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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A Weak Currency may Boost Exports but it will Raise all Prices Businesses and Consumers Pay

Posted by PITHOCRATES - February 24th, 2013

Week in Review

China created a booming economy thanks to a healthy export market.  In part because of their cheap labor.  An in part by keeping their currency weak.  For when you buy goods from China you first have to exchange your currency for theirs.  If your currency is stronger than theirs is you will get a lot more of theirs in exchange for yours.  Allowing you to buy a lot more Chinese goods with your stronger currency.  This is why China likes to have a weak currency.  And takes actions to keep it artificially weak.  Something her trading partners don’t like.  For their weaker currency tends to make the net flow of goods in international trade with China flowing from China to everyone else.  Thus giving China a healthy export market.  At the expense of everyone else’s export market.

But China is a developing economy.  Things change when you become an advanced economy.  Because you don’t have impoverished masses filling your factories manufacturing goods for export.  You have a thriving middle class.  With a high standard of living.  With good jobs giving them disposable income.  And few of them work in the export economy.  So despite all the talk about unfair trade practices of China most people in an advanced economy don’t worry that much about trade deficits.  For they’re buying a lot of imported goods.  From smartphones to coffee beans.  And a weak currency makes these items more expensive.

So there are two sides to the value of your currency.  If you have impoverished masses filling factories to build export goods a weak currency is good.  It lets the state sell more of those export goods.  In an export-dominated economy.  And provides a lot of low-paid factory jobs.  If you have a thriving middle class a strong currency is good.  For it lets the people buy a lot of stuff.  Creating a lot of better paying non-factory jobs.  In a non-export-dominated economy.  Basically the difference between free market capitalism.  And mercantilism (see Is the World on the Brink of a Currency War? by Michael Sivy posted 2/21/2013 on Time).

Currency wars – and trade wars generally – have their origins in a 17th and 18th century economic theory known as mercantilism. The idea was that a country’s wealth comes from selling more than it buys. A colonial empire could achieve this positive balance of trade by acquiring cheap raw materials from its colonies and then ensuring that it exported more finished goods than it imported. This was usually accomplished with tariffs that made imports very expensive.

Such an approach couldn’t work in the modern world. Countries don’t get cheap raw materials from colonies anymore. They have to buy them – especially oil – on the open market. So while currency devaluation makes exports cheaper for foreign buyers, it also makes essential imports more expensive. For Europe in particular, which imports so much of its energy, devaluation isn’t necessarily a plus…

The Federal Reserve’s quantitative easing – buying bonds to swell the money supply – is aimed principally at stimulating domestic demand. European advocates of a cheaper euro currency, meanwhile, are hoping to make national debt easier to finance, not trying to pump up exports. In fact, the continent’s greatest exporter, Germany, is the country least amenable to currency devaluation…

So forget all the talk of a currency war. What’s going on has nothing to do with trade and everything to do with debt and growth and inflation. If the global economy is in danger of reliving the past, it will not be a repeat of the 1930s. Rather, it will be a repeat of the 1970s, when the Federal Reserve expanded the money supply to offset the economic slowdown caused by the oil crisis – and ended up encouraging double-digit inflation.

The double-digit inflation of the Seventies really devalued the currency.  Raised prices.  Greatly limiting the amount of stuff people could buy.  Even though printing money then didn’t work these nations believe it will work now.  Because it will make their exports cheaper for foreigners to buy.  Despite making everything more expensive inside their own country.

But there is another reason they love to print money.  It lets them spend more.  And it makes old debt easier to pay off.  We call it monetizing the debt.  For example, if a nation has a GDP of $1 million and a debt of $500,000 that debt is huge.  It’s 50% of GDP.  But if we turn on the printing presses and devalue the currency to one tenth of its original value that GDP is now $10 million ($1 million divided by 1/10).  Making that outstanding debt only 5% of GDP.  And a whole lot easier to repay.  But what is one person’s debt is another person’s retirement savings.  So not only does inflation increase prices it destroys our retirement savings.  And all this just so we can boost the small sliver of our economy we call exports.

If this is so bad on so many levels why do governments print money then?  For one simple reason.  To get people to vote for them.  Because all the people see is the free stuff the politicians are giving them.  The damage it causes comes later.  And they can always blame that on Republicans.  Who refuse to raise tax rates on rich people to make them pay their fair share.

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The American Left loves the Chinese Economic System despite its Inefficiencies, Income Gap and Crimes Against Humanity

Posted by PITHOCRATES - January 6th, 2013

Week in Review

The American Left looks at China with awe and reverence.  They see that huge export economy and they know how they did that.  Massive government control over the economy.  And Keynesian economics on such a grand scale that it would  even impress Paul Krugman.  Nobel-winning Keynesian economist who’s constant refrain is that the government just never spends enough.  Something no one can say about the Chinese Communists.  And that’s why the American Left loves China.  For when it comes to the economy they wield dictatorial power.  If the American Left had those powers they could accomplish so much.  Beginning with the arrest of the Republican opposition and deportation to reeducation camps.  Then they could make our economy hum.  Just like in China.  Where brilliant government bureaucrats educated in the finest Ivy League universities called all the shots.  For only those who despise free market capitalism would know how to truly optimize economic output (see Game Over for China’s Photovoltaic Manufacturers by Gao Zitan & Frank Fang posted 1/6/2013 on TheEpochTimes).

It was in October of 2011 when the U.S. and European PV companies decided that enough is enough. Over the last years they had to compete against Chinese companies selling their products below cost. As a result many European and U.S. companies had to close down. The remaining ones chose to appeal to regulators to stop the unfair practices.

Note once again who is complaining about companies selling things too cheaply.  It is not the consumer.  For the consumer never complains that they aren’t being charged enough.  It is always another business requesting antitrust protection against a company they cannot compete against.

The Chinese regime viewed solar photovoltaic production as a promising industry with rapid scalability and production, and high profits. It could add to GDP growth and employment. This is why the regime greatly promoted the growth in the domestic PV market through business-oriented regulations and incentives. Banks, local governments and other financial agencies were ordered to heavily subsidize the solar industry with cheap loans.

Starting in 2009, the regime sponsored some large-scale national PV projects. The Solar PV building program comprised 111 projects and the Golden Sun program included 275 projects. Provincial or municipal funded programs provided the framework for many other PV related projects.

This is exactly what the Left wants to do.  What the Obama administration did.  They want smart government bureaucrats to tweak market forces to make things better.  At least this is what these government people think.  Because they are so smart.  Even though they have no business experience.  So the American Left wants to do exactly what China did.  What the Americans did but on a much grander scale.  Because their communist government had the power to do it on a grander scale.  Something the American Left laments that the American government doesn’t have that kind of power.  Yet the Americans want to penalize the Chinese for unfair practices.  Despite constantly championing the Chinese way.

In 2008, there were less than 100 PV enterprises. But by the end of 2011 there were more than 500 PV companies, a five-fold increase, according to Guangzhou-based business newspaper 21st Century Business Herald…

On the surface, Chinese companies were doing well. Revenue of the PV industry was more than 300 billion yuan ($48 billion) and Chinese companies occupied five spots in the top 10 of global solar cell manufacturers, according to the report. However, the fast expansion of PV production capacity did not match domestic demand.

According to statistics of EU ProSun, in 2011, China reached a total PV production capacity of 45 GW but domestic consumption was only 2 GW. The production capacity spurred by massive subsidies and state incentives was over 20 times higher than actual demand for solar powered electricity. The only way out was exporting the surplus production…

As a result of lower subsidies in Europe and tariffs in the United States, the overproduction stimulated by state subsidies can no longer be exported. One indication is a rapid growth in inventories. Sixty-six listed Chinese PV companies of the Shanghai A-Share Stock Market showed a 20 percent increase in inventories compared with the same period of the previous year…

President of EU ProSun Milan Nitzschke said, “Chinese subsidies shield manufacturers from insolvency, and are pumped into solar companies even if they are unprofitable. Most Chinese solar companies would have gone bankrupt a long time ago if not for endless government subsidies.”

This is what happens when you have ‘smart’ government people take over the free market economy.  You build a lot of stuff no one will buy.  Just like the Soviets built a lot of tractor parts that sat on store shelves unsold while people stood in line to buy soap and toilet paper.  This is why the command economies of communism failed.  And while the command economy of the Chinese Communists will fail, too.  What Friedrich Hayek of the Austrian school of economics called malinvestments.  Which directs resources from making things people want to making things people don’t want.  Creating shortages of the things people want (like soap and toilet paper in the Soviet Union).  And overflows inventories with things people don’t want (like solar panels in China).  All because a government bureaucrat decided to make more tractor parts and solar panels instead of soap and toilet paper.

And if that wasn’t bad enough there are other costs for the Chinese way (see Never Mind the Fiscal Cliff, China is Headed For a ‘Real’ Cliff by Michelle Yu posted 1/6/2013 on TheEpochTimes).

China is dangerously close to a catastrophic political, economic, and social meltdown, according to a Chinese business scholar, who cites China’s growing income gap as one of its serious crisis indicators…

Rural versus urban inequality has long been recognized as a key factor in China’s income gap. Not only does the rural income level fall far below the urban level, but the income inequality is also more obvious within rural regions…

Another notable factor is high unemployment rate. The SUFE study suggests that China’s national unemployment rate was 8 percent in July 2011, suggesting an unemployed population of 27.7 million, which is almost twice as high as what authorities have admitted to. The unemployment rate doubles for 51-55-year-olds, reaching 16.4 percent, and is attributed to mergers and standardized bankruptcy of state-owned enterprises in the early 2000’s. (An explanation of mergers and standardized bankruptcy are available here  and here.)

Surprisingly, the unemployment rate for 21-25-year-olds who hold college or above degrees is also 16.4 percent—the same as for the 51-55-year age group. By contrast, the rate for 21-25-year-old poorly educated migrant laborers from rural areas is only 3.4 percent. A shortage of cheap labor has affected some of China’s key export industries such as apparel and electronics, especially on the east coast.

But the root cause of the income inequality and a battery of other economic problems in China can be found in the communist regime’s overexploitation of social wealth, according to Winifred Tung, an attorney and commentator from Taiwan.

The exploitation has been realized largely through preferential policies in favor of state-owned enterprises and suppression of the private sector, Tung told NTD Television, citing recent data, which says that the GDP of large-scale state-owned enterprises (SOEs) accounts for 60 percent of China’s overall GDP. However, among the different culprits of tax evasion in China, SOEs came in first place with 26-28 percent.

So this is why they can make so many solar panels (and other export goods) so cheaply.  By exploiting poor rural laborers in their big city factories.  Resulting in something the American Left say wouldn’t exist if they had control over the economy like the Chinese do.  An income gap.  Income inequality.  Something that is apparently worse in the country where the government has the power to make life fair.  But it’s more than just an income gap.

The Chinese factory workers aren’t like UAW workers.  They have low pay, no benefits and often live in dormitories in the factory compound.  And these have it good (see The Difficulty of Smuggling a Slip of Paper From a Chinese Labor Camp by Guo Jufeng posted 1/6/2013 on TheEpochTimes).

Like the person whose plea made headlines around the world, I was also in Liaoning Province, China. Twelve years ago, I was imprisoned in Huludao City Forced Labor Camp, Liaoning, for 2.5 years for practicing the meditation discipline of Falun Gong. My companion Cao Yuqiang, who was eventually tortured to death, and I were watched 24 hours a day by two criminals, so that we could not exchange information regarding the persecution of Falun Gong.

One day, I came up with the bold idea to find a way to communicate information about the persecution to the outside world.

The first obstacle we faced was that we didn’t have pen or paper. So, as more and more information was passed on to me, it became quite a challenge to memorize everything! To improve my memory, I repeated the information to myself every day, since I couldn’t communicate regularly with Cao Yuqiang.

One day, out of the blue, Cao told me he had found a refill for a ball-point pen. I suspected he must have gone through a great deal of trouble to procure it, but I did not have the opportunity to ask him for any details at that time.

Now I had a pen, but there was still the question of what to write on. I finally realized that the only possibility was toilet paper, and to avoid being caught, I would have to write the message after midnight.

I had to keep strengthening my mind to overcome fear and anxiety as any negative thoughts could lead me to give up. Questions and doubts plagued my mind: “Would this work? How could we get the information out? Would I be able to withstand the torture if it was discovered? Had other prisoners found out about my plan? Were they waiting to catch me in the act?” I was certain that if my plan were discovered, I would be tortured mercilessly with electric batons.

This is part of that Chinese economic system the American Left so admires.  An economy that is based on cheap labor.  In some cases even slave labor.  And it’s no secret.  Which is odd for the American Left who are champions of the labor movement.  Who bankrupted countless businesses (GM, Chrysler, Hostess, etc.) by demanding ever higher pay and benefits packages.  Yet here they are.  Admiring an economic system that just exploits labor in the worst ways.  Even using torture.  And it bothers some.  Maybe not the American Left.  But the Chinese themsleves (see A Young Chinese Man’s New Year Wish for His Father by Gao Zitan posted 1/1/2013 on TheEpochTimes).

As 2013 begins with an atmosphere of joy welcoming in the new year, a young man from Hubei, China, is worried about his father who is a member of the Communist Party.

The term “San Tui” in Chinese refers to the three distinct renouncements. It means to quit the Chinese Communist Party (CCP) and its two affiliated organizations: the Communist Youth League, and the Young Pioneers, which people are made to join in their youth.

In recent years, “the three renouncements ensure safety” has become a well-known saying in China, and many consider it a rational choice for mainland Chinese to guarantee themselves immunity from all the crimes perpetrated by the Communist Party when the day of reckoning comes. So family members of those who refuse to consider the wisdom of this option are very worried for their loved ones…

“The three renouncements ensure safety” has been widely recognized by the Chinese public since 2004, when The Epoch Times published the truth about the CCP in “Nine Commentaries on the Communist Party” in 2004, and began registering those wishing to make the three withdrawals.

As of Dec. 30, 2012, more than 130 million people had registered with The Epoch Times to quit the CCP and its affiliated organizations.

The American Left may be enthralled with the Chinese communist way just as they were enthralled with the Soviet communist way but those living under those oppressive regimes weren’t.  And aren’t.  China is not the China it was under Mao.  But the hard-line communists are.  But even some of these committed their crimes against humanity for a higher purpose.  To prevent the anarchy that followed in parts of the former Soviet Union when the Soviet Union collapsed.  So some may commit their crimes for good.  While a lot no doubt just enjoy the privilege that comes with being in the party leadership.  And the very comfortable lifestyle.  Much like liberals in this country.  But not the average Chinese.  At least 130 million of them.

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China keeps a Short Leash on both their Factories and the Migrant Workers that make them Hum

Posted by PITHOCRATES - December 23rd, 2012

Week in Review

The American Left likes China.  The way government partners with business.  And has dominion over business.  In China business can only do what government allows them to do.  For government picks winners and losers.  What the Left yearns for in America.  Not unfettered free market capitalism.  They like their capitalism under the yoke of government.  Where they can have high positions in government.  Or be outside advisers to government.  And have their hand on that yoke.  But it’s just not business that is under the government’s yoke in China (see Plight of teen prompts education debate, protest in China by John Ruwitch posted 12/22/2012 on Reuters).

As the end of middle school approached this year, Zhan Haite, 15, faced two choices: attend vocational school in Shanghai in the fall or move to her ancestral home in distant Jiangxi province to take the high school entrance exam and study there.

Taking the test and going to senior high school in cosmopolitan Shanghai, where she had lived since she was four, was not an option.

Zhan is one of millions of children whose parents belong to China’s vast migrant workforce and are barred from taking senior high school or college entrance exams where they live by half-century-old policies on household registration, or hukou.

The hukou system has split China’s population in two for decades, affording different privileges and opportunities to urban and rural residents. It is a major challenge for China’s new economic policymakers under Premier-in-waiting Li Keqiang as they try to push urbanization as an engine of growth…

China’s 230 million migrant workers have been the oarsmen of the world’s second-biggest economy but have long been treated as second-class citizens with unequal access to education, health and other services tied to official residence status.

The education issue has been particularly divisive…

Zhan’s father, Zhan Quanxi, was detained for several days this month after publicly protesting for education rights in central Shanghai, but criminal charges were dropped.

Still, his online posts have been met with sharp criticism from Shanghai hukou holders, some of whom have claimed to be part of a “Shanghai Defence Alliance”.

The verbal mud slinging reflects a battle over turf in big cities where high school seats can help students get into top universities, said Ralph Litzinger, an anthropology professor at Duke University who studies Chinese migrant issues.

First of all if you ever wonder why the Chinese (and others) are outscoring American students on tests this is why.  They study hard to get into the good high schools for a chance of getting into the good universities.  Where they will take the hard degree programs to get the good jobs.  They’re not floating through life partying and fighting for the decriminalization of marijuana.  And they’re not taking worthless degrees in the humanities so they can keep partying in college.  No.  The Chinese take their education seriously.  Which is why they are some of the most sought after recruits of leading high-tech companies.  Including those in the United States.

In addition to that state-capitalism utopia the Left sees in China there is also crushing disparity.  Where those migrant workers are good enough to feed their factories with cheap labor to sustain that export economy.  But they’re not good enough to sit at the same table with the big-city upper-classes.  Something the left is ostensibly against.  Both the cheap labor and class-based society.  Yet they yearn for the state-capitalism they have in China.  Because of the power the ruling elite has.  Which is what the Left wants.  Unfettered power.  And they would take what China has any day of the week.  As long as they are in the upper class.  And once they have the power they don’t need to worry about cheap labor.  Or care about it.  As they won’t need organized labor to keep them in power.

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FT119: “To save American jobs the Left tries to keep out low-priced Mexican imports but does little to keep out low-priced Mexican labor.” -Old Pithy

Posted by PITHOCRATES - May 25th, 2012

Fundamental Truth

The Left opposes Cheap Mexican Labor in Mexico but they like having it in the U.S.

One of the more interesting things about the political left is their inconsistency about their opposition to free trade.  They opposed the North American Free Trade Agreement (NAFTA) because they said all the good manufacturing jobs would go south of the border.  They said Mexicans work too cheap.  And that was unfair to the American worker.  For the American’s generous wage and benefit packages could never compete with the Mexicans who are willing to work for so much less.  With NAFTA rich American capitalists would just screw their American employees and move their operations to Mexico.  Where they would exploit the poor hapless Mexican workers.  Forcing them to work at a fraction of the American wage and benefit package.

Of course that’s not the way the poor hapless Mexican workers see it.  They loved those manufacturing jobs.  Because those jobs had some of the most generous wage and benefit packages available in Mexico.  They flooded those factories.  And the lucky few to get those jobs did quality work.  The things they made in these Mexican plants were as good as anything in the U.S.  And they cost less.  Allowing the American consumer to buy more.  Which raised the standard of living for everyone.  The American consumer.  And the Mexican consumer.  The only ones who lost were the few working in those U.S. plants that closed.  Who became bitter.  And demanded the government impose tariffs on those low-cost imports.  To save American jobs.  While lowering the standard of living for the American consumer.  And the Mexican consumer.

So the Left opposes this cheap Mexican labor.  In Mexico.  They don’t seem to mind it so much, on the other hand, when it’s in the U.S.  The Left opposes building a wall on the border.  They oppose asking for proof of citizenship from anyone who looks Mexican in a region with a high concentration of illegal aliens.  They oppose requiring a photo I.D. to vote.  They oppose deportations of illegal aliens who’ve been living and working in the U.S.  While they are in favor of blanket amnesty for those here illegally.  And providing them a fast-track to U.S. citizenship.  Which is rather odd considering the way the Left feels about that cheap Mexican labor.  So why are they opposed to imports manufactured by low-cost labor while they are in favor of bringing that low-cost labor into the United States.  For either way it will displace a higher-paid U.S. worker from a job.

The Lost Tax Revenue from Abortion and Birth Control comes to about $155 Billion per Year 

 Yes, that is a good question, isn’t it?  Some, I’m sure, will say once those illegals become legals they’ll join unions.  Which would make them no longer cheap labor.  Perhaps.  But with the decline in U.S manufacturing there aren’t a lot of union jobs anymore.  It is more likely that they will go to where there are good manufacturing jobs.  In the nonunion South.  So it is likely they would add further pressure on those high union wages and benefits.  So why, then, would the Left want to grant citizenship to those here illegally while at the same time opposing cheap Mexican labor?  Two reasons.  Abortions.  And birth control. 

As it is in most things in life it’s about the money.  The Left likes to tax and spend.  Well, not so much like but love.  It’s what they live for.  They want to spend money to provide pensions.  Health care in retirement.  And now health care before retirement.  They want to spend money to end poverty.  They want to spend money to give everyone a college education.  They want to spend money to subsidize green energy.  They want to spend money for school lunches, childcare, art, public television/radio, birth control, abortions, etc.  If it’s something they can spend money on they want to spend money on it.  Of course to spend all of this money you need what?  That’s right.  Money.  And two of the Left’s defining issues have actually reduced the available money to spend.  Birth control and abortion.

According to Public Agenda the number of abortions increased during the Seventies until they totaled approximately 1,300,000 by the end of the decade.  They stayed at or above this level for a little over a decade and then started falling in the late Nineties.  Let’s take one year of these numbers and crunch some numbers.  If 1.3 million abortions didn’t happen and the women carried these babies to term and they earned the median income of $46,000 (and paid $7,530 in federal income taxes) today that would have come to an additional $8.4 billion in tax revenue per year.

According to the Guttmacher Institute there were 62 million U.S. women in their childbearing years (15-44) in 2010.  Approximately 62% of these women were currently using birth control.  Bringing the number of women using birth control in 2010 to 38,440,000.  If birth control was unavailable let’s assume 50% of these women would have stopped having sex.  And let’s assume the women who continued to have sex became pregnant and carried their pregnancy to term.  Bringing in 19,220,000 new babies into the world.  Based on the median salary of $46,000 they would have contributed another $145 billion in tax revenue.  Added to the lost tax revenue from abortion that comes to a grand total of $155 billion in lost tax revenue per year.  Over a decade that comes to $1.5 trillion.

Granting Amnesty to Millions of Illegal Aliens can make up for Lost Tax Revenue due to Birth Control and Abortion 

During the Obamacare debates the Congressional Budget Office (CBO) projected the cost of Obamacare over a 10-year period at $940 billion.  They have since revised that up to $1.76 trillion.  The opponents of Obamacare say it is too costly.  With a national debt of already $15.7 trillion we simply can’t afford to pay for Obamacare.  The proponents of Obamacare have been using questionable accounting practices to get that number down.  Such as collecting new taxes before paying any benefits in some of those years in that 10-year projection.  But the interesting thing to note here is that these discussions would be moot had it not been for birth control and abortion.  Which has cost the nation in tax revenue what Obamacare will cost.

These numbers are only crude calculations.  A more detailed mathematical analysis would have produced a far greater number in lost tax revenue.  Because the population would have also been expanding.  So the numbers used as constants in the 10-year projections above would have been growing larger in each year of that 10-year projection.  And producing larger amounts of tax revenue in each of those 10 years.  This is why Social Security worked so well for the first few decades.  There was a growing population.  And there was always far more new workers entering the workforce than leaving it.  What changed that was birth control and abortion.  And people choosing to have smaller families.  Not a bad thing in itself.  But this decision to have smaller families has doomed Social Security and Medicaid.  For they created those programs based on larger population growth rates.  That simply no longer exist.  And the only way to fix that is by having a lot more babies quickly.  Or for the baby boomers to die off quicker.  Which critics of Obamacare say Obamacare will help do via death panels.

Or you could try something else.  You can jumpstart the population growth rate by granting amnesty to millions of illegal aliens.  To make up for lost tax revenue due to birth control and abortion.  And what makes the illegals from Mexico so attractive to the Left is that many of them are devout Catholics.  Thanks to the Catholic Spanish Empire who brought their language, culture and religion to the New World.  And Catholics frown upon the use of abortion and birth control.  But this can be a risky bet for those on the Left.  Yes, they could really boost the population growth rate.  And they may get these new citizens’ votes in the early years out of gratitude.  But eventually the Left’s attacks on religion may eventually make these people vote Republican.  So they may get a large increase in tax revenue to spend.  Just as they lose power in Washington.

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China’s State Capitalism Export Economy fueled by Cheap Labor, Oppression, Kidnapping, Torture and Asset Seizing

Posted by PITHOCRATES - March 10th, 2012

Week in Review

For those on the left that think China’s state capitalism (aka, crony capitalism, socialism, thugocracy, etc.)  is the way to go should live under their state capitalism for awhile.  To get a fist hand account of just how wonderful it is.  Because, frankly, it’s not that wonderful.  At least for those who live under it (see China: toils of communist boss give insight into workings of the party by Tania Branigan posted 3/9/2012 on The Guardian).

The political drama surrounding an ambitious Chinese Communist party leader, his former ally a “robocop” police chief who apparently tried to defect to the west, a missing businessman, and another who claims to have been tortured, has uncovered bitter tensions in the Communist party as a new generation of leaders prepares to take power…

Meanwhile, a Chongqing businessman appears to have vanished in Beijing shortly after publishing a microblog message saying “the jigsaw puzzle around Wang Lijun” would soon become clear. Zhang Mingyu had claimed to have a recording of Wang warning him to stop accusing another businessman of corruption. Zang’s lawyer, Pu Zhiqiang, said Zhang had been visited by police and other officials who wanted him to return to Chongqing, and was now out of contact. Questioning their jurisdiction, Pu added: “Chongqing police came to Beijing to take him. This is more like a kidnapping.” Chongqing police said they had no information on Zhang.

Earlier this week fugitive Chinese businessman Li Jun described Bo’s anti-crime campaign as a “red terror”. He alleged in interviews with the Financial Times and Washington Post that Chongqing security officials had tortured him and seized his assets. Chongqing officials declined to comment…

Bo also indicated inequality in China had hit a high level, saying the gini coefficient – the most commonly used measure of inequality – had exceeded 0.46, a similar level to the United States and well past the 0.4 figure often seen as an indicator of growing social tension. China’s statistics bureau has said it cannot produce a single national figure because of problems with the survey method. Bo said reducing the wealth gap was a major task for Chongqing, adding: “If only a few people are rich then we’ll slide into capitalism. We’ve failed.”

It is precisely because they don’t have capitalism that there are only a few rich people.  And why they have cheap labor for their export economy.  Because the only rich people are the ruling elite.  The people connected to the ruling elite.  And those connected to the ‘businesses’ that are connected to the ruling elite.  Sure, they fear capitalism.  And don’t want to slip into capitalism.  For a national export economy driven by cheap labor needs the power of the state to keep that labor cheap.  And tools like kidnap, torture and seizing the assets of anyone they deem an enemy of the state are most invaluable in subduing a people.  And keeping their wages cheap.  That’s the big fear of slipping into capitalism.  For if they did they wouldn’t be able to oppress their people anymore.

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Higher Labor Costs are squeezing Margins for Chinese Export Manufacturers

Posted by PITHOCRATES - March 4th, 2012

Week in Review

China is still able to exploit their cheap labor to maintain a healthy export market.  But for how long (see China exports may stay strong despite weak Europe by Zhou Xin and Nick Edwards posted 3/1/2012 on Reuters)?

An estimated 200 million jobs — a quarter of China’s workforce — are directly dependent upon the external sector, hiking the political risks of an export slowdown to a leadership hypersensitive to any hint of social instability that might threaten the one-party rule of the Communist Party…

Ye Dingsong is an exporter who has relied on sales to Europe, but his primary headache is pricing, not falling orders.

“There are orders, but the problem is that it’s hard to get good prices. European buyers have become sensitive to prices, but costs are rising quickly so I have to ask for higher prices,” said Ye, the owner of Dadong Shoes in Wenzhou.

His shoe factory, which at its peak employed more than 100 people, currently has only half as many after workers walked out for better wages elsewhere when Ye said he could manage only a 10 percent rise…

Wenzhou exported 265 million pairs of shoes to the EU last year, roughly one pair for every two EU residents, according to data from the local customs office. But total sales were just $1.6 billion, or $6.04 per pair, meaning margins are very narrow even as a starter’s monthly wage can easily exceed 2,000 yuan ($320).

Ye is one of the many exporters Beijing is trying to help through tough times with tax rebates and easier bank credit.

The state capitalists in America look to China with awe and admiration.  They would love to expand state control of the economy in America to the level in China.  So they, too, can produce those magnificent GDP growth rates.  Which they think they can do.  With a union work force.  Even with the high wages and generous benefits of union workers.  Which, of course, they cannot do.  For the only thing maintaining China’s export market is that cheap labor.  Which is far below the union wages and benefits in America. 

In America a Chinese type state capitalism will not result in higher GDP growth rates.  Only in higher wages and benefits for union workers.  Along with a collapsing GDP growth rate.  Thanks to an uncompetitive American work force becoming even more uncompetitive.

But even in Communist China they are having problems keeping their labor cheap.  But they will do everything they can.  Including brutal state oppression.  And Keynesian economic policies.  Urging businesses to borrow money and expand production.  Even in the face of rising prices.  Which one day will lead to falling sales.  Leaving the Chinese with some nasty asset bubbles in their economy.  The kind the Japanese had in the Nineties.  And the kind the U.S. just recently had in the housing market.  Both bubbles popped.  And a horrible deflation set in to undo all the Keynesian mischief that caused the bubbles in the first place.

There is no way for the Americans to do what the Chinese are doing.  Unless the state capitalists do like the Chinese.  And outlaw all unions.  And that’s about as likely to happen as Keynesian economics policies actually working without causing inflation and asset bubbles.

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China Strengthens the Yuan against the Dollar

Posted by PITHOCRATES - February 12th, 2012

Week in Review

Well, this should please Donald Trump and Mitt Romney.  And others.  Who are hopping mad about China’s currency manipulation making American exports uncompetitive in China.  The Chinese have strengthened the Yuan on the eve of China’s Vice President Xi Jinping’s U.S. visit (see China’s Yuan Rises to 18-Year High Ahead of Xi’s Visit to U.S. by Kyoungwha Kim posted 2/10/2012 on Bloomberg Businessweek).

The yuan traded at 6.2916 per dollar as of 9:42 a.m. in Shanghai, after touching 6.2884, the strongest level since the country unified the official and market exchange rates at the end of 1993. The People’s Bank of China fixed the reference rate at a record 6.2937 per dollar.

Countries like a cheap currency because it makes their exports cheap.  I mean, inexpensive.  And if your economy is driven by exports you definitely want a cheap currency.  Which is why the Chinese have been keeping the Yuan weak.  To boost their exports.  Which they need more than ever what with her export markets wallowing in recessions.  They need to keep those Chinese exports cheap.  I mean, inexpensive.

China is also seeing some price inflation inside their country.  Caused by that cheap Yuan.  And those low interest rates.  So maybe it’s to help battle inflation on the home front.  Or it’s just to shut the Americans up a little on their currency manipulation talk during their state visit.  Whatever the reason, there is now a Yuan stronger than it has ever been in the past 18 years.  The U.S. economy is saved.  Yeah.

Or is it?  Only about 11% of U.S jobs are in manufacturing.  Most of those in aviation.  With Boeing leading the pack in U.S. exports.  So this stronger Yuan will probably do little.  No, it will take more than that to bring back manufacturing to the U.S.  For the U.S. to manufacture all those things the Chinese are manufacturing either the U.S. has to get cheaper labor.  Or China has to get more expensive labor.  Ditto for all that cheap labor in emerging economies around the world.  (Cheap by our standards but rather well-to-do in those emerging economies).  As none of this is likely to happen the stronger Yuan is not going to bring back much manufacturing to the United States. 

Sorry Donald.  Mitt.  And others.

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Competing against China in Solar Panel Manufacturing will only Create more Solyndras and won’t help Save the Planet

Posted by PITHOCRATES - February 5th, 2012

Week in Review

The cheaper solar power equipment is the more people will buy it and hire people to install it.  Because labor is labor.  There’s nothing you can do about that.  But manufacturing can reach economies of scale that can reduce manufacturing costs.  And selling prices.  Much like everything else in the world.  The first televisions were expensive.  Now they’re cheap.  The first VCRs were expensive.  Then they got cheap.  The first personal computers were expensive.  Then they got cheap. 

So all that we need is for someone to make solar power equipment cheap by employing economies of scale and we can ‘save the planet’ by replacing fossil-fueled generated power with clean solar-generated power.   And that’s the whole point of clean solar power, isn’t it?  Saving the planet?  Well, as it turns out, no (see The Coming U.S.-China Solar War by Bryan Walsh posted 1/31/2012 on Time).

Demand for solar power rose eightfold between 2006 and 2011 — from 200 MW to 1,600 MW…

Despite those rosy numbers, many U.S. solar companies — especially those that manufacture solar panels and modules — are struggling to survive. Most notably, the solar start-up Solyndra went under in 2011, taking with it over $500 million in government loan guarantees. The Bloomberg Large Solar Energy Index of 17 top solar companies lost more than two-thirds of its value in 2011.

That’s because solar power is getting much cheaper — prices for modules have dropped 40% over the past five years. According to some U.S. solar-panel manufacturers, that drop in price is due largely to low-cost imports from Chinese panelmakers. It’s not that their manufacturing methods are necessarily better than ours. It’s that government support from Beijing and low-cost labor make it easy for China to undercut its U.S. competitors. The result is more and cheaper solar power for Americans — but perhaps less market share for U.S. manufacturers.

You’re never going to compete against Chinese manufacturing and win.  And it’s not because of government support.  (Or their currency manipulation.)  Because the U.S. is providing government support, too.  Case in point, Solyndra.  It’s the cheap labor.  In a country that builds dormitories in factories.  Where workers work, eat and sleep.  And like it.  Because these are the good jobs.  Unlike being a starving peasant farmer.  Also, China doesn’t allow unions.  Or complaining or disobedience in the workplace.  Only when U.S. workers flood factories under similar conditions will the U.S. manufacturing ever hope to compete against the Chinese.

Of course, the U.S. could make this cheap solar equipment (that can save the planet) less cheap by slapping tariffs on it.  Making people spend more to buy this solar equipment.  So much more that the expensive American manufactured equipment is no longer more costly than the once cheaper Chinese imports.  Which, of course, would greatly discourage people from buying it and hiring people to install it.  Unless they receive massive government subsidies to offset the added tax of the tariffs.

Higher solar equipment costs for installers?  Higher costs for solar power installations for people who want to ‘save the planet’?  Higher taxes for everyone to pay for ever more government subsidies and incentives to save a few manufacturing jobs?  All while discouraging people from ‘saving the planet’?  Seems like some real silly policy.  And one that no one really thought through before getting us on this silly road.

If it’s not about saving the planet then the heck with solar power I say.  Let’s just keep using fossil fuels.  From American sources.  Let’s create good coal jobs.  Good oil jobs.  And good natural gas jobs.  For if we mine it or pump it up in America, all of the jobs will be American jobs.  It doesn’t require massive government subsidies or incentives.  And there will be no more Solyndras.  And the Chinese will be left with a surplus of solar panels that they will have to discount to unload.  Which we could then add to the electrical grid to offset peak demand on those hot summer days.  When the sun is scorching the land beneath it.  Now that would be a practical use.  It would help conserve our precious fossil fuels.  And it will also help to reduce emissions during peak demand.  Which was the whole point of solar power in the first place.  Only this way it wouldn’t require massive government subsidies and incentives.  Or the massive job-killing taxes to pay for those subsidies and incentives.

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China’s State Capitalism has the Monetary Policy Firepower for a Soft Landing

Posted by PITHOCRATES - January 22nd, 2012

Week in Review

The Big Government Keynesians love to point to China as how state capitalism should be done (see Analysis: China has multiple choices to avoid hard landing risk by Zhou Xin and Nick Edwards posted 1/18/2012 on Reuters).

China faces what could be its worst year of growth in a decade with policy firepower that developed nations can only dream of.

A record-breaking tax take expected to top 10 trillion yuan ($1.6 trillion) in 2011 gives Beijing fiscal scope to support growth and financial system liquidity, while monetary policy is perfectly poised for easing after a near two-year tightening cycle.

Contrast that with deep deficits across Europe and the United States and the orthodox policies forced upon central banks on both continents in a desperate bid to avoid a slide into economic depression…

Twin bubbles in real estate and local government debt are still being battled by Beijing, and are arguably the only — if significant — policy constraint faced as the world’s second-biggest economy faces another economic slowdown.

Of course, we mustn’t forget that China is a manufacturing powerhouse.  And why is that?  They have no unions.  Are the Big Government Keynesians suggesting that the US do away with our unions?  It’s that cheap labor that makes all the difference in China.  It is the only reason why they are the world’s second largest economy.  It’s just not that currency manipulation.  It’s that cheap labor makes their export goods inexpensive.

But can it last?  With not one but two bubbles?  No other nation ever fixed a bubble without a long and painful recession.  Let’s not forget that a real estate bubble started the current US recession.  Which burst.  And became the subprime mortgage crisis.  And the Japanese Lost Decade also started with a real estate bubble.  Bubbles aren’t good.  Because they always burst.  And when they do painful recessions follow.

China will collapse.  As all state-run economies do.  Because any suspension of market forces never ends well.  At least, they haven’t yet.  Other than the latest try.  China.  But they will.  Because they always do.  The countries who allow free market capitalism are the ones that stand the test of time.  Just look at Britain and the US.  They’ve had centuries of success.  While China has only had a decade or two.  The odds are on free market capitalism.  Not state capitalism.  As time will no doubt tell again.

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