Eric Posner and Glen Weyl on Piketty

In The New Republic.  A tidbit:

Only very extreme scenarios, where every wealthy individual does all of the following at the same time can lead to the sort of explosive inequality dynamics Piketty fears:

1. Marries someone at least as wealthy or bequeaths all wealth to one child.
2. Consumes very little.
3. Avoids paying most taxes.
4. Contributes little to charity or politics.
5. Invests optimally while avoiding Bernie Madoff and his ilk.

And it is hard to imagine why anyone would care about the existence of such an inbred, self-denying, and politically-removed class, if it could ever exist.

USA vs Russia: Real Victims are the Chickens

The victims we know so well / They shine in your eyes when they kiss and tell.

The main difficulty for the United States in applying trade sanctions against Russia is that, well, there is not really that much trade between them. The US doesn't buy significant amounts of oil and gas from Russia--its main lines of export. On the other hand, Russia usually reacts to these sanctions by halting imports of the major agricultural product it does import from the US. It's not consulting services, financial services, or the like. Instead, it's poultry as the real losers in this game of chicken are our fair feathered friends:

 In response to U.S.-led sanctions against Russia, Moscow is banning imports of U.S. chicken. The order issued Wednesday is expected to block access to America’s third biggest poultry export market for a year. The ban comes after Washington and its European allies imposed targeted sanctions on Russia’s energy, banking and defense industries to punish Moscow for its support of separatists in neighboring Ukraine...Russia accounts for only 7% of American poultry exports today, down from 20% as recently as 2008 and 40% in the mid-1990s.

 It is war by trade means...

The move has become something of a tradition every time relations between Moscow and Washington turn frosty.In 2008, Russia banned several American poultry producers over U.S. support of Georgia in the South Ossetia War. Moscow briefly imposed a broader ban in 2002 in response to U.S. steel tariffs. When former Russian President Boris N. Yeltsin sought reelection in 1996, Moscow blocked U.S. chicken to curry favor with domestic producers.

 ...as Russia also implements dubious safety regulations on American poultry when relations are strained:

Russian concerns over Western food safety practices often coincide with tense political relations. In 2010, the ban was a point of pride in Russia, eschewing the Soviet-era days of the early 1990s when the first Bush administration sent over American chicken as food aid. During the South Ossetia War in 2008, Russia blacklisted several American chicken producers over U.S. support for Georgia. And in 2002, when the U.S. raised steel tariffs for foreign trade, Russia stopped importing chickens from the U.S.

As mentioned above, the chickens take it on the cackles since they're the United States' only substantive exports to Russia:

Chicken is vulnerable because it’s one of the few things the U.S. sells to Russia. “It’s the damndest thing. When Putin came to visit the U.S., he and Obama were talking about nuclear proliferation one second and then poultry the next,” said Mike Cockrell, chief financial officer and treasurer for Sanderson Farms Inc., a Mississippi company that sends about 40,000 metric tons, or 2% of its total annual production, to Russia

We don’t want to lose them. They’re a good customer,” Cockrell said of Russia. “But if we do, the industry will find alternative markets. My guess is every company in the industry is calling to find those.”

So now we know the real victims when war drums sound in the background. Such fowl play is never welcome. In the immortal words of Culture Club: And I keep on telling you / Please don't do the things you do / When you do those things / Pull my puppet strings / I have the strangest void for you...

Cultural Revolution 2: PRC Targets Apple, Mercedes-Benz

Begone ye foul capitalist roaders; the second Cultural Revolution has begun.

I have written a lot--far too much for my tastes--about recent Communist Party efforts to wean the PRC off foreign products and services as if the country never opened up to the rest of the world [1, 2, 3]. However, this juggernaut keeps rolling on. After all, with all and sundry multinationals having set up shop in China as the ultimate emerging market, there is no shortage of them to bash for the next hundred years or so. On today's hit list are (surprise!) another American tech firm. For variety, though, also on the menu is German automaker Mercedes-Benz.

I. Despite nearly all their stuff being made in the PRC--nearly everything they sell says "Designed in California...Assembled in China"--Apple has reportedly been blacklisted from government procurement as well:

China’s government excluded Apple Inc. iPads and MacBook laptops from the list of products that can be bought with public money because of security concerns, according to government officials familiar with the matter...

Apple is the latest U.S. technology company to be excluded from Chinese government purchases amid escalating tensions between the countries over claims of hacking and cyberspying. China’s procurement agency told departments to stop buying antivirus software from Symantec Corp. and Kaspersky Lab, while Microsoft Corp. was shut out of a government purchase of energy-efficient computers...

Apple depended on Greater China for about 16 percent of its $37.4 billion in revenue last quarter, according to data compiled by Bloomberg. IPad sales in the world’s biggest market increased by 51 percent and Mac sales by 39 percent, Chief Executive Officer Tim Cook said July 23.

Unlike Norton and Kaspersky, I venture that Apple does not have much to worry about insofar as their sales to apparatchiks for official use are minimal. What's more, their reliance on government purchases which have to be legitimate is likely lower since pirated hardware is much less salable to Jian Q. Public than commonly pirated software. Still, it's ironic that they would so willingly bash China-made goods for being a security threat since it implies Apple is doing the American government's bidding by installing spying apparatus right in their own backyard. It makes China look dumb, doesn't it?

II. The more novel move here is hitting Mercedes-Benz with an antitrust suit. Why would M-B be considered a monopolist when virtually all of the world's car brands are now represented in the PRC? It goes back to a nice "captive market" luxury car marques have all to themselves and abuse with impunity as owners of these cars will attest: incredibly costly car parts, Apparently, Mercedes-Benz was hit by an unannounced raid:

Foreign auto makers came under new pressure in China on Tuesday, with Daimler AG DAI.XE -2.38% saying it is assisting Chinese authorities in an investigation into the car maker's Mercedes-Benz brand and Chrysler unveiling wide-ranging price cuts on some of its cars and spare parts. Chrysler said its move is a "proactive response" to an antitrust probe. The investigation into Daimler comes after efforts by the German auto maker to appease regulators with price cuts on spare parts two days earlier. A Daimler spokesman couldn't be reached for comment Tuesday on the company's pricing policy in China...

Foreign luxury-auto makers have been facing mounting pressure in what has been a lucrative market. China's state media have accused auto makers of earning exorbitant profits in China by dominating the market, overcharging consumers and controlling auto-parts sales. In recent weeks, Chinese regulators have increased scrutiny of the industry, people familiar with the matter have said. On Sunday, Daimler said it would reduce prices on average by 15% for aftermarket auto parts to address Beijing's concerns about anticompetitive behavior in the domestic auto industry. It followed a similar move by VW's Audi the week before, and that of Tata's Jaguar Land Rover brand for a few models.

This action I am more sympathetic to. Maybe some Communist Party bigwig's S-Class broke down overheating in Beijing traffic and he was outraged by Mercedes-Benz spare parts pricing that the rest of the world knows is a ripoff. He then called his ol' buddy Xi Jingping to strong-arm, I mean, mount an antitrust investigation into German automakers' monopolistic practices. Now, if they could only down the prices of spare parts worldwide I'd be so appreciative.
---

Anyway, to the Cultural Revolution analogy. We are witnessing the following actions which mirror those that occurred during the cultural revolution:

1. Purification of thought from malign foreign influences;
2. Leadership purges;
3. Adversarial relations with neighbors (India/Russia then, Japan/assorted SE Asia now)

It's all part of a cleansing process to restore the ideological purity of the Communist revolution. Sure it's backward-looking and "corruption" is in the eye of the beholder, but that it isn't over yet is clear.

Dumb capitalist roaders apparently don't know what hit them as China turns back the clock to 1966. Having gained Western know-how, the Chinese leadership probably believes their country is now rich and smart enough to turn the screws on the West. It's payback time for indignities the West foisted onto China.

Korean Revivalism: Choinomics, Not Abenomics

In S Korea, they don't call it the "Ministry of Strategy and Finance" for nothing.

I haven't had this feeling since the Clone Wars: South Korea together with its fellow Asian tigers have gained a reputation for following trends set in Japan, the archetypal story of development. There is even a theory based on the idea that Japan's example is sequentially emulated by others in earlier stages of development, the "flying geese model." Despite modern-day Japan being much different from its go-go (grow-grow?) days, trends established there still have a way of being copied by other Asian countries. It's not just manufactures for export that they emulate but also services as well as governance trends.

Today's case in point is economic reform. While I have bashed Abenomics as a half-hearted set of reforms that will only swell Japan's astronomical national debt--already over 200% of GDP and counting--Abenomics has the usual novelty appeal of reform measures. (The key to success for a debt-laden country is to pile on even more debt!) That is, they promise change after years and years of same old, same old. Especially after the Korean ferry tragedy, the general's daughter Park Geun-hye  has been looking to make changes. Hence the installment of a new finance minster, the titular Mr. Choi, who has been a dervish since gaining the position less than a month ago:

Three frenetic weeks into the job, South Korea's new finance minister Choi Kyung-hwan has made such a splash that his name already describes Seoul's plans to rev-up faltering growth. But while "Choinomics" is proving an effective quick fix, lifting markets and giving an unpopular government a boost, it falls short thus far of a full-fledged manifesto similar to the "Abenomics" launched by Japanese Prime Minister Shinzo Abe in late 2012 to shake his country from its economic torpor.

Economists say bolder measures to reform structural weaknesses are needed to head-off what Choi warns is a serious threat that Asia's fourth-largest economy could slide into Japan-style stagnation. The veteran lawmaker's plan combines extra spending with an easing of mortgage curbs to boost the property market, a proposal to tax excess corporate cash reserves, and not-so-subtle pressure on the central bank to ease interest rates.

OK, so the Abenomics comparison is not like-for-like since Abe is a prime minister and Choi a finance minister. Then again, public expectations have been lifted in both instances, most visibly through rising stock indices:

It has already helped dispel some of the gloom hanging over the economy since the April 16 sinking of the Sewol ferry that killed more than 300 people.Since Choi's appointment, the benchmark stock index has risen 4 percent in anticipation of higher dividends, while bond prices are also up, reflecting rate cut bets. Some economists are also revising up their growth forecasts.

So far it's similar to what happened in Japan in the early days of Abenomics: higher equity valuations buoyed by expectations of interest rate cuts that also raise bond prices. However, just as Japan has not really made the structural changes most non-Japanese advise such as opening the depopulating country up to migration, increasing competition in domestically-oriented and not just export-oriented industries, many of those in South Korea are still just promises. In South Korea, questions surround excessive dominance of chaebol or massive conglomerates that are the country's counterparts of Japanese zaibatsu at the expense of presumably more dynamic SMEs:

Choi - nicknamed "the Bull" for his hard-charging style - is promising more, including an expansionary budget next year and possibly beyond. Further potential steps include relaxing construction regulations, incentives for companies to hire part-time workers, and encouraging investment in services and smaller enterprises .Some commentators credit "Choinomics" for the ruling party's strong showing in last week's by-elections, where it won 11 of 15 contested seats, strengthening its majority and making it easier for Choi and Park to push further reforms.

"The opposition will be more receptive to the government's push to boost domestic demand," said JPMorgan economist Lim Ji-won. However, Choi is unlikely to pursue policies that would inflict much pain on chaebol, which power South Korea's exports and back Park's conservative Saenuri Party. 

Therein lies the rub: how much reform can you make when those who need reforming are your benefactors--the chaebol? Certainly there have to be other enterprises of note other than Korean giants? Watch this space

PRC Jihad vs US Tech: Norton, Kaspersky Banned

Battling the evil empire of US technology.

There's more fun news suggesting a further escalation of China's tech jihad against American technology firms. Now, PRC authorities are banning government procurement of US antivirus and security suites such as Norton and Kaspersky Labs. Given the importance of government purchases to software spending in China--mainly because they are almost certainly licensed copies rather than pirated ones--this is bound to hurt. However, you cannot say this was a surprise after PRC authorities began encouraging its banks to stop using hardware and software from IBM, Oracle and EMC. Even more recently, they have initiated antitrust investigations against Microsoft.

China has excluded U.S.-based Symantec Corp and Russia's Kaspersky Lab from a list of approved anti-virus software vendors, according to a Chinese media report suggesting Beijing is expanding efforts to limit use of foreign technology.

The state-controlled People's Daily reported the news early Sunday on its English Twitter feed, saying that the government's procurement agency "has excluded Symantec & Kaspersky" from a list of security software suppliers.

A second tweet said that government procurement office had approved the use five anti-virus software brands, all from China: Qihoo 360 Technology Co., Venustech, CAJinchen, Beijing Jiangmin and Rising.

What has surprised me so far is that these prejudicial actions have not yet prompted US technology concerns to approach their government to make a case against China at the WTO over not observing national treatment. With the United States being such a lawyer-infested place, you'd think they'd be chomping at the bit. In other words, China is clearly not treating foreign firms on a level playing field by encouraging commercial and government purchases of homegrown hardware and software. True, China has signed on to the Government Procurement Agreement (GPA) which discourages precisely these sorts of practices, but the PRC's meddling extends far beyond the public realm.

Then again, you could say Americans were simply asking for it with all this holier-than-thou BS about how PRC employs spies on the US. There is no doubting that the US government's National Security Agency (NSA) conducts espionage, but here it's just a ready-made excuse to ban US software in the same way the American government presumes Chinese tech firms are out to do the Communist Party's bidding.

What goes around comes around as far as US-China trade spats are concerned. In the end, these two countries deserve each other.

Singapore and the Demoncracy [sic] of Political Freedom

Ah, independent Singapore: a Lee-controlled city-state with a brief Goh Chok Tong intermission. I call it the "Medvedevian Interlude." Harry Lee Kuan Yew is famous for his "Asian Values" argument that the natural mode of governance in Asian countries is authoritarianism due to cultural factors unique to the region. Confucianism and all that. This argument has been endlessly debated--see, for instance, Amartya Sen's criticism of the whole idea.

While visiting Singapore on a recent trip, a former student of mine with something of an authoritarian streak took a photo of an advertising hoarding (the British term for a billboard) that to me best sums up the Lee family line on democracy if they had a sense of humor: "DEMONCRACY NOW: The region's most TERRIFYING event is back." Adding to the hilarity, if you go to the website listed in the hoarding, it further advises us that this Universal Studios attraction features "The Ministry of Evil." Aaaigh...elections [!]...real opposition parties [!!]...that actually win elections in heavily gerrymandered Singapore [!!!] The sheer horror is too much to contemplate.

I guess in tightly-controlled Singapore where Lee the Elder and latterly Lee the Younger have sued any and all media outlets who have dared criticize them with defamation suits, your digs have to be subtle ;-) While I would appreciate the notoriety of being sued by the Lees, I'm afraid I've said nothing remotely defamatory here. Universal Studios may be hearing from the Lees, soon, however.

Wisdom from Thomas Sowell

Larry Kotlikoff's comment on Paul Krugman's debating style in my previous post reminded me of an email I received earlier this summer:

Hi Professor Mankiw,
 

I'm an entering graduate student at [withheld] and a long-time reader (reading your blog when I was in high school introduced me to and got me interested in economics). I was reading Thomas Sowell's A Conflict of Visions and stumbled upon a passage that immediately reminded me of you, and your debates with Professor Krugman. I think it accurately describes a lot of disputes I've seen among intellectuals.

 

If you're familiar with the basic premise of the book, you can skip this paragraph. If you aren't (or need a refresher) Sowell creates a spectrum of political visions. At one end, there is the unconstrained vision, which sees a more malleable human nature in which the reason of experts has great efficacy in solving society's problems. At the other end, there is the constrained vision, which sees man's reason as inherently limited to narrow fields, with the best social progress coming through less deliberate and more evolutionary means. Sowell would see you as closer to the perfectly constrained vision, and Professor Krugman as closer to the perfectly unconstrained vision.

 

Here is the passage that reminded me of your debates with him. I think you'll see what I mean:

 

Sincerity is so central to the unconstrained vision that it is not readily conceded to adversaries, who are often depicted as apologists, if not venal. It is not uncommon in this tradition to find references to their adversaries' "real" reasons, which must be "unmasked." Even where sincerity is conceded to adversaries, it is often accompanied by references to those adversaries' "blindness," "prejudice," or narrow inability to transcend the status quo. Within the unconstrained vision, sincerity is a great concession to make, while those with the constrained vision can more readily make that concession, since it means so much less to them. Nor need adversaries be depicted as stupid by those with the constrained vision, for they conceive of the social process as so complex that it is easy, even for wise and moral individuals, to be mistaken -- and dangerously so. They 'may do the worst of things without being the worst of man,' according to Burke. (pg 59-60)

 

You may have already​ seen this and had similar thoughts, but if you hadn't, I thought you would find it interesting.

 

Best,

[name withheld]