Custer concentrates on the Christian science monitor piece. And he fisks it good. Wukailong over at pacific rim shots covered the nyt piece as part of a bigger review, which you can see here:

http://pacificrimshots.com/political-reform-in-china-part-2-some-differing-viewpoints/

August 19, 2011 @ 7:39 am | Comment

The US can go one of two ways. Richard essentially says we should follow the path of Europe – more social spending to support the poor and unemployed, more taxes, more borrowing, more Keynesian stimulus, etc. My view is that we should follow the path of Hong Kong – more capitalism, more entrepreneurship, more “animal spirits.” We can’t do both. It’s one or the other.

August 19, 2011 @ 9:17 am | Comment

Good post Richard, and as someone planning to enter the job market in a year’s time I can assure you that I share your disappointment in our government’s efforts at getting the economy back on its feet. For some reason, Democrats have had no success in convincing the public that unemployment and stagnation are bigger problems than debt.

But I’m less sanguine than you are about China’s prospects. Their economy remains totally unbalanced, with the government applying much of the country’s wealth into further fixed-asset investment rather than into improving the wages and basic living standards of the people. This isn’t an accident, either; there are political reasons behind China’s economic strategy (duh) and I think over time it’ll prevent them from achieving the “inclusive growth” that they say they want. And- as we know any kind of significant slowdown could cause major societal pressure…in fact there are signs that they’re happening already.

But for now, you’re right about the general direction of things. Quite a few of my classmates have told me that they are giving the idea of living overseas far more consideration than they otherwise would have, given the terrible job situation back home. That a lot of young graduates feel they have to leave to advance their career is bad news for the US, I think.

August 19, 2011 @ 9:43 am | Comment

To Richard:
Li’s nyt article was weak. His science monitor article was absolute garbage. He certainly has the essential traits of an apologist, and none of the intellectual honesty of an apparent doctoral candidate. But what makes him a fraudster?

August 19, 2011 @ 10:12 am | Comment

SK, “fraudster” just means he passes himself off as a serious commentator when he’s just another apologist, all of whose arguments can be debunked.

Matt, I am not totally sanguine about China going forward, and took pains to acknowledge it has huge challenges. But I’m betting they’ll do better than the US in terms of building influence, posing the first true threat to US domination since the Cold War. I think there are a lot of “bubbleish” aspects to China’s economy, but it may take years for them to burst, after the US star has faded significantly. It’s a tinderbox, but I don’t think the match will strike for years.

DBL2, Europe is actually going in the direction of austerity, even more severe than the US. Check out what’s happening in Greece and Ireland. I do agree that the European model is flawed — overly lavish pensions, early retirement, endless vacations, etc. But they still need stimulus now more than austerity. Fix the deficits later.

The US has to have stimulus. Otherwise the job market will continue to stagnate and misery will prevail. The government needs to stimulate the economy now and worry about the deficits down the road. We saw how useful the Bush tax cuts were (extreme sarcasm) and the entire foundation of the right is built on a lie, that slashing taxes stimulates growth. Nonsense. Clinton put a huge tax increase into effect, and the economy went straight up. Check out Warren Buffet’s op-ed in this week’s NY Times, where he says bluntly that the super-rich like him need to be taxed far higher.

August 19, 2011 @ 10:22 am | Comment

I agree with you for the most part but I am not that optimistic about China either. China is still so dependent on an export economy, and if the US isn’t buying, it’s a problem.

I still have hopes that we are reaching a tipping point here, where it is clear that austerity is not the answer; jobs and stimulus are. Do I think Obama will be the one to bring this about? Not likely. Though I’d love to see him primaried, not because I think a primary challenger can wrest the nomination from him, but because it will focus more attention to the debate.

August 19, 2011 @ 1:51 pm | Comment

You were right about gold and I have to admit I doubted you at the time. America is in a funk right now, that is for sure, but it is no worse than that during the Jimmy Carter era; in fact, it feels exactly the same, but you are too young to know that. I mention it though because it shows that during downtimes it always feels like there is no end in sight, but this is just another of many cycles and eventually there will be another up cycle.

August 19, 2011 @ 3:05 pm | Comment

Personally, I think the US is in much better shape long-term than China from a structural point of view. It’s a cliche to say that China will grow old before it gets rich, but it’s a legitimate concern that they are going to have to deal with. Also- I think democratic systems allow for much greater flexibility than China’s style of authoritarian state capitalism.

August 19, 2011 @ 4:07 pm | Comment

China’s influence will be limited by its essential nature as a completely self-interested power with a severely unethical business culture and predatory trade, aid and investment practices. Already Asia, save a few thuggish hanger-on regimes, is recoiling from an earlier embrace of China and hedging its bets. Push-backs from South America and Africa are also under way. It is unwise to expect the PRC to treat outsiders better than it treats its own people and we all see how things work inside China. That Georgetown-Bayi basketball dust-up was no fluke. You can put lipstick on a pig, but….

I predict a “Chinese century” that lasts about 10 years.

August 20, 2011 @ 1:29 am | Comment

Richard is quite right that the US needs continued stimulus in the short term. The problem is that it has no medium to long-term plan to deal with the deficit. You can’t put it off forever and the longer you put it off the more interest you have to pay each year just to tread water.

The US needs to increase revenue (such as by closing tax loopholes and raising some taxes), whilst also cutting spending on a wide range of budgets (including medicare/medicaid and social security). It won’t be pretty, but it’s necessary. The question is whether anyone will have the courage to grasp the nettle.

As for previous metals, yes richard you were right about gold. 🙂 Fortunately I didn’t have the money to invest at the time so I’m not kicking myself now.

I recently read about a couple in the UK that sold their house, bought gold in 2005 and trebbled their money (or something like that). That said, silver has done even better – if you bought and sold at the right time you could have increased your money by ten times!

August 20, 2011 @ 6:04 am | Comment

Raj, silver is far more volatile than gold, so I advise investors to tread very cautiously. It fell something like 20 percent in two days at the end of April. And yes, if you had bought gold in 2005 you could be retired by now.

The deficit is a big deal — but it can wait. We have a true crisis that could throw the country into a deflationary depression. Stimulation overrides everything else at this moment.

Dan, inflation/stagflation was the blight of the Carter years, not unemployment. I don’t think the country’s fear level at that time matches what we’re experiencing now.

About China: I agree that the US has stronger fundamentals, and that China is in a very precarious situation with its spending, its poverty, its environment, its inflation, etc., etc. But one thing I’ve seen over the past 10 years is how lethargic China is — things take a long time to change there, and crises that you’d think would ruin any other country don’t seem to stop China’s continuous growth. We thought the housing bubble in China was going to burst three years ago, but instead, the bubble keeps getting bigger and may not burst for another ten years. Much of the economy is built on sand, but I don’t see any tide coming in yet to wash that sand away. There has to be a day of reckoning, but since this is China it may not come for several more decades. Remember all the dire predictions about China’s banks back in 2003-2005? Well, somehow it just got fixed, at least enough to keep on going.

China may be held together with bubblegum and aluminum foil, but that can last a long time. We’ll have to watch and see.

August 20, 2011 @ 9:11 am | Comment

Richard,

Can you give me an example of an advanced economy that has successfully employed Keynesian stimulus? Look at Japan – gazillions down the rat hole, and 20 years of stagnation. Why do you think the results in the US would be any different? It seems to me that the Keynesians are magical thinkers – “Let’s borrow and spend a dollar, that will create $1.50 in economic activity through the magic of the multiplier!” How about some realism for a change? President Obama could create – or at least allow to be created – 500,000 high-paying jobs in the next six months without borrowing or spending a dime if he got the Federal government to step out of the way of oil and gas production in the Gulf and off the Atlantic and Pacific coasts, if he OKd the construction of new pipelines from Canada to the US, and if he got behind natural gas fracking in NY, Pennsylvania, and Ohio. He won’t do any of that because he thinks it’s more important to keep the the greens happy than it is to put people to work. Well, OK, those are his values and, presumably, the values of the Democratic Party base. But don’t try to tell me that the only way to get the economy growing is to borrow hundreds of billions and spend it on the president’s friends and supporters. Been there, done that, it didn’t work.

August 20, 2011 @ 11:31 pm | Comment

In late 1920, the US fell into a sharp recession, with unemployment rising from 2% to over 12%. By the spring of 1923, the recovery was so pronounced that instead of unemployment, labor shortages were the problem. Did the government prime the pump? Did it borrow billions to make transfer payments and build infrastructure? No, the president cut (that’s right, he cut, not merely reduce the rate of growth as President Obama talks about) federal spending (exclusive of debt retirement) by 45%. He let markets liquidate all the bad debts, overpriced properties and inefficient businesses that had led to the bubble that collapsed in 1920. See generally http://www.freebanking.org/2011/08/18/an-austere-recovery/. The result was a rapid recovery.

What has President Obama done? He’s kept the zombie banks and zombie home owners alive, thus preventing property and financial markets from clearing, thrown money at transfer payments, and helped states to avoid facing their own financial realities. Is it any surprise that this has been wildly ineffective? What possible reason is there to think that more of the same would have any different result?

August 21, 2011 @ 1:55 pm | Comment

What has President Obama done? He’s kept the zombie banks and zombie home owners alive

That, for sure, was a bi-partisan affair, DBL2. Supported by then incumbent president Bush, and by then senators (and presidential nominees) Obama and McCain. Strange how forgetful people can be.

August 22, 2011 @ 1:23 am | Comment

Just a few remarks from abroad: it’s nothing new that a leader is seen more favorably abroad than at home. That was the case with Gorbachev, too – reviled or pitied in the Soviet Union, and admired in central Europe.

But contrary to Gorbachev, I believe that Obama has been quite a successful president so far. Isn’t America aware that it needs reform in fields which won’t yield within years, but rather in a decade? Education, industrialization, infrastructure… it’s nation-building – at home. And let’s face it: Obama had barely two years to see his policies through so far. Understandable as a desire for checks and balances may be, “divided government” can be as much a problem, as a solution. And with a number of tea partisans on Capitol Hill, it’s definitely a problem.

America will lose one year at least. Only election day can solve the stalemate either way. At least the two sides seem to keep the state able to pay, until the end of 2012.

August 22, 2011 @ 1:31 am | Comment

Matt
But I’m less sanguine than you are about China’s prospects. Their economy remains totally unbalanced, with the government applying much of the country’s wealth into further fixed-asset investment rather than into improving the wages and basic living standards of the people.

Wages in China have been rising faster than in any nation in the world, I don’t see how they’re failing in that regard. The basic living standards of the people are high compared to nations of similar GDP(ppp)/capita. The value of all assets in China has been increasing even faster than GDP on a year on year basis – it’s estimated that China will be worth $30+ trillion within 4 or 5 years.

In fact the opposite is true – the PRC has been artificially deflating prices of food for the vast majority of Chinese for years and now they’re correcting. There is always room for improvement but I don’t see many options for them.

Lisa
China is still so dependent on an export economy, and if the US isn’t buying, it’s a problem.

China is not at all export dependent, Lisa. You have to subtract the imports they take in and reassemble for export from the total figure and then remove costs associated with design and licensing of IP. China makes almost nothing in terms of profit when they manufacture goods for the rest of the world, but it does bring in some IP and investment money as well as financial leverage over certain consistently antagonistic, paranoid incumbent powers.

slim
China’s influence will be limited by its essential nature as a completely self-interested power with a severely unethical business culture and predatory trade, aid and investment practices.

Have a tissue. Also, do you think any power has become powerful out of GENEROSITY? I bet you think the West won its riches through the opposite of predatory trade, I guess we would call it “fair” trade? lol. China needs to learn from all the non self-interested powers … like the ones that don’t exist and never have. China takes far less from the world than the West does. China is a net contributor to the world, the West is a net parasite. Do you ever get tired of being a shameless shill for the West and its rape of the global poor?

DBL2
Can you give me an example of an advanced economy that has successfully employed Keynesian stimulus? Look at Japan – gazillions down the rat hole, and 20 years of stagnation. Why do you think the results in the US would be any different?

Japan is doing rather well.

http://en.wikipedia.org/wiki/National_wealth

USD per Capita:
Japan $258,385
United States $175,974

If you spend $10,000 per inmate all of it gets added to “GDP”. Japan’s GDP has been fairly stable even though their workforce has been shrinking and work hours declining. Arguably, their earnings per hour have risen faster than that of any developed country’s.

Mighty impressive for a completely resource-barren string of volcanic and earthquake-prone islands. Japan is so resource-poor that it needs to import 60% of its calories every year.

They’ve been contributing more to their savings every year than most developed nations as well, and the distribution of wealth in Japan is possibly the most “fair” of any country.

For 5% of GDP ($1,500) per capita they have longer life spans than Americans (who spend $6,000).

So I suppose Japan is not economically sound but they’re definitely far better off in terms of everything that really matters, except for maybe living space. But that problem will be solved if they let their population decline to 80-90 million (close to Germany) and supplement their workforce with robotics.

But of course, Western liberals demand that Japan dump 100 million African, Eastern Europeans, weeaboos and Southeast Asians into the mix to make it more “dynamic” and “diverse”.

August 22, 2011 @ 3:00 am | Comment

Sorry, I should expand on that inmate bit – GDP counts crime and destruction of property as “production”. It also considers waste of natural resources and illegal labor. GDP hardly tells you anything about production nowadays, it just tells you how fast money moves within a system.

America is worth roughly 60 trillion dollars and ONE PERCENT owns 20 of that 60 trillion. A huge chunk of America’s “production” is simply currency traveling in a straight line to the super-rich.

This is a great article and is relevant to everything here:

http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

August 22, 2011 @ 3:04 am | Comment

Japan is doing rather well

Cookie Monster, if you knew anything about Japan you would know that they have a massive debt problem that isn’t going to go away. It’s currently sustained by people having nothing better to invest in than government bonds.

Japan once was almost a “middle class country”, but relatively poverty has shot up in the last decade thanks to government ineptitude. Life isn’t awful there, but the ridiculous public spending has wasted trillions of yen without achieving anything meaningful – apart from roads to nowhere. The Japanese annual budget is heavily weighed down just by the interest payments. And they STILL aren’t near to balancing the budget!

Eventually some day you have to pay. Unless, *AHEM*, you expect your children and their generation to pay for your extravagances and selfishness (e.g.. not cutting back on social security).

August 22, 2011 @ 6:18 am | Comment

Raj
if you knew anything about Japan you would know that they have a massive debt problem that isn’t going to go away.

But they owe it to themselves, and the interest rates on these debts are infinitesimal.

It’s currently sustained by people having nothing better to invest in than government bonds.

They do have something better to invest in, but the Japanese right-wing/US axis is not exactly keen on the obvious choice.

Japan once was almost a “middle class country”, but relatively poverty has shot up in the last decade

Raj, I assume you measure poverty by GDP/capita? Japan has only gotten richer every year. GDP is down but that doesn’t mean they’re poorer. In America if you burn a $1 million building to the ground and rebuild it $2 million gets added to GDP after you count all the wages, clean-up, burying the dead, etc.

This is why the Tohoku Earthquake is created a momentary surge in “production”. Going by GDP the quake was “good” for the economy.

but the ridiculous public spending has wasted trillions of yen without achieving anything meaningful

Wasted? How so? Did you look at the national wealth link I posted? Because debt is best compared to national wealth, not GDP. Japan is a *net creditor* to the tune of $3 trillion. They could pay off almost half of their public debt with just the value of assets they hold overseas minus the assets foreigners hold in Japan.

Eventually some day you have to pay. Unless, *AHEM*, you expect your children and their generation to pay for your extravagances and selfishness

Considering the average Japanese elder is worth $650,000, they will be paying for their own “extravagance”, if by “extravagance” you mean that generation of men and women working nearly 70+ official and non-official hours per week for their entire careers while drawing upon little government money.

In summation, the Anglo-American view asserts that the Tohoku Earthquake was “good” for the economy and Japan is more riot-prone than the UK or the United States.

August 22, 2011 @ 6:51 am | Comment

Cookie,

If your best argument is that the US ought to follow the Japanese in spending gazillions of borrowed dollars on roads to nowhere, then I’m afraid we do not have a lot to discuss. I think most people think the Japanese experience in the past 20 years has not been one to emulate. Zannen desu nee.

Hong Kong is more my style. Swashbuckling capitalism, that’s what the US could use a little (lot) more of, IMHO.

August 22, 2011 @ 10:26 pm | Comment

@DBL2 – Yeah, all the US needs to do is convert itself into a mercantilist city-state colony supported by immigrant labour and defended by an outside power. Pretty simple.

August 23, 2011 @ 2:58 am | Comment

Raj, I assume you measure poverty by GDP/capita?

No, because that just divides wealth by head of population. It takes no account of WHERE the wealth is held. And Japan has lost over a decade (maybe two) of decent economic growth.

August 23, 2011 @ 4:41 am | Comment

DBL2
If your best argument is that the US ought to follow the Japanese in spending gazillions of borrowed dollars on roads to nowhere

That’s not my point. The idea that the US is an any position to reject the Japanese experience is what raises my eyebrow. The US will do far worse than Japan did. They may have more “economic growth”, but only because they have more people working longer hours.

In due time the US will envy Japan’s status.

then I’m afraid we do not have a lot to discuss. I think most people think the Japanese experience in the past 20 years has not been one to emulate. Zannen desu nee.

It’s not one the US can emulate. America is bankrupt, human capital sucks, wealth distribution is vast, healthcare is horrible, education is horrible (outside of elite colleges), crime rates are high. Japan was not involved in two, three or four major wars. Japan was not indebted to foreigners. What America has going for it is space and natural resources, everything else is a disaster beyond what anyone wants to admit to.

Hong Kong is more my style. Swashbuckling capitalism, that’s what the US could use a little (lot) more of, IMHO.

The US will not be Hong Kong either. The US is simply does not have the human capital to be Hong Kong.

Raj
No, because that just divides wealth by head of population. It takes no account of WHERE the wealth is held. And Japan has lost over a decade (maybe two) of decent economic growth.

GDP is not wealth.

http://en.wikipedia.org/wiki/National_wealth
http://en.wikipedia.org/wiki/Gross_domestic_product

Japan’s GDP per capita is low, it’s wealth per capita is high. It’s income distribution is medium but it’s wealth distribution is very low.

GDP also counts destructive activities as “production”. Japan’s growth is low, again, because their wages and workforce are declining. Their living standards have been improving faster than in America, especially for the average person.

August 23, 2011 @ 6:51 am | Comment

it’s should be its, of course.

August 23, 2011 @ 6:55 am | Comment

Cookie Monster could step up and be the new Math (RIP).

August 23, 2011 @ 7:54 pm | Comment

DBL2, swashbuckling Hong Kong-style capitalism can never be emulated by the US, which is many times the size of HK, divided into 50 states with a non-heterogeneous population, etc. As FOARP says, the model that works for a city-state, a relative fleck on the map (and I love HK and lived there for two years) won’t work for a huge country with the world’s biggest economy. We tried swashbuckling capitalism under Bush with minimal regulation and generous tax breaks for businesses, and look at the shambles it led to under his watch: eroding wages, higher unemployment, and ultimately the nation’s collapse under the unregulated greed of Wall Street and bankers. Exporting HK-style capitalism to the US is as practical as exporting Singapore-style authoritarianism to China. Impossible. Vastly different situations.

August 25, 2011 @ 1:02 am | Comment

I’m in Japan. Used to be in China. Glad I’m not in China anymore. Wish I was in the USA.

September 20, 2011 @ 7:41 pm | Comment