Byzantine Empire, Bosporus, Silk Road, Dutch East India Company, English East India Company, Tea Act and Opium Wars

Posted by PITHOCRATES - March 11th, 2014

History 101

(Originally published May 15th, 2012)

To encourage Risk Takers to Travel Halfway around the World Mercantile States granted Monopoly Charters

The modern world began because Europeans had a penchant for silk and spices.  Something they enjoyed during Roman times.  When the Romans ruled the world.  And the Mediterranean Sea was nothing more than a Roman lake.  But when the empire stopped conquering new lands and sending the spoils of war home they had to turn to other means to pay for the cost of empire.  Taxes.  To pay for the Roman government and their public spending.  And the Roman legions.  This excessive government spending led to the fall of the western half of the empire.  But the eastern half lived on for another 1,000 years or so.  Why?  Because the capital of the Byzantine Empire was Constantinople.  On the Bosporus.  Trade crossroads of the world.

This city was so rich everybody wanted to conquer it.  So they could have all those riches.  For everything that came along the Silk Road from China crossed into Europe at the Bosporus.  Soon Muslims fought Christians in the Holy lands.  Then more Christians came.  The Crusaders.  Those who didn’t die went back to Europe with some of those Chinese luxuries.  Spices.  Silk.  Porcelain.  Etc.  Sparking a renewed interest in these finer things in Europe.  Especially the spices.  For European cooking was horribly bland at the time.  The Ottoman Turks eventually took Constantinople.  Renamed it Istanbul.  And controlled that lucrative trade.  Making those much sought after Asian goods rather expensive in Europe.  Which they had no choice but to pay.  Because if you wanted those luxuries you had to go through Istanbul.  Until the Portuguese sailed around Africa and found a direct route to those cherished goods, that is.

It was the Commercial Revolution.  A new age of international trade.  A trade even more profitable than what the Ottoman Turks controlled.  Because big ocean-going vessels can carry more cargo than anything coming over land on the Silk Road.  And these new European maritime powers wanted that wealth.  And the power it would provide.  To encourage risk takers to get into those wooden ships and travel halfway around the world they granted monopoly charters.  The Dutch East India Company (VOC) was one of the largest.  And one of the wealthiest.  But this was not your typical company.  The VOC established overseas colonies.  It waged war.  Established treaties.  Even coined its own money.  Because of this thousands of VOC ships stuffed full of valuable cargoes sailed to Antwerp and Amsterdam, making the Dutch very wealthy.  And powerful.

The Tea Act allowed the Company to Ship their Tea Directly to America and exempted them from any Duties

Of course the Dutch weren’t the only ones doing this.  They had competition.  Portugal.  Spain.  France.  And England.  Who would bump into each other numerous times fighting for control of this trade.  And those colonies.  The English and the Dutch would fight 4 wars.  Which is how Dutch-founded Manhattan became part of the British Empire and, subsequently, one of America’s greatest cities.  The English East India Company gave the VOC a run for its money.  Parliament even passed legislation to give the English a monopoly on all trade with their American colonies.  The Navigation Acts.  Which stated that all trade to and from America had to be on English ships.  And all trade had to go through an English port.  Where the ships were unloaded and the cargoes inspected.  And taxed.  Then they could reload their cargoes and continue on their journey.  All tenets of mercantilism.  This kept the lower-priced Dutch goods out of America.  And prevented the Americans from selling to the Dutch directly for higher prices.  So it shut down the Dutch from all American trade (except for a prosperous black market). And brought in some lucrative tax revenue for England.  While extending shipping times and increasing prices for the Americans.  Which they were not happy about in the least.

The English East India Company (the Company) was similar in structure to the VOC.  And soon made the Indian subcontinent a wholly owned subsidiary of the Company.  But it wasn’t cheap.  Waging war was costly.  As was managing those conquered territories (something the Romans had also learned).  Then a famine in Bengal in 1770 claimed about one-third of the local population.  Making laborers more scarce.  And more expensive.  All at a time when the sales of their imported goods were falling in Europe.  There were warehouses full of unsold Chinese tea that they couldn’t sell.  Making for a bad time for the Company.

Higher costs and lower sales spelled trouble.  And that’s what the Company had a lot of.  Trouble.  So the Company turned to Parliament for help.  And Parliament helped.  By allowing the Company to ship their tea directly to America without having to unload it in a British port.  Or pay a duty on that tea.  Which would greatly reduce their costs.  And allow them to sell it in America cheaper than they did before.  So Parliament passed the Tea Act in 1773.  Making life better for all involved.  But the Tea Act left in place another tax in the previous Townshend Acts.  Which was a bigger problem than getting cheaper tea (which they could get on the black market from the Dutch).  These taxes on the British subjects in America were unconstitutional.  Because there were no Americans sitting in Parliament.  This was taxation without representation.  A much bigger issue than cheap tea.  So they threw that first ‘cheap’ tea into Boston Harbor.  The Boston Tea Party being a major step towards war with the mother country.  And American independence.

Britain became the Lone Superpower after Abandoning their Protectionist Mercantile Policies and Adopting Free Trade

The American Revolutionary War was not the only headache the British got from their mercantile policies.  Part of those policies required maintaining a positive balance of trade.  So there was always a net inflow of bullion into the mother country.  That’s why raw materials shipped into Britain from America.  And finished goods shipped out to America.  Finished goods are more valuable than raw materials.  So the Americans had to make up for this balance of trade in bullion.  Resulting in a net inflow of bullion into the mother country.  Very simple.  As long as you can manufacture higher valued goods that other people want to buy.

And this is the problem they ran into with the Chinese.  For though the British wanted those Chinese spices, silk and porcelain the Chinese didn’t want anything the British manufactured.  Which meant Britain had to pay for those luxuries with bullion.  Including all that Chinese tea they craved.  Which resulted in a net outflow of bullion to the Chinese.  The British fixed this problem by finding the one thing that the Chinese people wanted.  Indian opium.  Grown in Bengal.  Of course, this turned a lot of Chinese into opium addicts.  The addiction problem was so bad that the Chinese banned opium.  But the British were able to smuggle it in.  They sold so much of it that they used the proceeds to buy their tea.  Thus reversing the bullion flow.

Not the finest hour in the British Empire.  The Chinese and the British would go on to fight a couple of wars over this opium trade.  The Opium Wars.  Which the British did all right in.  Even gaining Hong Kong in the bargain.  They didn’t build any long-lasting love with the Chinese people.  But Hong Kong turned out pretty nice under the British.  Especially after they abandoned their protectionist mercantile policies and adopted free trade.  Which made the British the lone superpower for about a century as they modernized the world by leading the way in the Industrial Revolution.  And the Chinese in Hong Kong were very happy indeed to be there when the communists took over the mainland.  And caused a famine or two.  For they lived comfortably.  In a state founded on mercantilism.  That achieved its greatest prosperity during the free trade of capitalism that followed Britain’s mercantile ways.

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Governments turn People into Addicts to generate Tax Revenue

Posted by PITHOCRATES - January 4th, 2014

Week in Review

During the days of the British Empire Great Britain had a problem.  They loved Chinese tea.  But the British had nothing the Chinese wanted in trade.  Except for one thing.  Silver.  Hard money.  Which was a problem for Britain.  They were running out of hard money.  So they came up with an ingenious way to solve that problem.  By getting as many Chinese hooked on opium as possible.  So they could trade Indian grown opium for Chinese tea.  It worked out great for the British.  But the Chinese didn’t like it.  And fought two opium wars with the British.  Which did not end well for them.

North Korea has a hard money problem, too.  And they, too, turned to drugs.  Crystal meth.  Which North Korea manufactured in state-run labs.  Destined for China.  Where they tried to get as many people addicted to crystal meth as possible.  So they can sell it in exchange for Chinese currency.  Which they could use to buy Chinese food.  To help ward off famine in North Korea.  This worked pretty well for North Korea.  But only gave China another addiction problem.

In the United States the government found other ways to raise revenue.  The first two big sources of addiction-revenue were cigarette and alcohol taxes.  But it soon proved not enough.  They then got people addicted to playing the lottery.  When that revenue proved to be insufficient they then got people addicted to casino gambling.  But government spending had grown so great that this revenue was still not enough.  So the government is looking at other things to get people addicted to (see Why Legalizing Marijuana Is a Smart Fiscal Move by Bruce Bartlett, The Fiscal Times, posted 1/3/2014 on Yahoo! News).

Perhaps the dominant factor driving marijuana legalization is the desperate search for new revenue by cash-strapped state governments. The opportunity to tax marijuana is potentially a significant source of new revenue, as well as a way of cutting spending on prisons and law enforcement. The California Secretary of State’s office, for example, estimates savings in the hundreds of millions of dollars from both factors. The following summary is from a proposed state ballot initiative in California (No. 1617)…

It is not surprising that revenue considerations should be critical in the marijuana legalization movement. That was previously the reason why cigarettes were not banned until the 1920s despite a strong nationwide movement to do so. In the wake of Prohibition, governments simply needed cigarette tax revenue too badly. And when Prohibition ended, the need for new revenue after the Great Depression decimated government budgets was a driving force.

Indeed, according to author Daniel Okrent, expectations of the revenue from taxing legal liquor were so great in 1932 that some people thought it might permit the repeal of income taxes. It’s worth remembering that in 1900, taxes on alcohol and cigarettes constituted half of all federal revenues. Indeed, the only reason Prohibition was possible in the first place was that the income tax established in 1913, which was greatly expanded by World War I, would replace the revenue lost from the liquor tax after Prohibition.

There have been no great cuts to revenue like that following Prohibition.  Government spending has just grown so great that it far exceeds the nation’s ability to pay for it with current taxes and borrowing.  So they are looking to make people addicted to marijuana to help pay for their large public sectors.  As well as their vote-buying welfare state.  And when this proves insufficient they can turn to other sources of revenue.  Such as decriminalizing and taxing heroin.  Cocaine.  Crack.  Crystal meth.  Opium.  Even prostitution.  People are already doing these things.  So they can’t be any worse than marijuana.  As long as only responsible adults indulge in these activities.  Just as only responsible adults will smoke marijuana in Colorado.  For think of the tax revenue heroin, cocaine, crack, crystal meth and opium could generate.  For those drugs are really addictive.  And just think how much old rich men would enjoy 18 year old prostitutes.  Prostitution would be a booming business to tax.  These young women could generate great tax revenue for the government by just doing what consenting adults want to do.

We could do these things to find new sources of revenue.  Or we could NOT make people addicts.  Or NOT sell women into prostitution.  Instead we could cut the size of the public sector and the welfare state.  So we can cut spending.  Which would eliminate the need to produce new tax revenue in the first place.  Allowing people to keep their hard-earned money instead of handing it over to the government.  To pay for generous pensions and retiree health care for others.

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New Paper shows Inverse Relationship between Global Warming and Coal-Fired Power Plants

Posted by PITHOCRATES - April 6th, 2013

Week in Review

In the Seventies they were scaring kids about a coming ice age.  And about air pollution so bad that we would one day have to wear gas masks when going outside.  The planet is a lot cleaner now.  And there is no talk about Americans one day having to wear a gas mask when going outside.  And that coming ice age?  Well, they were just wrong about that.  For what they thought was global cooling was actually global warming.  An easy mistake to make.  Because they’re both about temperature.  One just moves in one direction.  While the other moves in the other.  And unless you do something like record temperatures periodically how are you going to know which direction those temperatures are moving?

Then again, perhaps there was cooling then.  Before that cooling turned into warming.  For it now appears the reverse is happening.  A move from warming back to cooling.  Thanks to the Chinese and the Indians (see Climate forcing growth rates: doubling down on our Faustian bargain posted on IOP Science).

Remarkably, and we will argue importantly, the airborne fraction has declined since 2000 (figure 3) during a period without any large volcanic eruptions… The airborne fraction is affected by factors other than the efficiency of carbon sinks, most notably by changes in the rate of fossil fuel emissions (Gloor et al 2010). However, it is the dependence of the airborne fraction on fossil fuel emission rate that makes the post-2000 downturn of the airborne fraction particularly striking. The change of emission rate in 2000 from 1.5% yr-1 to 3.1% yr-1 (figure 1), other things being equal, would have caused a sharp increase of the airborne fraction (the simple reason being that a rapid source increase provides less time for carbon to be moved downward out of the ocean’s upper layers).

A decrease in land use emissions during the past decade (Harris et al 2012) could contribute to the decreasing airborne fraction in figure 3, although Malhi (2010) presents evidence that tropical forest deforestation and regrowth are approximately in balance, within uncertainties. Land use change can be only a partial explanation for the decrease of the airborne fraction; something more than land use change seems to be occurring.

We suggest that the huge post-2000 increase of uptake by the carbon sinks implied by figure 3 is related to the simultaneous sharp increase in coal use (figure 1). Increased coal use occurred primarily in China and India… Associated gaseous and particulate emissions increased rapidly after 2000 in China and India (Lu et al 2011, Tian et al 2010). Some decrease of the sulfur component of emissions occurred in China after 2006 as wide application of flue-gas desulfurization began to be initiated (Lu et al 2010), but this was largely offset by continuing emission increases from India (Lu et al 2011).

We suggest that the surge of fossil fuel use, mainly coal, since 2000 is a basic cause of the large increase of carbon uptake by the combined terrestrial and ocean carbon sinks… Sulfate aerosols from coal burning also might increase carbon uptake by increasing the proportion of diffuse insolation, as noted above for Pinatubo aerosols, even though the total solar radiation reaching the surface is reduced…

Reduction of the net human-made climate forcing by aerosols has been described as a ‘Faustian bargain’ (Hansen and Lacis 1990, Hansen 2009), because the aerosols constitute deleterious particulate air pollution. Reduction of the net climate forcing by half will continue only if we allow air pollution to build up to greater and greater amounts.

Let’s review.  The airborne fraction carbon dioxide has fallen since 2000.  And, as a result, global temperatures did not rise as projected.  Even though there were no large volcanic eruptions.  Which cause global cooling.  Tropical forest deforestation and re-growth are balancing each other out.  So that’s not a factor in this decline of airborne carbon dioxide.  Which leaves the sole remaining answer for the decline in airborne carbon dioxide levels as China’s and India’s explosion in new coal-fired power plants.  Yes, the wonderful air pollution from burning coal apparently cools the planet.  Like a volcanic eruption does.

Are you seeing the bigger picture here?  For a hundred years or so the Industrial Revolution belched so much ash, soot, smoke, carbon dioxide and sulfur dioxide into the air that it left black clouds over cities.  And a layer of soot and ash on everything.  This is why we electrified trains in our cities.  To keep coal-fired locomotives and their great black plumes of smoke out of the cities.  Was there a global warming problem then?  No.  That didn’t come into vogue until Al Gore started talking about it in the Nineties.  When the planet was doomed if we didn’t act immediately to reduce greenhouse gas emissions.  Despite only a few years earlier the climate scientists were warning us of the coming ice age.  Probably because of all that global cooling from our coal-fired power plants, steam engines and locomotives.

As oil, gas and electricity replaced coal-fired boilers everywhere (we even used coal in our home furnaces) all that pollution from coal went away.  And then came the Nineties.  And catastrophic global warming.  Just as China and India began to incorporate some capitalism into their economies.  Which they fed with electricity provided by more and more coal-fired power plants.  And as they belched all that wonderful pollution into the air the airborne fraction of carbon dioxide as well as global temperatures fell.  So I ask again, do you see the bigger picture here?

Yes, global warming is man-made.  At least this is what one can conclude from this paper.  And it is the climate scientists who made it.  By telling us to reduce all of the cooling emissions from our coal-fired power plants.  But, thankfully, the Indians and the Chinese still care enough about Mother Earth to pump those cooling emissions into the air.  And gave us a reprieve from the global warming apocalypse.  But if the climate scientists get their way they’ll bring on that apocalypse.  By pressuring China and India to stop putting those cooling emissions into the air.  And for the sake of the planet we can only hope that they don’t succumb to that pressure.

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The Chinese Communists may approve Keynesian Stimulus Spending but they Censor Art

Posted by PITHOCRATES - December 22nd, 2012

Week in Review

Those on the Left who want the federal government to take over ever more of the economy, such as Obamacare, look at communist China and sigh.  “Why can’t we have those kinds of government powers here?” they say.  They want to spend a few billions on Keynesian stimulus spending and they just do it.  Without the bickering of a two-party system, a bicameral legislature or a separation of powers.  For the Chinese, they say, are blessed without having a Constitution weakening the powers of the executive branch of government.  And with their absolute power they can do great things (see Beijing Bans Warhol’s Mao Portraits from China Exhibition by Frederik Balfour posted 12/17/2012 on Bloomberg).

Andy Warhol’s famous images of Chairman Mao won’t be part of the biggest ever traveling exhibition of his works when they go to China next year, an organizer said.

The show includes more than 300 paintings, photographs and films, featuring Warhol’s iconic Campbell’s Soup cans, Jackie Kennedy and Marilyn Monroe as well as 10 Mao paintings which Chinese authorities have decided to exclude…

A person familiar with the show, who asked not to be named because of the political sensitivity of the issue, confirmed the Mao works had been rejected by the Ministry of Culture. The Ministry of Culture and the Ministry of Foreign Affairs didn’t immediately respond to faxed questions seeking comment today…

According to the Christie’s auction website, Warhol chose Mao as “the ultimate star”, using an image of him taken from the portrait photograph reproduced in the Chairman’s so-called Little Red Book.

“He wasn’t being disrespectful,” Shiner said [director of The Andy Warhol Museum in Pittsburgh].

The Chinese communists censored art that was not disrespectful.  Imagine how such a policy of art censorship would upset the Left in this country.  Because a lot of the art the Left likes is very disrespectful to someone.  Such as Piss Christ.  By Andres Serrano.  A photograph of a plastic crucifix in a glass of his own urine.  Which won the Southeastern Center for Contemporary Art’s “Awards in the Visual Arts” competition.  Thanks to a couple of grants from the National Endowment for the Arts.  Funded by taxpayers.

China also censors pornography.  Well, not censor so much as has an outright ban on it.  Even on the kind over the Internet.  Something else the Left would have a problem with.  Even though they admire China’s absolute power over the economy and would love to have some of that over here.  They would not like that absolute power infringing on their liberties.  Much like business owners don’t like an out of control government infringing on their liberties in running their businesses.

If we give the government absolute power over the economy you have to give them absolute power over everything else.  Including the cultural stuff.  For absolute power is absolute.  Which means they can reject art, ban pornography, censor movies and music, limit the size of the soda we drink, ban smoking, outlaw the internal combustion engine, etc.  Whatever they want to do.  Because that’s what absolute power means.  It’s not just a means to attack capitalism.

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Chinese Women must submit to an Invasive Gynecological Exam for a Government Job

Posted by PITHOCRATES - December 1st, 2012

Week in Review

Many on the Left admire China for what they’re doing with their state-capitalism.  Something they’d like to see more of in the United States.  Government telling business what to do.  Government basically telling everyone what to do.  It’s a veritable liberal nirvana.  As long as you’re not a woman seeking a government job.  For there are a few more hoops Chinese women have to jump through before getting a coveted government job (see Chinese Students Protest ‘Invasive’ Gynecological Exams Needed For Government Jobs by Adam Taylor posted 11/28/2012 on Business Insider).

On Monday morning in Wuhan, Hubei Province, over 10 Chinese students protested the inclusion of invasive gynecological exams in the screening process for new civil service applicants, according to Legal Daily…

According to Legal Daily, one student said the manual on physical examinations for civil service recruits requires gynecological exams to diagnose sexually transmitted diseases and malignant tumors. The manual also requires information on menstrual history.

Men are not required to undergo similar examinations. Legal expert Han Guijun, an associate law professor at the Wuhan-based Zhongnan University of Economics and Law, told the paper that the practice may be against Chinese laws, and is “too invasive” for women…

According to Xinhua, around 1.12 million people took the National Public Servant Exam to become a civil servants. Only 21,000 government positions are expected to be filled this year, and the government says only 1 in 53 applicants will get a government job.

As bad as requiring women to get invasive gynecological exams these numbers are even more disturbing.  Around 1.12 million people are applying for a government job.  With only 21,000 openings that means less than 2% taking these exams will get one of these jobs.  Yet some women will endure an invasive gynecological exam for less than a 2% chance of getting a job.  Which tells you that the economy may be booming in China but the best jobs are still the government jobs in the Communist Party.  Which means all of that great economic growth can’t be all that great.  Not if people would rather work for the government than in the quasi private sector.  For government workers probably don’t have to live like a factory worker.  In a factory dorm a short walk from their workstation in that factory.

This is why China has the growth they do.  And why the U.S. cannot compete against their manufacturing base.  For instead of unions with costly pension and health care benefits they have workers living in onsite dormitories.  While the most ambitious people, those who can score the highest on those civil service exams, and the women with the cleanest uteruses, don’t settle for the factory jobs.  No.  They want those cushy government jobs.  Even if it means enduring an invasive gynecological exam.

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India wants to Burn U.S. Coal in their Coal-Fired Power Plants if the Americans are Foolish Enough not to Burn it in Theirs

Posted by PITHOCRATES - October 6th, 2012

Week in Review

India is one of the leaders in solar and wind power.  They have one of the world’s largest solar power plants.  Charanka Solar Park.  Adding about 200 megawatts to the electric grid.  When the sun shines.  India has about 15,000 megawatts worth of installed windmills.  When the wind blows they provide about 2% of India’s electric power.  India also has about 37,000 megawatts of hydroelectric power.  Which provides about 20% of their total electric power.  When the rains come.  So the Indians are serious when it comes to renewable energy.  Of course, they know that solar and wind power are more novelties than serious providers of electric power.  No, the big daddy of electric power in India?  Coal (see Tata Power scouts for overseas coal assets by Malini Menon posted 10/4/2012 on Reuters).

Tata Power (TTPW.NS) is looking for more overseas coal assets, a top executive said, joining the growing number of companies in the energy-hungry nation looking to secure supplies abroad amid a widening domestic shortfall.

“We are continuously looking at the other geographies and today, the options are the U.S., Colombia and Africa,” Managing Director Anil Sardana said, pointing to logistics, cost and sustainability of contracts…

Coal accounts for two-thirds of power production in India, which is struggling to meet the demands of a fast-growing economy and increasingly affluent population of around 1.2 billion people.

With all that investment in solar and wind power coal-fired power plants still provide about two-thirds of all electric power.  Which means coal and hydro provide close to 90% of all their power.  And solar and wind account for less than 10% of their electric power generation.  When the sun shines and the wind blows.

So the Indians want to buy U.S coal.  As do the Chinese.  You know who doesn’t want to buy U.S. coal?  The U.S. government.  They don’t want any Americans buying American coal.  And are aggressively trying to shutter coal-fired power plants.  Because of global warming.  Even though in all likelihood someone will burn that coal.  It just won’t be Americans.  So instead of China and India suffering rolling blackouts it will be the US.  Because of an energy policy dominated by environmental alarmists.

The Indians know they need coal-fired power plants.  The Chinese know they need coal-fired power plants.  But for some reason the Obama administration and his political base don’t understand that we need coal-fired power plants.  Perhaps they will when those power hungry server centers suffer rolling blackouts and shut off their online activities.  Perhaps they will only appreciate reliable coal after they lose all the comforts of life they take for granted.  Pity they aren’t as smart as the Indians and the Chinese.

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China has no Pension or Health Care Benefits for their Rapidly Aging Population unlike in the West

Posted by PITHOCRATES - September 22nd, 2012

Week in Review

The Chinese economy is cooling off.  Worse, they have some even more bad news in their future (see Ageing China: Changes and challenges by Damian Grammaticas posted 9/20/2012 on BBC News China).

Life expectancy in China today rivals that in the West – it is one of this country’s impressive advances. Except China has not yet built a social safety net to provide pensions, affordable healthcare or homes for all its elderly.

Yet another reason why the Chinese economy is outpacing those in the West.  While Europe and the United States have suffered from the effects of an aging population China hasn’t.  At least, not yet.  While those in the West keep raising taxes and selling sovereign debt to pay for pensions and health care for the elderly and retired China has been growing their economy and using its proceeds to buy the sovereign debt of those Western nations.

So what is it like living in a nation without a social safety net?

“We don’t get a government pension because I never paid taxes. We don’t have any savings,” he says.

Because he has children and a wife, he does not qualify for a place in a care home – only those without relatives are eligible.

Of Henan’s 8.5 million elderly, just 2% are cared for in nursing homes. So Niu Yubiao and his wife fend for themselves.

The couple have seven grown-up children. But like other young people in the area, they have left home to look for work. Niu Yubiao has no idea where they are.

The reason why they don’t have any savings is not because they are greedy and materialistic.  It’s because they live in abject poverty.  And barely earn enough to survive.  This is what it’s like in China once you leave the modern cities on the coast.  The economic miracle of China has not reached the impoverished masses in their interior.

Today, there are 180 million Chinese aged over 60, just over 13% of the population. That will double to 360 million in fewer than 20 years, when China will have more retirees than the entire population of the US.

By the middle of the century, their ranks will soar again to 480 million.

China is ageing so fast that a process that took up to a century in the West will happen in the coming 30 years here. And as the ranks of the elderly swells, the working-age population is starting to shrink…

China’s incredible economic growth has been built on its vast, cheap labour supply. But the numbers entering the workforce have started falling. China’s birthrate has collapsed – at its peak in the mid-1980s 25 million babies were born every year. Now there are about 15 million births a year. The dramatic drop is the result of a richer, developing society and of the one-child policy…

Currently, China funds only meagre pensions, and there are six workers paying taxes for each retiree – in 20 years’ time, there will be just two workers for every pensioner.

This is the current problem in the advanced economies in the West.  A declining population growth rate following the post-World War II baby boom is bankrupting their nations.  For those social safety net programs the Chinese don’t have were implemented in these Western countries before the baby boom turned into a baby bust.  Now the elderly generations in these nations grow faster than the younger generations.  More seniors are retiring and consuming government-provided pensions and health care while fewer are entering the workforce to replace them and pay the taxes to fund these programs.  So they have increasing government expenditures at a time of declining government revenue.  Thanks to a lower population growth rate.  Which has overwhelmed governments.  Causing greater budget deficits and soaring levels of debt.

As bad as things are in the Western countries what’s waiting for China is of such a massive scale that one shudders to think what will happen.  For even if China continues to enjoy high economic growth their aging population will bankrupt them.  Either by caring for the elderly.  Or by driving up labor costs and/or labor unrest as their baby bust fails to replace those leaving the workforce.  Bringing that economic juggernaut to a crashing halt.

But the scenario is even bleaker.   For they have driven much of their economy with artificial economic growth.  Fueled by Keynesian policies.  Artificially low interest rates.  And government interference into the private sector.  Much like what gave the U.S. the subprime mortgage crisis and the Great Recession.  And much like what gave the Japanese their asset bubble and their Lost Decade.  For all demand-side stimulative growth (i.e., Keynesian growth) ends in Great Recessions or Lost Decades.  Because this kind of growth is inflationary.  And when you inflate asset values you make asset bubbles.  Which ultimately burst.  And when they do they bring down those inflated values to market prices.  The longer those inflationary policies were in place the higher those asset values soared and the more painful the deflationary fall.  Just ask anyone in Japan.  Or in the U.S. with an underwater mortgage.

So China has some unpleasantness in their future.  Perhaps a deflationary spiral.  Along with an accelerated aging population.  Either one by itself is bad.  But together it could be more than the Chinese economy can handle.  And the fallout of any Chinese crash will ripple through every other nation’s economy.  Where we all will feel it.  And suffer the consequences.  Because we are all Keynesians, too.  At least, the economic policies of our governments are.  And when China can no longer buy U.S. sovereign debt there will be no more deficit spending.  Just massive spending cuts.  Or, if they choose to simply print money, massive post World War I Germany inflation.  Where it will take a wheelbarrow full of money to buy a loaf of bread.  Like in post World War I Germany.

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China has Severe Inequality and the Worst Public Toilets in all of Asia

Posted by PITHOCRATES - September 8th, 2012

Week in Review

The Left believes the government can make capitalism better.  And fairer.  In the Eighties they liked to point to Japan.  And the incredible economic growth they had thanks to government partnering with business.  Before their deflationary spiral and their Lost Decade.  Thanks to all that government partnering with business.  But that was yesterday’s news.  Today they like to point at the economic juggernaut that is China.  And say, “See?  That’s what strong government can do.”  For they believe China can get things done because they don’t have to deal with that pesky democracy.  All of those elections.   And being answerable to the people.  In China the government rules.  And the people quake in their boots.  Which lets China get things done.  And make a better society for all Chinese (see The forbidden public toilets of Beijing by Justin Rowlatt posted 9/8/2012 on BBC News Magazine).

Jeff Sun is the scion of one of China’s new rich and the founder of the “China Super Car Club”. He has got so many he cannot even remember them all…

We met Jeff while reporting on the yawning chasms of inequality that have opened up in Chinese society.

We filmed in some of the poorest communities I have ever visited – Chinese villages where no-one has ever owned a car and where they still till their fields using a single donkey, shared between dozens of farmers.

A better society for all Chinese?  Granted there are those on the Left who would love to see a world where no one owned a car.  But one donkey shared between dozens of farmers?  That doesn’t sound like a fairer society.  Not when there are rich people elsewhere who have so many cars that they can’t remember them all.  So apparently this state-capitalism (or as they say in China, communism) isn’t as egalitarian as the Left would like to believe.  For in America there is more capitalism than communism.  And yet American farmers don’t share donkeys.  No.  In America farmers own their own tractors.  Which seems to be a bit more egalitarian than communist China.  But it gets worse.

The journalists’ rule of thumb is that you cannot report the so-called three Ts – Tiananmen, Taiwan or Tibet.

We inadvertently discovered a fourth T.

In an article in the country’s English language newspaper, China Daily, I came across an editorial featuring stinging criticism of China from the WTO. Not the World Trade Organisation, this was the less well-known World Toilet Organisation.

This WTO had ranked China as having the worst public toilets in all Asia. The paper explained how, in response, Beijing had introduced rigorous new hygiene standards – now no more than two flies are now allowed in any public toilet.

The paper was in no doubt about the importance of the issue. “Clean public toilets are the symbol of a civilized society,” it thundered. The controversy made me chuckle and I mentioned to our government minder that I wanted to cover this storm in a toilet bowl.

It was Mr Chen’s job to ensure we did not break any reporting rules. He had been a cheerful, relaxed companion throughout our three-week journey, but now his face darkened.

“I do not think that would be a good idea,” he said gravely…

Mr Chen vanished for a few moments. When he returned his manner was forbidding.

“I am sorry Justin but I have to tell you cannot report this story at all.”

The human rights issue of Tiananmen, Taiwan or Tibet may be a sore spot for China as well as the liberals who so admire their way of governing.  But the worst public toilets in all Asia?  That affects everyone.  At least those who have to drop trou in their busy day away from home.  Not to mention the tourists.  The Chinese government may not know a good, quality public toilet but people traveling to their country no doubt do.  Oh the shame.  Oh the humanity.  Oh the inequality.  No wonder the sensors will allow journalists to report about the severe inequality in Chinese society.  For what is a village of farmers having to share one donkey compared to embarrassing public toilets?  For we all know every country judges another by the quality of their public toilets.  For few things are so sacred, so personal, as copping a squat when out on the town.

And this is the governing style the Left would have the US follow.  For it is more egalitarian.  Even though the masses must use the worse public toilets in all of Asia while the new Chinese rich no doubt enjoy a squat on the finest porcelain known to mankind.  And probably follow that up with a refreshing bidet cleansing.  No.  This isn’t equality.  This is a toilet aristocracy.  Which simply doesn’t exist under laissez faire capitalism.  Where going to the toilet in public isn’t a privilege.  It’s just so expected in capitalist societies that it is taken for granted.

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The American Left likes the Government that takes Children away from their Parents to Earn Olympic Gold

Posted by PITHOCRATES - August 4th, 2012

Week in Review

The American Left has long attacked the competitive spirit in America.  They stopped keeping score when their kids played in sports matches.  They awarded participation ribbons to everyone participating instead of first place, second place and third place trophies.  They’ve altered the educational system to grade on effort more than on being right.  To protect the students’ self-esteem.  And yet it’s these same people that want to model America after the communist Chinese.  To have a powerful central government managing the economy.   A government so powerful that it can do things for the people’s own good without having to deal with elections.  Or an ungrateful electorate too stupid to know what’s good for them.   They yearn for a strong China-like government.  Even when that same government would never hand out a participation ribbon (see Family kept grandparents’ deaths secret from Chinese diver until she won gold medal by Martin Rogers posted 8/1/2012 on Yahoo! Sports).

Chinese diver Wu Minxia’s celebrations at winning a third Olympic gold medal were cut short after her family revealed the details of a devastating secret they had kept for several years.

Wu’s parents decided to withhold news of both the death of her grandparents and of her mother’s long battle with breast cancer until after she won the 3-meter springboard in London so as to not interfere with her diving career…

The story of Wu’s family secret has generated huge discussion in China, where the pursuit of success has been chased by the government-backed sports national sports program with unshakeable zeal over the past two decades…

Now there seems to be a backlash against the win-at-all-costs mentality after the revelations about Wu followed fierce criticism from a national newspaper when a 17-year-old weightlifter failed to medal.

In China, athletes are often taken away from their families at a young age and placed in specialist training schools where they practice for hours every day. Wu began training daily at a diving camp at the age of 6. By the time she was 16, she had left home to be installed in a government aquatic sports institute…

The Chinese government’s attitude towards the performances of its athletes is now coming under greater scrutiny than ever before. Messages of congratulations from the government to athletes through the state news agency have been sent only to gold medalists, not those winning silver or bronze.

The Chinese may govern like the American Left would like.  But the Chinese are not a bunch of namby-pamby pansies like the American Left.  They’re tough.  And are very competitive.  So much so that they will take children away from their parents.  Steal their childhood.  All so they can earn a gold medal for China.  And if they fail they heap abuse on them.  This is the strong central government that the American Left so admires.  Which makes the American Left a true enigma.  They want a strong central government that can rule against the will of the people while being a bunch of namby-pamby pansies that just shrink away from harsh words of criticism.  Like, “Sorry, Johnny, 2+2 is 4.  Not 5.  You’re wrong.”

They’re either enigmas.  Or they’re just not that bright.

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China pours Billions into African Infrastructure in Exchange for Lucrative Trade Agreements

Posted by PITHOCRATES - July 1st, 2012

Week in Review

China is pouring billions into Africa.  Apparently out of the goodness of their heart (see Track record by Andrew Moody and Zhong Nan posted 6/29/2012 on China Daily).

The relationship between China and Africa will come under the spotlight once again when leaders of up to 50 African nations will descend on Beijing in July for the Forum on China-Africa Cooperation…

China’s stock of overseas direct investment on the continent has increased eight-fold from $1.6 billion (1.3 billion euros) in 2005 to $13.04 billion at the end of 2010, the last year for which figures are available, according to China’s National Bureau of Statistics.

Trade has also seen a similar large increase with exports to Africa rising from $10.18 billion in 2003 to $59.95 billion in 2010.

In Africa itself the relationship is viewed as central. John Dramani Mahama, vice-president of Ghana, says dealing with China helps avoid the red tape linked to alternative sources of funding from the World Bank, the International Monetary Fund or various international aid agencies…

Meles says far from exploiting Africa, China was in the process of rescuing Africa from the so-called Washington Consensus of the past 30 years that dictated that the private sector was the best engine for development in Africa…

Only one dominant view of the China-Africa relationship seems to exist in the West – that it is an exploitative and neo-colonial one…

The retired diplomat also feels China offers a great role model for Africa in terms of showing what can be achieved with a commitment to develop.

“I can remember when Sanlitun (now the bustling entertainment district in Beijing) was just bush and Shenzhen was a small fishing port and now it is like Hong Kong. There is a feeling if they can do it, we can do it too,” he says…

[Samuel B.] Nagbe [assistant minister in the Ministry of Public Works in the capital Monrovia], however, says this also has drawbacks since there is a lack of competition when large infrastructure projects are offered for tender…

The overall relationship between China and Africa will remain a subject of debate. Philip Nyinguro, associate professor of political science and international relations at the University of Nairobi, argues the weak state of some African countries makes them vulnerable when they are cutting deals with any country, whether it is China or a Western power.

This doesn’t sound much different than the spread of the British Empire.  And British colonialism.  Only the colonies may not do as well under the Chinese than they did under the British.  For let us not forget that it was the British Empire that made Hong Kong the jewel it became.  Not the Chinese.

And that attack on the private sector?  The wealth that China is creating that allows them to invest in Africa came from the private sector.  Granted it’s not what the West would call the private sector.  It’s more state-capitalism.  However, it was the transition from communism to capitalism (at least towards capitalism) in the cities that ignited their economic ascent.  So, yes, even China must agree that the best engine for economic development must come from the private sector.  Because it’s what they used.  For the communists sure couldn’t make it happen.

There’s no such thing as a free lunch.  Clearly the Chinese want those African resources.  Just like the early mercantilist empires wanted colonies in foreign lands to feed raw materials to their economies.  The Dutch, Portuguese, Spanish, French and the British.  They’re just doing it a little differently.  By ‘crowding out’ all other foreign investment.  Who don’t ask any questions or place any conditions on their aid beyond the economics of their trade deals.  Giving them a presence in these African nations.  Who will expect favorable treatment in return for their generosity.  If not they can just pull it away.  And without a developing private sector these countries could return to where they were before the Chinese investments.  Or accept an expanding Chinese influence in their nations.  Just like a colony power.

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