China Falters on Economic Liberalization

Is China’s economy more of a paper tiger than an Asian tiger?

Dan Mitchell:

Video on CNBC is embedded in there.

1. China’s economy is weak because of insufficient liberalization.

2. Trump’s unthinking protectionism hurts both sides, but China may be more vulnerable.

3. China’s cronyism presents a challenge for supporters of unilateral free trade.

4. Trump should have used the World Trade Organization to encourage Chinese liberalization.

5. The imperfect Trans-Pacific Partnership was an opportunity to pressure China to reduce cronyism.

6. Additional Chinese reform is the ideal outcome, both for China and the rest of the world.

 

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Meaning of a 70% Income Tax Rate

Several Democrats have proposed a top income tax rate of 70% on incomes over $10 million.

Samuel Hammond argues that it is NOT about the optimal tax rate, soaking the rich, the rate in the past. It is a symbolic attack on the legitimacy of wealth accumulation itself.

Its goal is not about tax-fairness or raising revenue efficiently (which it fails at on both counts). Its goal is to popularize a strict egalitarian view of wealth accumulation as prima facie evidence of personal corruption. If that view catches on, it would represent a major setback in the public’s understanding of the differences, both normative and economic, between productively acquired wealth and rent seeking.

The Democratic Socialist’s economic model is Scandinavia. But we in the U.S. have our own economic model, and culture based on our own history. We are more individualist.

With the countercultural rebellions of the 1960s and 70s, followed by the Reagan Revolution of the 1980s, the left and right eventually reverted back to America’s historically more individualistic ethos of self-expression and entrepreneurship.

In Scandinavia, the dominant conformist zeitgeist is called the Law of Jante, a reference to a fictional Danish town that enforces being ordinary in every possible way. “Tall poppy syndrome” is perhaps the closest concept in American vernacular, although it doesn’t do the oppressiveness of Scandinavia’s egalitarian milieu justice. Excessive ambition is frowned upon while non-conformists are treated with suspicion, as illustrated by the expression, “You are not to think you’re better than us.”

The cost of this strict egalitarianism. In Scandinavia, the rich stay rich and everybody else is stuck. They’re economic opportunity is a snapshot frozen in time. Nobody can rise up because they are taxed too much to save anything that can be invested.

In short, Ocasio-Cortez’s focus on soaking the small number of Americans who make more than $10 million in a year has earned her socialist bona fides while ironically sparing — if not threatening to entrench — the closest thing America has an to emerging nobility. That’s not radical. Far from it. It’s conformism to the most mundane progressive politics imaginable.

We are Americans. They are trying to force 300+ million people to behave the way they deem worthy. No. Move to your utopia. Leave us alone. These people are tyrants and must be stopped.

Hammond’s piece here.

Investment Creates Jobs

John Tamny:

 

Businesses don’t exist to create jobs. If readers doubt this they need only try to raise start-up funds with “creating jobs” listed at the top of their business plan. Lots of luck finding investors when your goal is costs, as opposed to returns.

Crucial here is that the desire for returns among investors is what indirectly leads to copious hiring. Workers enable the returns that entice those with means to delay consumption in favor of the investment without which there are no companies, jobs, and progress.

 

People need to invest first before jobs are created. Invest in start-up as above, themselves to enhance their usable skill-set, in ideas, innovations, physical structures, machines, processes, stocks, bonds.

Onward:

Up front, Lowry’s focus on wages is rooted in a surprising conservative belief that compensation has long been stagnant in the U.S. Ok, but if the latter were even remotely true then it would also be true that the U.S. would not presently be showered with imports from around the world. Stated simply, a law of economics (Say’s) embraced by conservatives disproves a popular conservative narrative of the moment. We’re only able to consume insofar as we’re able to produce first. That wages are supposedly stagnant in the U.S. is further evidence that the economic statistics followed by economists and pundits aren’t worth their attention.

Its the measurement of wages and income that needs fixing.

This one’s a keeper. Read the whole informative thing.

China—Americans’ Economic Bugaboo du Jour

Bob Higgs:

I am old enough to remember when almost everyone believed that the Russians were, as Khrushchev put it, going to “bury” us. Even leading economists such as Paul Samuelson were taken in by such nonsense. Of course, no such burial occurred, because just producing vast quantities of concrete, steel, and H-bombs is no evidence that anything of genuine value is being produced. Later Japan became the Godzilla that was going to eat the U.S. and European economies with its bureucratic setup for picking and subsidizing “winners.” Before long that setup too collapsed in a heap and gave way to perpetual stagnation. Now almost everyone quakes in his boots while beholding the mighty Chinese economy. Again the hysteria has no firm foundation. An economy shaped and guided by government bureaucrats and Communist bigwigs by means of tariffs, subsidies, state-controlled credit, and state-owned industries cannot be a real growth miracle for long. This too shall pass.

And when it does Americans will learn nothing from their most recent mistake. If people really understood sound economics, they would not continue to make this same mistake again and again.

 

Yes, that’s right. First it was the Russians, then the Japanese, now China. Russia and Japan are faltered under the weight of central planning. China is doing that, too.

The Two Men Behind Cheaper, More Efficient Air Travel

Allan Golombek:

. . . When seatmates American Airline CEO C.R. Smith and IBM salesman R. Blair Smith introduced themselves during a flight from Los Angeles to New York 65 years ago, and realized they had the same last name, it was the start of a conversation that would revolutionize the airline industry, advance the economy – and help make air travel a real option for the middle class.

. . .

Each [airline] reservation took 90 minutes to complete – longer than the time it takes to actually complete many flights.

. . .

Six years later, the SABRE system was launched. Other airlines, feeling the tug of competitive pressure, created their own systems, such as Delta’s DATAS and United Airlines’ Apollo. Soon, facing demands from travel agents, all airlines launched 24-7 computer reservation systems that allowed agents to share data across all airline systems. Travel agents could use any system (such as SABRE) to book a flight with any airline, a process that required only 15 seconds.

From 90 minutes to 15 seconds. Not bad! Excellent example of how commercial advancements make our lives sooo much better.

Three Widely Believed Economic Fallacies

Steve Horowitz:

The Fallacy of the Zero-Sum Game

The first of these fallacies is the belief that market activities, especially exchange, are zero-sum games. Zero-sum games are those in which the total gained from playing the game is zero. So, for example, if each of five people playing poker buys into the game for $100, there is only $500 to be won.

. . .

We see this misperception of markets in a variety of forms. At the most general level, the belief that the rich get rich by impoverishing others is a species of zero-sum thinking.

 

 

The Fallacy That Order Requires Design

The second fallacy is the belief that economies require someone or some group to design and/or control them. Often this belief is linked to an argument from complexity: only a simple economy could be left to its own devices. Complex, advanced economies like those across most of the globe require human monitoring and regulation to function properly.

. . .

The flaw at the heart of this fallacy is that it ignores the idea of spontaneous or undesigned order.

 

The Fallacy that Consumption is the Key to Growth

The final fallacy is the belief that consumption is the source of economic growth. This belief is widely held by everyone from the citizenry at large up through economic journalists and politicians. We hear it every time the economy enters a recession and begins to recover. Pundits declare that consumers need to start buying things to generate a recovery, and reports about the latest data on consumer spending make the headlines.

. . .

In fact, consumption expenditures vary the least as economies go through booms and busts. The component with the greatest variation is private sector investment. If anything is needed during a recovery, it is more investment by the private sector, not more consumption.

. . .

The heart of the fallacy, however, is that consumption consumes things! When we consume goods and services, we destroy their value by using them up. Consuming food does not create anything valuable, it eliminates something valuable.

Excellent work. Read it.