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Archive for the ‘China’ Category

While I’m not oblivious to geopolitical concerns, I don’t worry about China becoming a more prosperous nation. Yes, more wealth could enable the nation’s dictators to finance some unwelcome aggression, but I mostly think higher living standards will create pressure for political liberalization.

In any event, the United States is in no danger of being overtaken by China in our lifetimes (or probably ever).

With that bit of background, you can understand why I have a somewhat relaxed reaction to the news that Chinese regulators nailed a McDonald’s franchise for allegedly breaking the rule about serving chicken wings within 30 minutes of preparation.

Here’s my discussion of the topic on Fox News.

I’ve written about the burden of regulation, and I’ve highlighted examples of absurd regulation, but the most important part of this interview is the explanation that wealthier societies can afford higher standards.

Communism and other statist ideologies are evil, but it’s also worth noting that most of the worst examples of environmental degradation occur in societies with heavy government control, not wealthy capitalist nations.

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Back in 2009, I got very excited when President Obama stated, “No business wants to invest in a place where the government skims 20 percent off the top.”

Did that mean he wanted to reduce America’s punitive and anti-competitive corporate tax burden? Or maybe even fix the entire tax code and install a simple and fair flat tax?

Unfortunately, it turns out the President was speaking to the Parliament of Ghana and apparently his recommendation for good policy didn’t apply inside the United States.

With this in mind, I’m not sure whether I should get too excited about his remarks yesterday that it is better to “let the market work on its own.”

Here are a few reasons why I am less than enthusiastic about this remarkable statement.

The President was not talking about solving the problem of government-caused third-party payer in health care.

Nor was he urging the elimination of the culture of bailouts and cronyism in the financial services sector.

And he obviously wasn’t saying it was time to end the government’s failed school monopoly.

"Free market for thee, not for me"

Instead, when he said that we should “let the market work on its own,” he was referring to the very narrow issue of China’s production and distribution of certain minerals.

In other words, if presidential statements came with asterisks, the fine print at the bottom of the page would read “offer good in China only.”

However, a journey of a thousand miles begins with a first step. So if he thinks it’s a good idea to reduce government intervention in China, maybe someday he will apply the same wisdom to the American economy.

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I’m glad that China has taken some steps away from communism. According to Economic Freedom of the World, China was one of 10-worst nations for economic liberty back in 1980 and they’ve since climbed to 92nd place out of 141 nations.

I’ve even offered a small bit of praise for China’s shift to a more business-friendly environment, and I was greatly amused when the head of China’s sovereign wealth fund mocked the Europeans for destructive welfare state policies.

That being said, 92nd place is still a very anemic rank, far below the first- and second-place jurisdictions, Hong Kong and Singapore.

So I was flabbergasted when Andy Stern, a former union boss and long-time Obama ally, wrote a column for today’s Wall Street Journal praising the efficiency and vitality of China’s planned economy.

You probably think I’m pulling your leg and/or deliberately misrepresenting what he wrote, but his article was titled “China’s Superior Economic Model.”

And just in case you think that’s the fault of editors and he couldn’t possible say such a thing, let’s look through the piece.

He starts off praising the goals of China’s latest five-year plan.

The aims: a 7% annual economic growth rate; a $640 billion investment in renewable energy; construction of six million homes; and expanding next-generation IT, clean-energy vehicles, biotechnology, high-end manufacturing and environmental protection—all while promoting social equity and rural development. Some Americans are drawing lessons from this. Last month, the China Daily quoted Orville Schell, who directs the Center on U.S.-China Relations at the Asia Society, as saying: “I think we have come to realize the ability to plan is exactly what is missing in America.”

Gee, that sounds so uplifting and inspirational. But there’s one tiny problem. China is still a very poor country. Here’s a chart showing the 2010 data from the World Bank.

Maybe I’m a crazy free-market ideologue, but I’d rather copy the Singapore or Hong Kong economic model.

But if I can’t choose one of those Asian tigers, I’ll stick with the U.S. system. Americans, after all, are about six times better off than the Chinese. Heck, China is still behind Albania.

Mr. Stern then writes about the supposed failures of “free-market extremism” in the United States.

The conservative-preferred, free-market fundamentalist, shareholder-only model—so successful in the 20th century—is being thrown onto the trash heap of history in the 21st century. In an era when countries need to become economic teams, Team USA’s results—a jobless decade, 30 years of flat median wages, a trade deficit, a shrinking middle class and phenomenal gains in wealth but only for the top 1%—are pathetic. …This should motivate leaders to rethink, rather than double down on an empirically failing free-market extremism. As painful and humbling as it may be, America needs to do what a once-dominant business or sports team would do when the tide turns: study the ingredients of its competitors’ success.

Since this is a pro-family blog, I won’t repeat the inappropriate words that came out of my mouth upon reading these passages.

Instead, I’ll simply call your attention to this post, which shows how America’s score in the Economic Freedom of the World ranking declined during the past decade. Indeed, the United States was among the five nations with the biggest declines over that 10-year period and the United States dropped from 3rd to 10th during those years.

If that was a period of “free-market fundamentalist” policies, then I guess I need to start cheering for socialism.

I’ll conclude by doing one of my favorite things – quoting myself. Here’s a bit of what I wrote last year.

China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. …This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. …But China still has a long way to go if the goal is a vibrant and rich free-market economy.

I’ve probably exhausted everyone’s interest in this topic, but if anyone’s a glutton for punishment, I was part of a debate on English-language Russian TV about Chinese and American economic policy.

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I’ve previously posted about the communist government of Cuba cutting taxes and the CEO of Coca-Cola saying that communist China has a more business-friendly climate than the United States.

Having grown up during the Cold War, I still have a hard time believing my eyes when I read stories like these.

But those examples pale into insignificance compared to this story. A member of China’s political elite, which presumably makes him a member of the Communist Party, has a better understanding of economics than the Presidents of France and the United States.

Sure, that’s not saying much, but read what Jin Liqun, the head of China’s sovereign wealth fund, said about the European welfare state.

If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society. I think the labour laws are outdated. The labour laws induce sloth, indolence, rather than hardworking. The incentive system, is totally out of whack. “Why should, for instance, within [the] eurozone some member’s people have to work to 65, even longer, whereas in some other countries they are happily retiring at 55, languishing on the beach? This is unfair.

Astounding. There’s also a video at the link.

So let’s think about what this means. The communist elite in China recognizes the importance of incentives and understands the corrupting influence of welfare on the human spirit (they would like this cartoon). Heck, even Castro admitted that communism was a failure.

Yet politicians here in America still want to make government bigger and create more dependency.

I guess it’s time for me to unfurl the hammer and sickle.

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Having grown up during the Cold War, I never though I would write a sentence like the title of this blog post, but there have been lots of firsts during the reign of Obama.

When the head of a major multinational company says the American tax system is worse than the policy of a nation that is nominally still communist, that’s a remarkable – and worrisome – development.

Here’s an excerpt from a story in the UK-based Financial Times.

Coca-Cola now sees the US becoming a less friendly business environment than China, its chief executive has revealed, citing political gridlock and an antiquated tax structure as reasons its home market has become less competitive. Muhtar Kent, Coke’s chief executive, said “in many respects” it was easier doing business in China, which he likened to a well-managed company. “You have a one-stop shop in terms of the Chinese foreign investment agency and local governments are fighting for investment with each other,” he told the Financial Times. Mr Kent also pointed to Brazil as an example of an emerging economy that is making itself attractive to investment in ways that the US once did.

As much as I criticize the U.S. tax system and notwithstanding the passage you just read, I wouldn’t want anyone to conclude that China has better economic policy. The United States may have become more statist in the past decade, dropping from 3rd to 10th in the Economic Freedom of the World rankings, but 10th place is still a heck of a lot better than 92nd place, which is where China currently ranks.

And I also think it’s important to draw a distinction between a nation being “business friendly” and “market friendly.” I strongly prefer the latter. I want small government and laissez-faire markets, not policies that cater to big business. And some of China’s development is based on special deals for large companies.

This is not a big knock on China, which has improved. It used to rank as one of the 10th-worst nations, so gradual economic liberalization is boosting its economy and has lifted hundreds of millions out of absolute poverty (as compared to the relatively benign poverty found in the U.S.).

But even with those caveats, it’s not a good thing that America’s corporate tax system is so unfriendly. And it’s not a good thing that investors, entrepreneurs, CEOs, and others have a perception that it’s better to produce outside of America.

For more information, here are two of my videos. This one (my very first effort, so forgive the lack of polish) discusses the overall issue of corporate taxation.

And here’s a video that looks at the critical issue of international corporate taxation. You won’t be surprised to learn that America probably has the most unfriendly regime in the world.

One last thing worth mentioning is that most European governments have territorial tax systems and the average corporate tax rate in “socialist” Europe is down to 23 percent.

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I was part of a debate for an English-language Russian TV program on the international implications of economic policy, particularly with regard to the United States and China. My job was simple because I am not a big fan of either nation’s policy.

Government intervention and favoritism is bad policy – regardless of skin color.

My only comment, other than welcoming feedback, is that Michael Hudson should be in the Obama cabinet since he has no idea what he’s talking about.

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I’m not sure if “killing two birds with one stone” is the right phrase in this situation, but…

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One of my first blog posts (and the first one to get any attention) highlighted the amusing/embarrassing irony of having Chinese students laugh at Treasury Secretary Geithner when he claimed the United States had a strong-dollar policy.

I suspect that even Tim “Turbotax” Geithner would be smart enough to avoid such a claim today, not after the Fed’s announcement (with the full support of the White House and Treasury) that it would flood the economy with $600 billion of hot money.

As I noted in an earlier post, monetary policy is not nearly as cut and dried as other issues, so I’m reluctant to make sweeping and definitive statements. That being said, I’m fairly sure that the Fed is on the wrong path. Here’s what my colleague Alan Reynolds wrote in the Wall Street Journal about Bernanke’s policy.

Mr. Bernanke…believes (contrary to our past experience with stagflation) that inflation is no danger thanks to economic slack (high unemployment). He reasons that if people can nonetheless be persuaded to expect higher inflation, regardless of the slack, that means interest rates will appear even lower in real terms. If that worked as planned, lower real interest rates would supposedly fix our hangover from the last Fed-financed borrowing binge by encouraging more borrowing. This whole scheme raises nagging questions. Why would domestic investors accept a lower yield on bonds if they expect higher inflation? And why would foreign investors accept a lower yield on U.S. bonds if they expect exchange rate losses on dollar-denominated securities? Why wouldn’t intelligent people shift their investments toward commodities or related stocks (such as mining and related machinery) and either shun, or sell short, long-term Treasurys? And if they did that, how could it possibly help the economy?

The rest of the world seems to share these concerns. The Germans are not big fans of America’s binge of borrowing and easy money. Here’s what Finance Minister Wolfgang Schäuble had to say in a recent interview.

The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. …I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don’t recognize the economic argument behind this measure. …The Fed’s decisions bring more uncertainty to the global economy. …It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money.

The comment about borrowed money has a bit of hypocrisy since German government debt is not much lower than it is in the United States, but the Finance Minister surely is correct about monetary policy. And speaking of China, we now have the odd situation of a Chinese rating agency downgrading U.S. government debt.

The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy. Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the US by one level to A+ from previous AA with “negative” outlook.

This development shold be taken with a giant grain of salt, as explained by a Wall Street Journal blogger. Nonetheless, the fact that the China-based agency thought this was a smart tactic must say something about how the rest of the world is beginning to perceive America.

Simply stated, Obama is following Jimmy Carter-style economic policy, so nobody shoud be surprised if the result is 1970s-style stagflation.

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The news that China has surpassed Japan as the world’s second-largest economy has generated a lot of attention. It shouldn’t. There are roughly 10 times as many people in China as there are in Japan, so the fact that total gross domestic product in China is now bigger than total gross domestic product in Japan is hardly a sign of Chinese economic supremacy. Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. According to the World Bank, per capita GDP (adjusted for purchasing power parity) was $6,710 for China in 2009, compared to $33,280 for Japan (and $46,730 for the U.S.). If I got to choose where to be a middle-class person, China certainly wouldn’t be my first pick.

This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation. Economic Freedom of the World ranks China 82 out of 141, just one spot above Russia, and the Index of Economic Freedom has an even lower score, 140 out of 179 nations.

Hopefully, China will continue to move in the right direction. As Jonah Goldberg notes in his Townhall column, it is good for America to have China become a more prosperous nation.

Yes, technically, China’s gross domestic product is now slightly ahead of Japan’s. But GDP is a gross statistic. It doesn’t tell you nearly as much as you might think. In a very real way, China is still poorer than Japan. It’s also poorer than Tunisia, Ecuador, Gabon, Kazakhstan and Namibia. …China still has enormous problems, many of which aren’t reflected in its GDP growth rates, and without democracy, a free press and the rule of law, we can’t know what all of the problems are until they explode (and neither can the Chinese). But all of this misses the most important point. Economic “competitiveness” is a con. It assumes that when other countries prosper, America loses. That’s nonsense. If the average Chinese worker were as rich as the average Japanese worker, it would be an economic windfall for the United States. Conversely, if China’s economy imploded tomorrow, we would “gain” competitively but suffer economically. The cult of competitiveness is just a ruse used to justify the ambitions of economic planners and the pundits who worship them.

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