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20 November 2010

Death and Taxes - USA

Paul Krugman

Unserious People

OK, let’s say goodbye to the deficit commission. If you’re sincerely worried about the US fiscal future — and there’s good reason to be — you don’t propose a plan that involves large cuts in income taxes. Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies — goodies that fairly obviously, even without having the details, would go largely to the very affluent.

I mean, what’s this about? There is no — zero — evidence that income taxes at current rates are an important drag on growth.

Oh, and they’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

Still, I guess this is what it takes to get compromise, if by compromise you mean something the center-right and the hard right can agree on.

Update: It’s here. And it really is that bad. The idea that co-chairs of a commission whose charge is fiscal sustainability should take it upon themselves to (a) declare that federal revenue must not exceed 21 percent of GDP — that’s right, putting a cap on receipts and (b) call for reducing the top rate from 35 to 23 is just awesome.

Income And Life Expectancy

I’ve referenced this before, but here’s the Social Security Administration study. Look at Table 4: since 1977, the life expectancy of male workers retiring at age 65 has risen 6 years in the top half of the income distribution, but only 1.3 years in the bottom half.

11 Nov 2010

Middle Class - Chinese

Todayonline - The heir apparent and China's middle class

By Peter Foster
The writer is The Daily Telegraph's China Correspondent. He moved to Beijing in 2009.

From behind the walls of a faceless government building in west Beijing came the news this week that China's mandarins have identified the man who will, in all probability, lead their country after 2012.

It was delivered through a typically obfuscatory communique from the official Xinhua news agency, which said the individual in question had been promoted to a job on the commission that oversees China's armed forces. By such signals do we come to know the identity of the man who will take the helm of the world's second-largest economy.

Mr Xi Jinping, a 57-year-old technocrat with degrees in chemical engineering and law, also happens to be the son of one of China's revolutionary leaders: A "princeling".

What he stands for is far more difficult to divine. Some say he's an economic reformer, or at least presume so since Mr Xi made his name pushing through economic development in the coastal provinces in the 1990s. His success may have something to do with that revolutionary lineage - his father Xi Zhongxun was a communist guerrilla fighter who was purged during the Cultural Revolution, but rehabilitated under Mr Deng Xiaoping.

Perhaps, say the rune readers, this makes Mr Xi the son more liberal-minded when it comes to political reform. Equally, say others, having suffered during the Cultural Revolution himself, Mr Xi is burdened with that same deep fear of political chaos that has made China's top leadership so resistant to change.

The truth is that nobody knows: There has been no manifesto, no hustings, no televised cross-examination, just the coded announcement that Mr Xi will become the leader of an organisation and a country that plays its cards disconcertingly close to its chest.

Perhaps it is a mistake to try and decipher the man. Like the current President, Mr Hu Jintao, he is almost anti-charismatic, a deliberately faceless embodiment of the consensus that rules China. (His wife, a folk singer popular with the over-50s, is far better known.)

Understandably, after the madness of the Mao years, big personalities are no longer welcome in Chinese politics; instead Mr Xi stands at the apex of a labyrinthine network of committees set up to inch China forward, step by step, towards a socialist nirvana with Chinese characteristics.

And therein lies the problem: While China's rulers are dealing in increments - "crossing the river by feeling the stones", as Mr Deng put it - the country they govern is plunging into the turbulent waters of the future.

When Mr Hu stepped out of the shadow of Mr Jiang Zemin in 2003, China had 190? million mobile phones. Today, it has over 800?million. Only 50?million were online; today, it is 420?million. During the same period, China's share of global GDP doubled to 8 per cent, and by 2019 - the mid-point of Mr Xi's putative reign - China could account for nearly 15 per cent.

Such momentous material advances are changing the social fabric of China at a far greater pace than the ruling party is adapting to meet the people's expectations. China's middle classes increasingly want to know why they can't afford to buy a house or why their children can't find jobs after graduation, just as its millions of migrant working classes want to know why, when they live and work in a city, they don't have the right to send their children to school there.

Increasingly, China's individuals think they know their rights and are prepared to defend them against rent-seeking officials, bullying commercial interests that cover up their mistakes and damage public health, and bent policemen and courts that put the interests of the party over the constitutional rights they pledged to uphold.

It is this changing reality that Mr Liu Xiaobo, the Nobel Peace laureate, was reflecting when he wrote Charter 08, a document that offered a blueprint for gradual reforms that would bring basic rights and freedoms - of expression, association, religion and property ownership - within the grasp of ordinary Chinese.

Those demands are arguably the natural consequence of the economic and social development that the party has engineered. But whenever faced with pressure to take the next step, China's leaders have suffered from a 20-year attack of political vertigo, of which Mr Liu's 11-year jail sentence is but the latest expression. As Mr Sun Liping, a sociology professor who was Mr Xi's PhD supervisor, has written in an essay much read on the Chinese Internet, the result of this has been "social decay" - which has its origins in the uncontrollable power of the party that Mr Xi looks set to lead.

"The system of government in China will change. It will change in Korea, Taiwan, Vietnam. It is changing in Singapore. But it will not end up like the American or British or French or German systems. What are we all seeking? A form of government that will be comfortable, because it meets our needs, is not oppressive, and maximises our opportunities. And whether you have one-man-one-vote, or some-men-one-vote or othermen-two-votes, those are forms which should be worked out. I'm not intellectually convinced that one-man-one-vote is the best. We practise it because that's what the British bequeathed us ... "- Lee Kuan Yew

For the foreseeable future, the centre holds; but the tension created by political paralysis, by the ruling party's refusal to submit to checks and balances, to explain itself and even argue its case to a society increasingly expecting explanations, is not going to abate.

The world can only hope that out of its secret huddles and conclaves, the party has found a leader in Mr Xi with the ability to manage the consequences.

THE DAILY TELEGRAPH

21 October 2010

Free Flow II

Paul Krugman - Rare and Foolish

Comments:

Bill Pieper

Taiwan
October 18th, 2010
12:13 pm

While the behavior of the PRC government may well be despicable, one almost has to admire how they consistently school western “barbarian” nation, especially the oafish Americans, at nearly every turn. This time they might have overreached, but so what. They have gotten what they want and can sit back while the US officials wring their hands, desperate not to upset their mighty corporate pay masters with a response deemed too harsh. The hand wringers will of course be fully supported by an army of allied ideological warriors from DC think tanks, universities, federal regulatory sleeper cells and elected/selected members of Congress on both sides of the aisle.

The Chinese are masters of two classic strategic and tactical policies used in concert and with complimentary effects. One is divide and conquer, that is, pitting nations which should be naturally allied against the PRC to instead quarrel with one another. This is frequently accomplished by pitting the US exporters and financiers against their European counterparts for example. The other is to exploit an opponent’s weakness, using it as a weapon. In the case of United States, the weakness would be the American slavery to an ideology of “free” trade and unrestricted capital flow; an ideology that provides a near perfect cover for unfettered greed on the part of the nation’s political and financial class. In a hyper-financialized oligarchy such as the US, this fanatic devotion to ideology has benefited a handful of players enormously, while contributing greatly to the ongoing decimation of the middle class.

After the epidemic of tainted products from China, toys poisoning children, toxic drywall, pet food, bad baby formula (presumably none of which reached American shores) etc., etc., a responsible government would have simply imposed a flat out ban of any product that can be consumed, worn or used to build homes until the Chinese government can demonstrate that it has the ability and the will to police its own manufacturing industries. If the US had a government that cared about its people and actively worked in their long term interests, such a ban would have been in place years ago. As far as I can tell it would be perfectly legal within the framework of WTO and other international trade agreements to do so, since public safety interests trump trade deals. In fact, I imagine that if the shoe were on the other foot and US companies had routinely shipped tainted and dangerous products to the Chinese, the PRC would have stepped in and halted such trade until the US can prove it is a responsible trading partner.

The REE debacle illustrates an alarming trend that has been going on for decades. The loss of REE processing resources will take years to replace, so even if mining commences tomorrow, the ore cannot be processed until the plant and expertise is in place. But it is not just rare earths that should concern Americans. When a nation loses its ability to create things, even non-strategic industries will decline over time because there is a lot to learn by making stuff.

Even when products are produced using high level design, creation and engineering talent located in the US, many innovations in process and design are taking place in the locations that actually manufacture the products. The US is losing the “culture” of manufacturing, a culture that contributes to improvements of the products being produced. In addition to this, there is an enormous amount of technological transfer and outright theft of intellectual property from western companies going on, especially in China where western companies are forced to partner with local operations to produce at least some components. These local partners will flat out steal patented technology, even highly sensitive defense related technology, all while being protected by political allies in the PRC. The western companies go along with these risks and costs because they either feel they have no choice in order to remain competitive, or they are eyeing the alluring and thus far illusive carrot of a billion person market. Some companies are finding out too late that it has simply not been worth the cost. But the C-level managers who made the decisions to go to China in the first place - as well as their eager financier partners - have long since made their millions and care not a bit about the costs to their home countries and fellow countrymen.

Paul Cohen

Hartford, CT
October 18th, 2010
12:34 pm

Paul,

There are already too many conflicts around the world that could embroil everyone. We are fighting two endless wars to protect our access to oil, without which, our mighty military machine would collapse. Now you want to escalate tensions with China because they won’t share their rare-earth materials? Let’s throw in Panda Bears. And hey, they have the Great Wall for tourism too. We need to end our colonial foreign policy, not extend it. The greed and selfishness (the ever escalating concentration of wealth flowing to the top) of Corporate executives is the reason we export jobs to exploit cheap labor. If there were a more equitable distribution of wealth in this country, Americans could support demand without having to cut jobs and the opportunity for amassing wealth would still flourish. I’m a bit surprised at the hawkish tone of this piece.

19 October 2010

Middle Class

President Obama on Small Business Jobs & Tax Cuts: "We Don't Have Time for Any More Games"

Posted by Jesse Lee on September 15, 2010 at 06:05 PM EDT

Having just emerged from a Cabinet meeting focused on getting every agency doing all they can to help America create jobs, the President zeroed in on two major fights for the middle class.

The first was the long-overdue breaking of the Republican blockade against help for small business -- for which he thanked the two Republican Senators who stepped up and abandoned their party's parliamentary gimmicks. The second was the ongoing attempt by Republicans in Congress to hold middle class tax cuts hostage to additional, excessive tax cuts for the very wealthiest Americans.

And while I am grateful for this progress, it should not have taken this long to pass this bill. At a time when small business owners are still struggling to make payroll and they’re still holding off hiring, we put together a plan that would give them some tax relief and make it easier for them to take out loans. It’s a bill that’s paid for. It won’t add a dime to the deficit. It’s a bill that was written by both Democrats and Republicans.

Right now, we could decide to extend tax relief for the middle class. Right now, we could decide that every American household would receive a tax cut on the first $250,000 of their income.

But once again, the leaders across the aisle are saying no. They want to hold these middle-class tax cuts hostage until they get an additional tax cut for the wealthiest 2 percent of Americans.

We simply can’t afford that. It would mean borrowing $700 billion in order to fund these tax cuts for the very wealthiest Americans -- $700 billion to give a tax cut worth an average of $100,000 to millionaires and billionaires. And it’s a tax cut economists say would do little to add momentum to our economy.

Now, I just don’t believe this makes any sense. Even as we debate whether it’s wise to spend $700 billion on tax breaks for the wealthy, doesn’t it make sense for us to move forward with the tax cuts that we all agree on? We should be able to extend right now middle-class tax relief on the first $250,000 of income -- which, by the way, 97 percent of Americans make less than $250,000 a year. So right off the bat, 97 percent of all Americans would get tax relief on all their income. People who are making more than $250,000 a year, say, you’re making half a million dollars, you’d still get tax relief on half your income.

And everybody agrees that this makes sense. Middle-class families need this relief. These are the Americans who saw their wages and incomes flat-line over the last decade, who’ve seen the costs of everything from health care to college tuition skyrocket and who have been hardest hit by this recession.

Extending these tax cuts is right. It is just. It will help our economy because middle-class folks are the folks who are most likely to actually spend this tax relief -- for a new computer for the kids or for maybe some home improvement.

And if the other party continues to hold these tax cuts hostage, these are the same families who will suffer the most when their taxes go up next year. And if we can’t get an agreement with Republicans, that's what will happen.

So we don't have time for any more games. I understand there’s an election coming up. But the American people didn't send us here to just think about our jobs; they sent us here to think about theirs. They sent us here to think about their lives and their children’s lives, and to be responsible, and to be serious about the challenges we face as a nation.

That's what members of both parties have now done with the small business jobs bill. And I hope we can work together to do the same thing on middle-class tax relief in the weeks to come.

25 September 2010

NEW WORLD ORDER

18 August 2010

Putting Singapore’s GDP in perspective

By Furry Brown Dog

Supporters of the ruling party and status quo are fond of citing Singapore’s GDP per capita, one of the highest in the world as evidence that its government has done well. Measuring economic success by GDP has many disadvantages as various other netizens have elaborated. I don’t intend to add to those, but in this post I will endeavour to show how this metric is flawed even without disputing that GXP (where ‘X’ refers to any of various national income accounting measures) measures the economic well-being a country’s people.

In 1959, when the PAP first took power in Singapore, Singapore’s GDP per capita (US$2186) in constant 1990 USD (hence adjusted for inflation and PPP) was second only to Hong Kong’s (US$3027) and Japan (US$3554) in East Asia. In this respect, Singapore was already ahead of all the countries in East Asia including China and Taiwan, and South Korea. This did not change when Singapore split from Malaysia in 1965, GDP per capita at US$2667 was highest in the region excluding Hong Kong (US$4825) and Japan (US$5934). These figures are a far cry from the nominal US$500 GDP per capita in 1959 often cited by PAP supporters which ignores both PPP and inflation adjustment. Fast forward to 2008, Singapore’s GDP per capita has overtaken Japan (which was mired for a decade and has yet to recover) but still trails Hong Kong.

Secondly, it is misleading to use GDP per capita when comparing between countries because Singapore only comprises of a single city whereas larger nations have rural areas and smaller towns. A fairer standard of measurement would instead be between cities rather than countries adjusted for purchasing power. This gives rise to the measurement of gross metropolitan product (GMP) per capita , PPP. This measurement compares between cities and towns instead of between countries where the relative poverty of rural inhabitants would distort the measure of GDP per capita. Because PPP involves a routine measurement of a country’s consumer price levels, data is much harder to come by compared to nominal GDP.

The latest data I could find dates back to 2005. Singapore’s GMP per capita PPP when measured against other cities worldwide ranks only at 53rd out of 100 (many other cities above belong to the same country), whilst not a bad showing is far from its spectacular perch of 9th ranking if one considers ranking by country only. This is certainly nothing to crow about.

Lastly, GDP (per capita) suffers from the fatal flaw as a economic indicator because it does not subtract profits earned in Singapore but which is remitted back to foreign shareholders and foreign investors. It also ignores incomes sent back by Singaporean corporations overseas. A more appropriate measure would be gross national product (GNP), which measures national income and profits held by Singaporean firms and residents (citizens + PRs) only. The latest figures for 2009, show that Singapore’s GNP for that year was S$182.536 bn, compared to its GDP of S$265.057bn. In other words, total income and profits for 2009 earned by Singapore residents and firms is only a mere 69% of GDP; the remaining 31% is repatriated overseas.

How does this compare to other countries? Expressing GNP as a proportion of GDP and ranking all the countries worldwide shows that Singapore is ranked only at 32nd place (figures appear to be dated 2007):

If you’re wondering how impoverished countries like Seychelles and Djibouti could rank above Singapore, remember we’re not talking about GDP or GNP (per capita) here as an absolute measure, but instead GNP as fraction of GDP. Such a metric is a loose way of determining how much of economic growth is generated by local employees and firms, while netting out foreign contributions. Singapore doesn’t appear to fare particularly well in this category, which likely reflects its over-dependence on foreign-owned corporations (MNCs) and the lack of a strong local economy and comparatively minor contributions to national income of Singapore firms which have ventured overseas.

Update 7th Aug: A commenter named Jason pointed out that the numbers seem off because it only lists 3 countries worldwide as having greater GNI than GDP, which doesn’t make sense since total world GNI and GDP should theoretically equate. So I went to look for another more reliable source and settled on World Bank figures here. More specifically I used GNI Atlas and GDP current US$.

Using data for both GNI and GDP for the year of 2007, and excluding countries for which no GDP and/or GNI figures are provided (for 2007), Singapore ranks about 138th place out of 183 countries worldwide for GNI/GDP:

Here’s the raw data which I used for those who want to see the full ranking. So while the earlier data is off, my conclusion doesn’t change, since Singapore’s ranking according to World Bank figures is even worse.

PS. The GNI data from the World Bank uses a special Atlas method which smoothens out exchange rate fluctuations and inflation over a few years, whilst the GDP figures are stated in USD terms for the exchange rate of a single year. This may account for some of the discrepancies observed. So like many things in economics, it serves as a reasonable first approximation, but certainly far from ideal. Cross-country comparisons are difficult, I’ll grant you that.

07 August 2010