Category Archives: China

America the Typical

After the Japanese stock market crash at the end of 1989 it was easy to see why the system had crashed. The banks lent too aggressively on grossly inflated real estate. Asset prices had exploded after years of keeping their currency too cheap for the benefit of the exporting industries. The solutions were obvious:

  1. Free the currency.
  2. Set interest rates to zero.
  3. Mark the bad real estate to market and allow zombie banks to die.
  4. Stimulate in the short run by increasing government spending but then rein it in.
We know what happened – the currency stayed controlled, rates were increased at first and banks were allowed to keep all assets at book value so the financial sector virtually shut down- for twenty years. Government factions bickered about spending and deficits and in the end both just grew and grew and grew. The policy combination eventually reversed the currency (creating a new mess) and the population grew really old.
Every American economist in the 90’s gave lectures about how it couldn’t happen here. After all, we (the exceptional USA) know how to do creative destruction and our banks would never over-lend to the same extent. The Fed would ease and our government would never melt down into such a state of dysfunction.
In spite of this beautiful case study to work from we have fallen through almost every Japanese trap door. Our currency is far too rich, we allowed our banks to carry their loans at book value after the crash, and our government has become more dysfunctional than anyone could have imagined:
The 112th Congress is set to enter the Congressional record books as the least productive body in a generation, passing a mere 173 public laws as of last month. That was well below the 906 enacted from January 1947 through December 1948 by the body President Harry S. Truman referred to as the ‘do-nothing’ Congress, and far fewer than even a single session of many prior Congresses.” (NYTimes)

At times like these the forces for the status quo fight like hell to preserve their position – the elderly refuse to accept even tiny reductions in benefits even though tax revenue is nowhere near sufficient to pay for it all. Corporations are so deeply in love with outsourcing (and consumers with dirt cheap Chinese toys) that they will spend unlimited cash, lobbying to protect the current system.

Rather than work from a plan, both our political parties scream at each other until a new deadline nears and when disaster is averted we sigh with relief but what have we (they) achieved? We have a long list of problems and a great list of causes but one thing that is NOT on either list is tax rates. They may be a great divisive issue for the two political parties but they didn’t cause our demise and they won’t save us. We don’t even have the time to discuss them.  Higher taxes didn’t cause the middle class to die off like polar bears and they won’t fix our trade deficit (unless you’re willing to endure a huge new VAT… if only). Our banks won’t change lending policies if we have a flat tax or a very progressive one.

Quite simply, our middle class is being replaced by Chinese peasants thereby destroying our entire American economic system. It has eaten away at government revenue, destroyed upward mobility, and ultimately will create class conflict. Taxing the rich at higher marginal rates is a band aid. Cutting Medicare payments to doctors is a band aid. Refusing to raise the debt ceiling is asinine. We need a big plan and a giant  dose of leadership -immediately.

All we are doing now is repeating history.

The Future of American Medical Care

Our perpetual state of budgetary crisis exists primarily due to one simple relationship: Our government believes it can/must provide first world medical services to the poor and retired. It collects tax revenue from workers who are being paid less and less. There are only two possible outcomes:

  1. We reverse the direction of wages by essentially refusing to trade with mercantilists or
  2. We match up the level of medical services to those in China since it will not be long before our workers earn the same wages as their peasants.
Given that there is not one political figure arguing in favor of canceling our free trade agreements, I’ll begin by discussing the second outcome. In 15 years (when I am eligible for Medicare) the entire system will be broke, based on its current level of coverage. It can be saved if it is recalibrated to Chinese spending levels. So how good is the Chinese System? The Wall Street Journal recently described a McKinsey study this way:
A crisis between China’s chronically underpaid doctors, who look to pad their low pay checks with kickbacks from pricey drug prescriptions, and skeptical patients is well underway, highlighted by a spiking number patient attacks against physicians, the report said. According to McKinsey’s survey of nearly 6,000 physicians in 3,300 hospitals, 59% of doctors said they had been verbally assaulted by a patient or a patient’s family member. And 6% said they have been physically assaulted by patients.”
The good news is that 95% of all Chinese people are “covered”. The coverage does not include catastrophic illness. Rural health care services are greatly inferior to those provided in urban areas. Most rural hospitals are going bankrupt and there is an “insufficient” national drug supply.
The average cost of a single hospital admission in China is roughly the same as average annual income, a 2008 paper published in The Lancet said. For the lowest fifth of income earners, it is more than twice average annual earnings” (Reuters)
That is our future. Yes, Chinese bureaucratic corruption is somewhat at fault and I would like to believe that when we are this broke our insurance companies and medical establishment will not rob and cheat the sick and old. Unfortunately that’s the problem with being broke, people lose their moral compass.
The greater point here is that we can’t allow outcome #2 to be our future. We have to abandon crazy trade policies with economic parasites. Otherwise, the single most important service we now expect from our government – health care, will collapse with our Federal budget. Baby Boomers think they have escaped the economic morass by the skin of their teeth. They have yet to grasp the fact that their retirement benefits are directly tied to the falling wages of their children. They still believe they are going to find support from entitlements just as they lose their jobs.
Bitter disappointment is on its way.

Global Warming- Why Bother

The issue of global warming has become a partisan issue.  Maybe it’s because Al Gore got it going so the Repubs decided they had to oppose it.  Maybe it’s because the right realized that fighting it would be bad for business.

It doesn’t matter.  Nothing will change.  Policies will not be passed and people will not meaningfully change their behavior.  We are going down the road to total glacier melt, water shortages and crazy weather.  Thomas Friedman may think there is a business opportunity in becoming the first green state and inventing green technologies, but every economist in the world knows that changing your energy supply is a hugely expensive exercise.  Unless the price of oil goes up fivefold there is no cost competitive alternative.

Environmentalists will scream that we must change, even if alternatives are more expensive.  The problem is, there is no such thing as an environmentalist in China.  China is the number one producer of heat trapping gases, mainly because of their coal based power plants.  They have absolutely NO intention of curbing their emissions, so this is a lost cause.

Until the green movement figures out a way to get the third world to participate then you can just tune out.  Start collecting rain water.