm

ZII: Ah, all this reminds me of the wonderful days of my youth when the Japanese global takeover was in process. The flavor of the argument is almost exactly the same, and if you squint a little you will find the numbers to be almost the same too. I am not old enough to remember the Soviet and German juggernauts, but I am sure they must have been just as much fun.

But then one can make the opposite mistake. People in 1990 assumed that because the Soviet Union fizzled, China would also. My argument that China has a good three to four decades of economic growth ahead of it is precisely because of looking at why the Soviet Union, Germany, Japan, and the tigers growth.

The Soviet Union grew very rapidly in the 1950’s and 1960’s because they were taking people out of low productivity agriculture and putting them into less low productivity industry. The same is basically true with Germany, Japan, South Korea, Malaysia, Indonesia, Thailand and every other economy that become a developed or semi-developed nation. What happened with the Soviet Union was that they finished industrialization in the mid-1960’s, at which point the fact that they had a horribly inefficient industrial infrastructure killed off growth.

If you take that framework and apply it to China, what you find is that the point at which the China runs into Soviet and Japanese limits is one in which its economy is far larger than that of the United States. China is not even close to the productivity and incomes that the Soviet Union and Japan had when they stalled, and it’s not even close to Thailand or Indonesian levels. The examples of the Soviet Union and Indonesia are important, because it suggests that even if China has a massively inefficient and broken economic system, it still has quite a few decades of economic growth ahead of it, and personally, I think that the big danger over the next few decades is that people take high growth rates as “proof” that an economic system is not broken in a fundamental way.

One other thing, is that in thinking about the Chinese economy, it helps to not think about China as one big economy, but rather as about twenty smaller economies in a free trade zone and currency union. The economy of Zhejiang is radically different from the economy of Gansu, for example, and economically, China resembles the EU more than it does South Korea.

Pettis: I have seen claims by demographers that the UN has systematically underestimated the impact of US immigration, and which project US population to be closer to 500 million. That means that the relevant ratio in the future is not 4.0 to 1 but rather 2.6 to 1 or even 2.2 to one.

The problem with these projections is that they are deterministic whereas what actually happens depends on the political decisions that people make. For example, the amount of immigration that occurs depends very crucially on social attitudes. It’s quite possible that in 2030, China will have a relatively open immigration policy whereas the United States would have a relatively close one. Sure its very hard right now to imagine China having a guest worker program that invites people from Uganda and Angola to immigrate to China and become Chinese, but social attitudes in China-2038 much less China-2058 could be quite different than social attititudes in China-2008. One need only look at different attitudes in Mississippi-1968 and Mississippi-1998. Even in the case of China, the attitudes toward overseas Chinese in 1968 and 1998 are very, very different.

It actually feeds on itself, since countries with high economic growth tend to attract and tolerate economic migrants, whereas people start noticing you are different when economic growth stalls. This is the self-interested reason I’ve always been interested in economics.

The key things about these sorts of projections is not to view them as determinstic projections, but to reverse the problem, and to ask assuming that either China or the United States wants to continue to grow in the 21st century, what has to be done? You look at the key factors that could cause growth to stall, and fix them before they become a problem.

On the wrong side of the revolution….

Thinking about family issues……

It stinks to be on the wrong side of the revolution….  And something about my family is that we’ve often been on the wrong side of the revolution….  You end being marked as evil rich capitalists or wealthy landlords, and this label sticks even after you’ve lost everything.  It would be a small price to pay if after the revolution, the new people are as wonderful as they claim to be and they really do solve all of the problems that your family was responsible for.  But what often happens is that the new people in power end up doing far worse things than anything your folk ever did.

I suppose the worst part of all of it is that you end up scattered into the wind, with people ending up in the four corners of the world, unable to talk or communicate with each other trying bit by bit to find your way home.  At that point you end up in the world of ideas.  Because the fact of the matter is that you will not come home today, or tomorrow, or this year, or this decade, or perhaps ever in your lifetime, but if you keep the idea alive, then even if it takes a hundred or a thousand years, someone is going to be able to make it back.

Thoughts from a corporate fat cat

http://www.rgemonitor.com/content/view/245470/86/ 

There is a stereotype of people in the banking industry as people in country clubs smoking cigars, and getting money for nothing. It’s also rather inaccurate. If the bonuses get cut too much, I put in my resignation and then there won’t be anyone to write the computer programs to babysit the databases.

The division between labor and capital is very different today than in the 19th century, and I think that the new division is between skilled labor and unskilled labor. Since I can program, I have skills and hence bargaining power, and if the bonuses are too low, I leave.

There are parallels with the farmers in Zimbabwe. It bothers me a lot that the gap in wealth between people that have skills and people who don’t is growing. If you can crunch numbers and solve complex mathematical equations, then the world is yours. If you can’t then your career prospects are limited.

The trouble is that the obvious solution which Mugabe tried of “attack the rich” makes that people with skills leave, and then production plummets. OK, you have the revolution, you’ve just cut bonuses, and then rich fat cats that used to run the place are now gone. You are now staring at a blank computer screen. What happens now?

Note on the politics of subprime

http://www.rgemonitor.com/content/view/245470/86/

The politics of the situation is that Congress wants to keep hands off of this for as long as possible. The problem for Congress is that if it does get involved, then some people will (correctly) blame it for doing too much and giving a bailout to the banks and other people will (correctly) blame it for not doing enough and letting poor people get kicked out of their houses and causing the credit market to grind to a halt.

The political solution that Congress wants is to look good by allowing for easy credit and providing goods and services to “good honest working class Americans” while not looking bad by providing “corporate welfare to fat-cat Wall Street bankers”, Trouble is that you can’t do one without the other.

So as long as it can be handled by the Fed, they”ll let the Fed handle it, and whatever political costs exist they can get through it by “blaming Bernake.”

Response to Why China should not fear open debate

 http://www.ft.com/cms/s/0/3bcee1c2-dfc5-11dc-8073-0000779fd2ac.html

This is a very ironic piece.  The message of the piece seems to be let’s have a free and open debate in China so that I can prove to Chinese nationalists that I’m right and they are wrong.  Different viewpoints are good, and when you express different viewpoints, you’ll naturally find that mine are absolutely objectively correct and their’s are totally completely wrong.

I think the post wildly underestimates the degree to which people view the world in different ways, and how hard it is to be tolerant of other people’s beliefs once you find out what they really are.  The assumption seems to be that when different people are exposed to the “correct view of the world” that naturally they will see the world in the way that he does, and my experience suggests that this is not going to happen.  People’s beliefs about how the world works and how it should work are formed at a very early age, and they don’t change without enormous personal trauma.  Usually people take new facts and try to fit them into the picture of the world that they already have, and if you don’t share those beliefs, it can be quite shocking what those beliefs actually are.

Being exposed to wildly different beliefs usually doesn’t result in tolerance, it results in even more screaming.  What does cause tolerance is the knowledge that you have to deal with someone despite how much you disagree with them, and this is why e-mail produces so much flameage.  You scream at someone over e-mail and never see them again.  If it turns out that you actually have to live with someone, the dynamics changes.

Just letting opinions out in the open doesn’t necessarily produce better policy, it could easily lead to paralysis, people screaming at each other, or worse shooting at each other.  Good governance is at the thin line between anarchy and tyranny, and having things move into anarchy can produce as much suffering as having things move to tyranny.

So what is this democracy thing anyway….

I dislike using the word “democracy” in arguments because it’s an emotional term that people have different definitions about, and those rarely are useful in discussions.  One thing that is clear is that my definition of what a “good democracy” is is quite different from an lot of other people’s.

My definition of a democracy is a constitutional system in which people in a political community manage to resolve differences in opinion in a way that no one ends up dead or in jail,  The United States is much closer to that ideal than China is, and a lot of what I try to do is to promote institutional building in China so that you can incorporate some of the good aspects of the American system.

One important thing about China is that it really doesn’t have a “model”.  The economic and political systems in China have been put together by trial and error, and Chinese officials really understand the difficulties in translating one system from one area to another.

One major problem is that the political system in the United States works so well, that Americans don’t realize how difficult it is to implement it.  It took the United States two hundred years and a Revolution and a Civil War to get to where it is.  It’s unfortunate that most Americans don’t have a good grasp of their own history, because reading the writing of the American historical figures, one is struck by how difficult it was to get things working as well as the do now.

The thing that I find encouraging about Chinese officials is that there is really not that much resistance to adopting parts of the “American system.”  There’s far less resistance for Chinese to copy something that was invented in the United Statest, than vice-versa.  Chinese banking and securities law is copied wholesale from the United States, and it seems pretty obvious that the China Investment Corporation is a direct copy of Calpers.

What irks people is the tendency of Americans to be moralistic preachers and to be unwilling to listen to other people, and to realize that some parts of the United States simply can’t or shouldn’t be copied in the rest of the world.  The United States has a wonderful judicial and higher education system, but that doesn’t mean that the world should copy the US’s health care system.  One of the few good things about Iraq is that it has taught the United States some humility.

The United States had total control of a nation, had a chance to turn it into a total democratic paradise, and now realizes how hard it is to create a political system in which people can work with each other in a community without anyone ending up in jail or dead.