China’s Fettered State-Capitalism puts Poisonous Gutter Oil on Store Shelves

Posted by PITHOCRATES - January 11th, 2014

Week in Review

There’s a myth in America that if we don’t have government food inspectors that evil corporations will sell poisonous food to unsuspecting Americans.  As if people will keep buying from a food manufacturer who has a reputation of poisoning their customers.  They won’t.  For every food brand has a competitor just waiting to take their business away.  Which they will do if the people believe they sell a higher quality product.  So there is a huge incentive to sell people nothing but the best and safest food they can.  For without government limiting a business’ competition it is only their good name that keeps customers coming back.  Unlike in China (see Ten jailed for producing, selling ‘gutter oil’ posted 1/7/2014 on China Daily USA).

A man was given a suspended death sentence and two others life in jail for producing and selling poisonous food, a court in east China ruled on Tuesday…

In 2006, they began to produce “gutter oil”, which refers to oil illegally made by reprocessing waste oil or even leftovers from restaurants. It was then marketed and re-used as cooking oil.

They then sold the “gutter oil” to 17 edible oil dealers in Shandong and Shanxi provinces, with a sales value of 52.4 million yuan…

China has been clamping down on “gutter oil” as part of its food safety efforts. The oil, which contains carcinogenic substances, is dangerous if consumed.

This is what happens when you fetter unfettered capitalism.  And transform it into state-capitalism.  Or a planned economy.  Where the government picks winners and losers.  Favoring their friends.  And hurting their competition.  Such as by limiting competition to protect their friend.  Giving them a state-enforced monopoly.  The only way a monopoly can exist.

Without competition you can sell crap and the people have little choice but to buy it.  Which is why a lot of businesses in a planned economy like China do things like this.  Because they can get rich.  Until someone catches them.  Because without unfettered capitalism other competitors can’t enter the market to keep them honest.  Leaving you to rely on a bloated, ponderous and often corrupt public sector to police that planned economy.  And because they aren’t that good you get people trying to sell gutter oil in China.  While food manufacturers police themselves in the United States.  Because they know their brand is not the only brand on supermarket shelves.

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Lee Harvey Oswald is the Godfather of Today’s American Left

Posted by PITHOCRATES - November 24th, 2013

Week in Review

The assassination of JFK ruined this country.  Because it gave us LBJ and his liberal agenda (see If Kennedy lived: Imagining a different fate for JFK (and Johnson) 50 years later by Jeff Zeleny, Richard Coolidge and Jordyn Phelps posted 11/20/2013 on Yahoo! News).

Historian Jeff Greenfield imagines how history would have changed if Lee Harvey Oswald hadn’t been successful in firing a fatal shot to Kennedy 50 years ago. It’s the latest alternative history from Greenfield in his new book, “If Kennedy Lived: The First and Second Terms of President John F. Kennedy.”

Greenfield, who re-examined the political realities that were present prior to the assassination, told “The Fine Print” he believes that Kennedy’s survival would have likely meant the demise of then-Vice President Lyndon Johnson’s political career.

“The moment John Kennedy was shot, quite literally, LIFE Magazine — a very important medium back then — was launching a huge investigation into how this public servant had accumulated a $14 million net worth, and the answer wasn’t pretty,” Greenfield said of Johnson. “It had to do with radio and TV licenses, and something close to extortion.”

The investigation was halted once Kennedy died, Greenfield said, “Because it would’ve been too much of a shock to the system.” But in Greenfield’s alternate history, the investigation grows into a scandal for Johnson, and Kennedy ultimately replaces him in his second term.

So who gained the most with JFK’s assassination?  Liberals.  For in JFK’s December 14, 1962 speech to the Economic Club of New York he sounded more like Ronald Reagan than LBJ.  Where he championed private spending, not government spending.  He favored tax cuts over tax credits to stimulate the economy.  He talked about increasing consumer spending via personal tax cuts.  And using corporate and personal tax cuts to increase investment and profits.  Yes, he talked about businesses making more profits.  So they would hire more.  Something no liberal would say.

Instead of the Ronald Reagan-like JFK we got one of the most corrupt politicians ever to become president.  LBJ.  According to LIFE Magazine.  And the greatest explosion of the welfare state since the New Deal.  The Great Society.  Turning the U.S. away from capitalism and towards European-style social democracy.

This is the great tragedy of the JFK assassination.  Thanks to that anti-capitalist, Cuba-loving, America-hating assassin who had once defected to the Soviet Union.  A nation long admired by liberals since the day of Joseph Stalin.  This is the great tragedy the leftist communist Lee Harvey Oswald gave us.  Lee Harvey Oswald gave us LBJ, the Great Society and the rise of state-capitalism in the United States.  Everything liberals want.  And conservatives eschew.  Making Lee Harvey Oswald the godfather of today’s American left.

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Powerful Government Forces suppressing the Economic Principles of Friedrich Hayek in China and America

Posted by PITHOCRATES - November 16th, 2013

Week in Review

Large governments like to control their economies.  And their people.  Because those in power always want one thing.  More power. 

The United States became the world’s number one economic power before the federal government grew into the thing it is today.  Way too big.  Reaching way too far into the private sector economy.  Before Keynesian economics became all the rage to empower the growth of governments there was classical economics.  With simple principles.  Thrift.  People thought long-term and saved their money instead of buying everything they wanted today.  Banks collected their savings and transformed them into investment capital.  The more people saved (i.e., the thriftier they were) the more capital there was available to loan to entrepreneurs.  Thus lowering interest rates.  There was also sound money.  Backed by gold.  In various forms of the gold standard.  That held the value of money over time.  And the federal government taxed little.  Regulated little.  And spent little.  These classical economic principles stimulated strong economic growth.  (Principles similar to the Austrian school of economics championed by Friedrich Hayek.)  And it is these principles that we have moved away from as we turned to Keynesian economics.  And a form of state-capitalism that we have today.

During the Nineties China turned to classical economic principles.  As they slowly allowed people some economic liberty.  But just a taste of it.  For the ruling Chinese communists did not want what happened during the collapse of the Soviet Union to happen in China.  The Chinese Communist Party would not collapse like it did in the former Soviet Union.  While there were free thinkers that embraced the principles of Friedrich Hayek the state kept them on a short leash.  A leash that appears to be even shorter these days (see A Lonely Passion: China’s Followers of Friedrich A. Hayek by DIDI KIRSTEN TATLOW published 10/30/2013 on The New York Times).

Hayek believed that economic planning by the state leads to a loss of individual liberty, and that a private economy run by people whose rights are protected and enlarged by good laws delivers the best life.

‘‘There is some distance between Hayek and the current realities’’ in China, Gao Quanxi, a prominent Chinese Hayekian and law professor at Beihang University in Beijing, said in an interview this week.

Mr. Gao was probably choosing his words carefully. The gap is enormous, as he explained last Friday in a talk at the Unirule Institute of Economics, a think tank in Beijing…

In his talk, titled ‘‘Reconsidering Hayek’s Theoretical Legacy,’’ Mr. Gao did not mince words: China is less free now than 10 years ago, at the end of the Jiang Zemin era. There is no ‘‘free market of ideas’’ in universities. Publishing on topics the authorities disapprove of has become more difficult. The state is on the march…

Capitalism, several participants said, functions in China according to the unwritten rules created by the power holders, not by good laws, as Hayek urged.

‘‘Communism has failed. Socialism has failed. What we have here is statism. And Hayek really opposed that. So how should we understand Hayek in the context of today’s China?’’ asked Mr. Gao…

Many economists, scholars and politicians believe that China is facing deep challenges to its economic model, that it needs to shift from a fixed investment-fueled economy, where the hand of the state is heavy, to one with more private enterprise and market forces.

President Obama and the Chinese communists share something in common.  They both are trying to move their economies in the same direction.  Only the Chinese communists don’t publicly bash capitalism as much as President Obama and his fellow Democrats do.

When China was enjoying double digit GDP growth the liberals in the United States wanted to do what the Chinese were doing.  To manage the economy more.  As they thought they were even more brilliant than communist state planners in China.  And could even outperform the Chinese economy.  If they could only control it.  Decide what we make.  Like solar panels.  And electric cars.  Of course, most of China’s economic growth produced exports.  And they sold well because of China’s low wages.  Which is pretty much all they had going for them.  Their middle class did not grow.  And with the worldwide decline in economic activity thanks to Keynesian economic policies by state planners everywhere who think they are smarter than the market their export market cooled.  As it cooled so did their GDP growth.

China is suffering a little economic malaise now because they don’t have a thriving middle class of entrepreneurs starting small businesses.  All they have are large state-run factories.  That produce exports.  Because they don’t have a thriving middle class to buy these products.  Which is what happens when you don’t have individual liberty.  Friedrich Hayek understood this.  Pity the Chinese communists don’t.  Or President Obama and his fellow Democrats.  Then again, perhaps they do.  But they know the price of individual liberty is less government power.  And that’s just something anathema to communists.  President Obama.  And Democrats.

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Neither Keynesian nor Google can figure out what other People are Thinking

Posted by PITHOCRATES - November 9th, 2013

Week in Review

Governments love Keynesian economics.  As it’s a backdoor to a managed economy.  The Soviet Union failed so we can’t have any more managed economies.  But if we call things ‘stimulus’ and ‘investments’ we can pretend we don’t have a managed economy when we actually do.  Which is why governments love Keynesian economics.  It lets them, the brilliant people, use their superior intellect to make the economy better.  Because they can figure out what we’re thinking.  Even though Google can’t (see Google admits the human brain beats an algorithm by Eric Rosenbaum, CNBC, posted 11/9/2013 on Yahoo! Finance).

This past week, there was an old-school battle of wits that captured the world’s attention: a chess championship…

It was a good reminder that even with the overwhelming nature of the information economy and long past Garry Kasparov’s waving of the white flag against IBM’s chess-playing grandmaster machines, human ingenuity still has a role to play-and, in fact, even Google admitted as much this past week. There are just some tasks at which Google’s algorithms remain at a competitive disadvantage to actual human beings, one being personalized answers to questions that require expert assistance. And so Google announced its “helpouts” product, which the New York Times said was “an acknowledgement by the company that its search engine misses a lot of information that people want.”

People don’t say “I’ll use an Internet search engine to find that information.”  No.  They say “I’ll Google it.”  Sometimes even when they’re using Yahoo or Bing.  It’s like Kleenex came to mean tissue.  And how Xerox came to mean photocopy.  We tend to call things by the industry dominator of those things.  And Google dominates the business of trying to figure out what other people are thinking.  So they’re the best at trying to figure out what other people are thinking.  But even they admit they can’t figure out what other people are thinking.

This is why Keynesian economics fail.  No one can figure out what other people are thinking.  Let alone hundreds of millions of people.  Which is why America became the world’s number one economy when the government was NOT trying to figure out what people were thinking to manage the economy.  That changed during the latter half of the 20th century.  And now the American economy is not what it once was.  Because Keynesians are no better than Soviet planners.  And the more they try the more they risk suffering the same fate of the Soviet Union.  For the Soviet Union wasn’t defeated by a superior military.  They were defeated by a superior economic system.

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Keynesian Economics Destroyed Good Lending Practices at our Banks and gave us the Subprime Mortgage Crisis

Posted by PITHOCRATES - August 11th, 2013

Week in Review

In the days of classical economics, before Keynesian economics, people put their money into a bank to earn interest.  The banks gathered all of these deposits together and created a pool of investment capital.  People and businesses then went to the banks to borrow this capital to invest into something.  A house to start a new family in.  Or a factory.  And the more people saved the more money there was to loan to investors.  Which kept the cost of borrowing that money reasonable.  And created booming economic activity.

It was a beautiful system.  And one that worked so well it made the United States the number one economic power in the world.  Then John Maynard Keynes came along and ruined that proven system.  By telling governments that they should intervene into their economies.  That they should manipulate the interest rates.  By printing money.  Which changed the banking system forever (see The Housing Market Is Still Missing a Backbone by GRETCHEN MORGENSON posted 8/10/2013 on The New York Times).

Yet with the government backing or financing nine out of 10 residential mortgages today, it is crucial to lure back private capital, with no government guarantees, to the home loan market. Mr. Obama contended that “private lending should be the backbone” of the market, but he provided no specifics on how to make that happen.

This is a huge, complex problem. In fact, there are many reasons for the reluctance of banks and private investors to fund residential mortgages without government backing.

For starters, banks have grown accustomed to earning fees for making mortgages that they sell to Fannie and Freddie. Generating fee income while placing the long-term credit or interest rate risk on the government’s balance sheet is a win-win for the banks.

A coming shift by the Federal Reserve in its quantitative easing program may also be curbing banks’ appetite for mortgage loans they keep on their own books. These institutions are hesitant to make 30-year, fixed-rate loans before the Fed shifts its stance and rates climb. For a bank, the value of such loans falls when rates rise. This process has already begun — rates on 30-year fixed-rate mortgages were 4.4 percent last week, up from 3.35 percent in early May. This is painful for banks that actually hold older, lower-rate mortgages.

In other words, the federal government’s intervention into the private sector economy caused the subprime mortgage crisis.  And the Great Recession.  By removing all risk from the banking industry by transferring it to the taxpayer.  This created an environment that encouraged lenders to adopt poor lending standards.  Because they made their money on loan initiation fees.  No matter how risky those loans were.  And not by managing a portfolio of performing mortgages.  Which kept the bank honest when writing a loan.  As they would feel the pain if the borrower did not make his or her loan payments.  But if they sold those loans and broomed them off of their balance sheets what would they care if these people ever serviced their loans?

This is what you get with government intervention into the free market.  Distortions of the free market.  Keynesian economics was supposed to get rid of recessions.  By cutting away half of the business cycle.  And just keeping the inflationary side of it.  Trading permanent inflation for no recessions ever.  But since the Keynesians began intervening we’ve had a Great Depression.  A subprime mortgage crisis.  And a Great Recession.  All because they tried to improve the free market.  Which also, coincidentally, enabled Big Government.  The ultimate goal of Keynesian economics.  To get smart government planners in control of our lives.  Just like they were in the former Soviet Union.  But revolutions are messy.  So the government planners bided their time.  And slow-walked their way to power.  First they took control of the banks.  And now they have health care.  Which they will destroy.  Just as they destroyed good lending practices.  Which have given us the worst economic recovery since that following the Great Depression.

Anytime you move away from capitalism things get worse.  When this nation embraced free market capitalism we became the number one economic power in the world.  And the destination for oppressed people everywhere in the world.  For the better life that was available in America.  While the nations that chose the state planning of socialism and communism became those places oppressed people wanted to flee.  And life in those nations only got better with a move towards capitalism.  China may soon become the world’s number one economic power.  But they’re not doing this by adhering strictly to their state-planning ways of Mao’s China.  No.  They are doing this by moving away from the state-planning of Mao’s China.  To something called state-capitalism.  Pseudo-capitalism.  Just hints and traces of capitalism simmering in state-planning stew.  Where communist planners still control the people’s lives.  A direction America is slow-walking itself to.  Slowly.  But surely.

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Kim Jong Un turns to Adolf Hitler’s Mein Kampf for Advice for North Korea’s Economic Ills

Posted by PITHOCRATES - June 22nd, 2013

Week in Review

President Bill Clinton entered into an agreement to help them build two nuclear reactors to produce electric power if the North Koreans agreed to give up their nuclear weapons program.   But they went ahead and built nuclear weapons anywhere.  President Clinton also gave them some satellite knowledge.  Navigational black boxes.  Allowing them to launch a satellite into space.  Which upon launching crashed in the ocean.   Which the North Koreans salvaged.  And got the navigational black box.  Giving them not only nuclear weapons but the knowledge to create an ICBM to deliver that nuclear weapon.  And ever since they’ve threatened us with nuclear belligerency to get what they want.  They agree to stand down on their nuclear weapon program in exchange for food or energy aid.  And when that aid runs out they threaten us with nuclear belligerency again.

President George W. Bush included North Korea in the Axis of Evil.  And was not as friendly to Kim Jong Il as his predecessor was.  But Kim Jong Il is dead now.  And his son Kim Jong Un has taken over.  So how much better did things get with the new Kim?  Not much.  In fact, they may have gotten worse (see Report: Kim Jong Un handing out copies of ‘Mein Kampf’ to senior North Korean officials by Max Fisher posted 6/17/2013 on The Washington Post).

Senior North Korean officials received copies of “Mein Kampf,” Adolf Hitler’s rambling prison memoir, as gifts for Kim Jong Un’s birthday this January, according to a report by New Focus International, a North Korean news organization that sources from defectors and volunteer citizens within the country…

The book was apparently not distributed to endorse Nazism so much as to draw attention to Germany’s economic and military reconstruction after World War One…

“Kim Jong Un gave a lecture to high-ranking officials, stressing that we must pursue the policy of Byungjin in terms of nuclear and economic development,” New Focus’s North Korean source told them by phone. “Byungjin” translates literally to “in tandem” and refers to official policy of developing the nuclear program and economy simultaneously.

The nuclear program is still front and center in national policy.  Some things never change.

So they’re going to take some economic lessons from Adolf Hitler’s Mein Kampf?  To recreate the economic miracle Hitler had following World War I?  It’s a little too late for that.  For a lot of the things Hitler did North Korea already has done.  Seize private property.  Limit imports.  Abolish trade unions.  Cut wages.  Force people to work longer hours.  Default on debt.  Print money to pay for public works projects.  And military rearmament.  Then plan on using the proceeds from world conquest to fix their balance sheet.

A lot of these are non-options for Kim Jong Un.  For there is no private property to seize.  They don’t have any trade unions demanding higher wages or better working conditions to abolish.  Public work projects?  If they haven’t been able to light up the night after all of these years with a grand public works project chances are they never will.  They already have a military-first national policy like the Nazis did.  They have one of the largest land armies in the world.  And already have nuclear weapons.  Yet they still have a horrible economy.  Proving again Keynesian economics doesn’t work.  For that was basically what Hitler had.  An economic system somewhere between the Soviet Union and the United States.  State capitalism.  Heavy on the state.

But for state capitalism to work you need a large private sector economy to interfere in.  And North Korea just doesn’t have that.  What they have is nothing but state spending.  And state spending just doesn’t work.  If it did North Korea’s economy would be greater and stronger than South Korea’s economy.  But it’s not.  For South Korea has lit up their night.  And they are doing quite well.  So well that they are one of the four Asian Tigers.  Because they embraced free market capitalism.  And when they do stray into state capitalism theirs is a kind that is very heavy on the capitalism.  Not the state.

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China raises the Price of Cotton and Chases the Textile Industry out of China

Posted by PITHOCRATES - June 9th, 2013

Week in Review

Communists think they are smarter than capitalists.  They think they can manage an economy better than market forces.  Despite the failure of the Soviet Union, China (under Mao), North Korea, Cuba, etc., there are many Western nations with activist governments.  Believing like the Chinese that smart bureaucrats can make the economy operate better than those market forces can.  But the problem is they can’t control all market forces.  So when they intervene there are always unintended consequences that usually make things worse after their intervention.  As this example in China shows (see China’s cotton procurement policy hurting textile industry by Staff Reporter posted 6/9/2013 on Want China Times).

China has jacked up the domestic price of cotton to 20,400 yuan (US$3,325) per tonne as of May 13, 4,500 yuan (US$730) higher than the international price, reports Shanghai’s First Financial Daily.

Industry insiders said that the current procurement policy does nothing to benefit cotton farmers and will have a serious effect on the domestic mid-stream textile industry, forcing many firms to move their operations overseas, the paper said…

The government has justified its cotton procurement at prices higher than international levels, by arguing that the policy can protect the interest of farmers and stabilize domestic cotton farm acreage and output, which assures the domestic supply…

The high cost has forced textile firms to abandon orders, with a growing number of firms relocating to Vietnam, Bangladesh, and India. Downstream firms, in dyeing and printing, have also been affected.

China expanded their cotton production when international cotton prices rose.  Then international prices fell.  Leaving them with a surplus of cotton selling at a price that did not recover the costs of that expanded production.  So these wise bureaucrats decided to raise the price of cotton.  And restrict imports.  Problem solved.  They forced the domestic textile industry to buy the higher priced domestic cotton.  Which, of course, raised the price of the textiles they sold.  Above the prevailing international price.  Pricing them out of the international markets.  So this economic reality forced them to relocate to a country that did not force them to purchase cotton above market prices.  Allowing them to produce textiles and sell them at prices the international markets would pay.

This is the same reason why the U.S. doesn’t have a domestic textile industry anymore.  Only it wasn’t government forcing textile manufacturers to buy cotton at above market prices.  It was the unions forcing them to pay labor at above market prices that increased the price of their textiles.  And priced them out of the international markets.  Because there are always unintended consequences whenever we interfere with market forces.  Always.  And the end result is always worse after the intervention.  Always.

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President Obama and his Keynesian Policies are Working on a Lost Decade just like Japan’s

Posted by PITHOCRATES - May 19th, 2013

Week in Review

In the Eighties Japan Inc. was going strong.  The Japanese economy roared.  And the Nikkei soared.  The Japanese had more money than they knew what to do with it.  So they started buying U.S. assets.  People feared that Japan would one day own America.  And urged that we had to follow their lead before it was too late.  The American government should partner with business like in Japan.  So smart bureaucrats could maximize economic output.  Instead of leaving it to inefficient market forces.

But Japan Inc. was state capitalism at its worse.  Instead of letting the market determine the allocations of scarce resources that have alternate uses the government stepped in with their crony capitalist friends.  Leading to corruption.  And a lot of malinvestments.  Money invested poorly.  Causing great asset bubbles.  That burst in the Nineties.  Where Japan Inc. was replaced by the Lost Decade.  A decade or more of deflation.  To wring out all the inflation the government fueled with their artificially low interest rates that caused all of that malinvestment.  And those asset bubbles.  If you’re too young to have lived during this you can still see it in action.  This time in the United States (see The U.S. looks like Japan: Investors rejoice by Paul R. La Monica posted 5/16/2013 on CNNMoney).

The U.S. economy is still not close to being fully recovered from the Great Recession, but investors could give a mouse’s posterior about this sad fact…

…Consumer prices fell for the second straight month. The absence of runaway inflation is of course a good thing, especially when you consider that the Federal Reserve has pumped an inordinate amount of money into the system with its asset purchase programs. But if prices continue to dip, that’s a big problem. Deflation is much worse than mild inflation. Just ask Japan.

Ah yes, Japan! It has taken steps to combat deflation with a vengeance this year. The Bank of Japan’s stimulus, dubbed Abenomics in honor of the country’s prime minister, is like the Fed’s quantitative easing…on steroids.

There’s the rub. The longer that the U.S. stays in tepid growth mode — what I’ve been calling the “low and slow barbecue recovery” since 2010 — the comparisons to Japan will only increase. After all, the U.S. also has an aging population and a large government debt load. The Great Recession ended in June 2009 and here we are in May 2013 still with a lackluster recovery. So we’re almost halfway to our own Lost Decade…

The problem here is Keynesian economics.  It was Keynesian economics that got Japan into the mess they’re in by playing with interest rates to stimulate artificial economic activity.  But Keynesians are like drunks.  They think a little hair of the dog can cure their hangover.  So they binge again on artificially low interest rates to create more artificial economic activity.  Which will end the same way.  As it ended in the Nineties.  A long painful deflation to wring out all of that inflation they pumped into the economy.  Just as the Americans will go through.  Because Keynesians dominate their monetary policy, too.

Even though there are many smart people, including members of the Fed, who are worried that QE ∞ will eventually cause a huge inflation headache and create more nasty asset bubbles down the road, the market doesn’t expect the Fed to pull back on its easing anytime soon…

That’s why stocks could keep climbing. It doesn’t matter that the economy is not healthy enough to make most average consumers feel better. Wall Street only cares about the Fed.

This can’t last forever, of course. Sooner or later, the economy is either going to slow so much that we have to start worrying about another recession (and no amount of stimulus will help prevent a market pullback if that happens) or the economy will start showing signs of a legitimate, sustainable and robust recovery. In that latter case, the Fed will have no choice but to end QE and start raising interest rates.

But for now, at least, investors can enjoy the fact that the United States is basically morphing into Japan Lite. Who cares about the health of the economy as long as central banks keep those printing presses running 24/7/365? Joy.

The selling point of Keynesian economics was eliminating the recessionary side of the business cycle.  So it is interesting that some of our worse recessions have been in the era of Keynesian economics.  I mean, that’s what the New Deal was.  Keynesian.  And what did it give us?  The Great Depression.  Why?  Why are the recessions so painful in the era when they were supposed to be less painful?  Because all Keynesian economics does is to delay economic corrections.  By delaying the onset of recessions.  And because it delays the correction it allows a bubble to grow greater.  So when the correction comes prices have farther to fall.  Which makes a recovery in the Keynesian era more drawn out.  And more painful.  Unless you like your recessions to last a decade.  Or more.

So while Main Street America continues to suffer under President Obama’s Keynesian policies Wall Street is doing just fine.  As rich people always do when partnering with government.  Only Main Street suffers the fallout of their Lost Decades.

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Hong Kong’s Free Market Capitalism makes Safer Baby Formula than China’s State Capitalism

Posted by PITHOCRATES - May 11th, 2013

Week in Review

Kids coming out of American schools learn that capitalism is unfair.  And that greedy businesses will put their customers at great risk to make a buck.  For capitalism puts profits before people.  Which is why we need a government with expanding regulatory powers.  For government puts people before profits.  Like they do in China.  A favorite of those on the left who urge more government intervention into the private sector economy.  Like they do in China.  Where they have a booming economy thanks to wise government bureaucrats.  And safe and happy people because the government prevents those nasty profit-seeking businesses from ever harming a soul (see China’s Parents Crave Illegally Imported Baby Formula by Liza Lin and Julie Cruz posted 5/2/2013 on Bloomberg Businessweek).

For Hong Kong customs agents, baby formula is the new heroin. On March 1 a law went into effect limiting the amount of powdered milk travelers can carry out of Hong Kong to two 2-pound cans each. Since then, more people have been arrested for smuggling baby formula than were caught all of last year with heroin and cocaine…

Many Chinese parents are desperate to get their hands on foreign-made baby formula after numerous food safety scandals in recent years. In 2008 at least 22 Chinese companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. Six babies died as a result. In 2011, China’s largest milk producer, China Mengniu Dairy, said in a statement that moldy cattle feed led to excessive toxin levels in its milk. Last year another large milk producer, Inner Mongolia Yili Industrial Group, recalled formula tainted with mercury. “Chinese consumers are so frightened and so sensitive to safety issues with milk powder that they are willing to pay a higher premium than consumers anywhere else,” says James Roy, a Shanghai-based senior analyst at China Market Research Group.

That willingness to pay has led to baby formula shortages in Hong Kong, where food safety standards are higher. The surge in Chinese demand has even hit foreign markets, where baby formula is often cheaper than in China. Over the past year, stores in Germany, the U.K., and New Zealand have put limits on all bulk purchases of formula, such as Danone’s (BN) Aptamil and Mead Johnson Nutrition’s (MJN) Enfamil.

Hong Kong favors free market capitalism.  While China prefers state capitalism.  Where the state regulates the private sector economy with the heavy hand of the government.  So, in Hong Kong you have the economic system that American schools teach students is bad.  Because they put profits before people.  While China has the economic system that the American schools teach is good.  Because they put people before profits.  And which one is better?  Well, food safety standards are higher in High Kong than in China.  Despite putting profits before people.

Or you could say that food safety standards are higher in High Kong BECAUSE they put profits before people.  Because if babies start dying after drinking a company’s baby formula people will exercise their free choice and buy another company’s baby formula.  A very strong incentive NOT to kill babies.  Because it would be bad for business.  And bad for profits.

Whereas in the ‘people before profits’ state capitalism of China if a company kills babies with its baby formula it’s no big deal.  For the state will just force their people to buy the tainted baby formula by putting import restrictions on safe baby formula.  So there is no incentive NOT to kill babies in China.

So which system is better?  If you base it on which protects their people better you have to go with Hong Kong.  For they’re not killing babies with their baby formula.  While the Chinese are.  Which is a lesson the American schools should be teaching.  Instead of the anti-capitalistic curriculum written by those Sixties’ radicals who actually preferred China the way it was under Chairman Mao.  Before state capitalism.  A time of true communist collectivism.  Where tainted baby formula was the least of their problems.  As they were busy setting famine records with their agricultural policies of forced collectivism.  Where they really put people before profits.  For there were no profits.  So things are better in China today.  For they do allow some profits.  But things aren’t as good as they are in Hong Kong.  Where they allow all the profit you can make.  And by putting profits before people the people come out ahead.  As do their babies.

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China is Restructuring their Economy to make them less Dependent on their Export Economy

Posted by PITHOCRATES - April 6th, 2013

Week in Review

Those who support more government regulation of business nod approvingly to the way China does business.  The Chinese government manages the economy.  They pick the winners and losers.  They decide where investment capital goes.  And their economy is surging because of it.  Something many in the United States see.  And want to emulate.  Only if the U.S. government had the same power over business the Chinese have they lament.  Then we would see great things in the U.S.  Or so they say.  But would we?

It should be noted that the only booming part of the Chinese economy is their export economy.  That is, it’s not ordinary Chinese enjoying this economic boom.  It’s those in other countries getting those cheap export goods.  And why are they so cheap?  Some will say because of unfair trade practices.  And because of cheap labor.  Which is why the same people who want the U.S. economy to be more like the Chinese economy, more government control, also want to limit the import of those cheap Chinese goods.  For they’re destroying American jobs with their cheap labor and unfair trade practices.  Yet they want the U.S. economy to be more like the Chinese economy.  Even though it is only that cheap labor that makes it all possible (see China issues plan to rejuvenate old industrial base by Aileen Wang and Nick Edwards posted 4/2/2013 on Reuters).

China will expand an urban regeneration plan for ageing industrial cities as part of efforts to restructure the economy and promote more sustainable growth, the National Development and Reform Commission said on Tuesday.

The plan, to run from 2013 to 2020, covers 95 prefecture-level cities and 25 municipalities and capital cities that were once the core of China’s heavy industrial base. A blueprint issued in November 2011 covered 62 cities.

The NDRC said in a statement on its website that investments would be made to help former industrial centres upgrade technology while also providing financing support and encouraging financial innovation – including bond issuance – to raise capital for the program…

Annual personal disposable income for those cities is targeted at 29,900 yuan ($4,822) by 2017 and 13 million new jobs will be created during the same period.

Obviously the Chinese way isn’t working.  If it were there would be no need for such a mammoth restructuring of the national economy.  But they apparently need this restructuring.  As the export economy did make the Chinese government rich.  And those connected to the government rich.  But the ordinary Chinese worker earning those cheap wages sure didn’t get rich.  Which is why they are not helping to sustain the economy.  Making China totally dependent on their export economy.

They are targeting $4,822 in annual disposable income.  This is NOT the disposable income they have now.  It’s what the government hopes they will one day have.  Which really isn’t a lot of money.  For that comes to $401.83 each month.  Or $92.73 each week.  And only $13.21 a day.  So if this was your disposable income in the U.S. you may be able to afford a house or a car payment.  But not both.  Or much else.  Such as that smartphone with those expensive monthly charges.

Of course people will say that it is different in China.  Where the cost of living is less than in America.  So they will be able to buy more with their lower disposable income.  But, again, the reason why their cost of living is less in China is because of their cheap labor.  For that’s how the Chinese system works.  They can underprice the goods of most nations because they don’t pay their people much.  For there are no powerful labor unions negotiating better pay and benefit packages in China.  No.  In China they use the power of their communist government to keep labor cheap.  So they can pick winners and losers.  And get rich in the process.  While the average Chinese worker does not.

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