Trey’s 2010 Election Guide – The Economy

Who should you vote for?

It does not matter who is running for office. It matters how they vote when they get there. Those are the things that affect you and your family – and trust me, they do.

The Economy – Jobs

Clearly America has an employment problem. People living in Asia, like me, tend to think it’s structural and most of those jobs aren’t coming back until America reinvents its economy to be more competitive globally. Luckily, smarter people than I have argued persuasively that the job problem is a demand problem. If demand rises most of the old jobs will come back.

What’s important, statistically, is that there is a very real job recovery with Obama’s policies. Short of a new Works Progress Administration, I don’t think anyone has any idea how to create as many jobs as we need without an even bigger (and politically impossible) new stimulus or GM-style bailouts saving more manufacturing jobs.

There have been fewer job losses since Obama came into office with job creation out-pacing job losses since February of 2010. We still have a long, long way to go. It is not for lack of progress that we’re in this awful employment situation – it is a testament to just how bad things got in the last year of Bush, where 800,000 jobs* were lost in his last month alone.

* the 7-county Jacksonville area has a workforce of 750,000

The Economy – The Bailouts

I hated them. You hated them. Socialized risk with privatized profit is no way to run a country. I was 100% opposed to them at the time. In retrospect, it looks like it was the least worst option available. Like most government programs designed in the middle of an emergency, it could have been designed a lot better. However, the TARP (bailout) loans are being paid back with interest. Not letting corporate America implode turned out to be a good idea. Pessimist like me who thought they’d implode anyway and the money would disappear were wrong.

We’re still waiting for the money back from GM. Whether it was worthwhile to save some of the last bit of rust-belt industry we have left is up to your own values and judgement. I can assure you that the Japanese and German governments would have done the same to save their automotive manufacturing sectors.

The Economy – Taxes

First, taxes are not nearly as important to economic growth as the some like to claim. Looking at this chart from 1930-2010, you see there is no correlation. Second, tax rates today (and under Clinton) are historically low. The “top marginal tax rate” is how much is paid at the highest bracket of their income. Remember the first $20,000 or so of everyone’s income is nearly untaxed.

Top Marginal Tax Rates

Even if you do worry about the effects of higher taxes on GDP, there’s an important question: where is that money going? Overwhelmingly, we see it’s been going to the economic elite without trickling down. For instance, 41% of business profits from 2000-2010 was in the financial sector (compared to 16% in 1986) . So that’s good for bankers, but what about common people? In many ways, even before the Great Recession, 2000-2010 was a “lost decade” for income growth.

What was a Lost Decade for most Americans wasn’t at all for the economic elite. The Y axis is a percentage of total household income in America – meaning the top 1% own almost 20% of the income to be had. The left side  where it starts dropping is at the end of Clinton years when the government had budget surpluses and a governor from Texas was campaigning for the top job in the land by promising to give it back to the people. The spike at the very end is the Bush Tax Cuts. Tax policy and income inequality are very much related.

Perhaps what makes this problem all the more frustrating is that most people have no idea just how bad income inequality has gotten. Try to spot the bottom 40% of our country on this graph. The bottom 20% are completely invisible. Our income inequality is far worse, apparently, not only than we imagine but what even Republicans and the wealthy say they’d desire.

Real vs Imagined Income Inequality

For reference, this is what the Democratic tax plan looks like compared to the Republic tax plan, using pre-Bush Tax Cut rates as a baseline. I can tell you this fits with my own ideals fairly well.

A final look at trends to see where the burden for taxation is falling as we lift weight off the wealthiest. The answer? The middle class (and future generations).

Tax Burdens on Various Americans

The Economy – The Deficit

While tax rates don’t appear to have much correlation with GDP growth, they have a fairly strong historical correlation with surpluses and deficits, especially over the last 15 years.

Surpluses, Deficits, and Taxes

Despite what many Republicans preach, tax cuts do not pay for themselves. The Bush tax cuts made a huge dent in our economy, as seen below. The dark blue “economic downturn” section represents lost revenue during the recession – when the economy is bad, tax revenue goes down.

Bush Tax Cut Extensions and the Deficit

Our national debt is bad. It’s huge. But it’s not the most important economic problem right now. Keynesian economics, which arose out of the Great Depression and is the root of the common explanation that WWII got us out of the Depression, says governments should be saving during good times and running deficits during bad.

The government, because of its size, can take out loans and “stimulate” demand when private demand slacks off. If demand in the private and public sector both fall it becomes almost impossible to get the economic engine running again. Thus, government orders for hundreds of thousands of planes, boats, guns, and uniforms stimulated the economy out of depression in the 1940s. Instead of saving during the good times we were giving the cash away to the wealthiest in our society via the tax cuts, now up for expiration or renewal. Curiously, at the time, Republicans sold it as a Keynesian stimulative policy once the tech bubble burst and the surpluses they wanted to “give back” disappeared.

That said, anyone really interested in cutting the deficit needs to look the Tory budget plan. Overall nearly 20% spending cuts everywhere but education and health with a tax increase. That’s what serious fiscal conservatism looks like – making decisions, like they did, to retire aircraft carriers to save schools and hospitals. The problem, though, is that “it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers — the equivalent of almost three million layoffs in the United States — at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack”

Republicans don’t have a plan anywhere near as comprehensive, nor do they use numbers when discussing their budget plans. The Pledge to America leaves the Bush Tax Cuts unchanged and promises to protect all military and entitlement spending on the senior citizens, making it looks like this if enacted [methodology here].

Federal Budget Deficit as a Percentage of GDP

What we have, then are Republican policy proposals that objectively make the deficit worse while creating more income inequality and having almost no stimulative effect at all.

In a few years we’re going to need a very serious discussion deficit and debt reduction. Like “socialist” Europe, we’re going to need to make some adjustments in our social safety nets and entitlements. Social Security will need be means test (meaning Warren Buffet would no longer receive his checks) and we’ll likely need to raise the retirement age a year or two. Once Afghanistan winds down we’re going to need an evaluation and discussion of our security needs and which weapons systems and bases around the globe are needed and which aren’t. We’re going to need more  health care reform to copy Europe’s success in spending half as much as we do and getting very similar, and much more equitable, public health results vis-a-vis infant mortality and healthy life expectancy.

I think an honest discussion, without the ideologies of tax cuts and militarism, will show that we can have a healthy, growing, equitable economy with a balanced budget and comparatively low taxes by international standards. If we can have the discussion, we’ll see carbon taxes can replace business taxes. Right now, I can’t see that discussion happening for at least another five or ten years.

Discourse and the iPhone

Discourse is the framework in which we speak and by its nature pulls on how we think about a subject. It’s the lie that’s not a lie, the cheap “spin” of politicians but also that which defines how we define our world, illuminating certain facts at the expense of the greater whole. Foucault argued that it made modern societies nearly totalitarian in that we policed ourselves in what what we spoke and how we thought. In other words, work in the social sciences like the DSMV – the Diagnosis and Statistical Manual of Mental Disorders – are shackles on whole our being not because it’s being enforced on us from the outside, but because internalize these sorts of codified standards of thinking and behaving and often willingly commit ourselves to mental institutions if we fall outside it’s norms. A curious facet of Foucault’s thinking was that he thought it inescapable. You can never destroy discourse, only replace it with a new one. We are, in essence, as blind about the problems of our day as my ancestors were about slavery in theirs.

Take that idea and look at this New York Time’s article about the iPhone supply chain. It’s a discourse that reinforces, uncritically, the global capitalism discourse. The title, alone, is striking: “Supply Chain for iPhone Highlights Costs in China“. We’re told that the bill of materials, the cost of all the parts that goes into an iPhone, is $187.50. The phone retails for $600, “though the cost to consumers is less, subsidized by AT&T in exchange for service contracts.” The total cost of labor at assembly is thought to be about 7%, but everyone depends “on Chinese factories to hold down prices. And those factories now seem likely to pass along their cost increases.” So now companies like Foxconn are planning to abandon Shenzhen for poorer provinces where they can pay even less to worker.

Moral Boundaries

Mary Ann O’Donnell is the most knowledgeable person about Shenzhen, Chinese or other, I’ve read. Her blog, Shenzhen Noted, deals with the sorts of issues on a level I aspire to. She recently wrote about different moral boundaries for America and Chinese students. For Chinese families academic cheating was “unwise” but understandable because scores were important. Smoking marijuana, however, was among the worst things an adolescent could do because it “showed a student’s selfishness and lack of concern for family and friends.” Mary Ann, like many Americans, thought the opposite: cheating is horrible and while you wouldn’t recommend smoking pot to teenager, it’s hardly the worst thing they could do.

our common point was that ethics is about responsibilities toward others in our lives. we differed in the groups we chose as our ethical point of reference. more interestingly still was my friends’ idea that care of the self (by not smoking pot) was in fact an ethical question because one’s body belongs to family and friends and not primarily to some self.

I don’t so much disagree as think there’s a different level of analysis that explains things easier. Mary Ann is absolutely right that ethics towards others explains the difference, but I don’t think we need to go so far as to say that in modern urban Chinese society there is a limited idea of “self” and that your family owns your body.

What I’ve been saying about the “Confucian Blind Spot” seems to apply here perfectly well. The issue at play is that in Chinese society the rest of society, both individuals and any idea of a “Greater Good”, are ignored at the expense of help those in your own “circle”. Confucian, and post-Confucian, society is modeled in a way that someones relationship to you defines your responsibilities to them. Others are necessarily people you know, there is no other “Other”. That cheating on a test hurts somebody else who you don’t know, but deserves it more, means less than getting into a good college and later supporting your family at a higher level. It’s a collective, rather than individual, selfishness.

SkyPeaceDoor

I want to write a belated response Stan Abram’s (from China/Divide) thought-provoking take on the SkyPeaceDoor Incident of the last year of the 1980s. They make what I think is a fundamentally profound point that everyone, everywhere should consider about the things they deem deeply significant – which is that the an event’s significance is a social construction of “selective attention.” This goes for 9/11, terror attacks, SkyPeaceDoor and other political or symbolic events that have meaning to us. More people die every year from industrial accidents in China than did all the Americans who died in the Vietnam War – so where is their Memorial Wall or any acknowledgement of their sacrifice? We choose to dwell on, glamorize, and remember the thousand or so who lost their lives in the SkyPeaceDoor but we choose to ignore other deaths. Why?

Society, et al

I’m working on my Master’s dissertation with my academic advisor to get it published (hopefully) soon. Don’t want to jinx myself like I have with everything involving post-M.Ed academics, but it’s good and it’s already getting bites from a respected journal. In our lit review we’ve been going over the origins of civil society and the West and in China. The academic world is one of nuance, but a blog is a world of bombast. I want to say here what I can’t say there. In fact, I’ll just quote Peter Hessler.

Well I can’t do that because I don’t have the transcript, but I’ll just tell you what he said during an NPR interview about his new book “China Road.” A listener called and asked what the social life was like for the millions of young migrants pouring into the new boomtowns of China. Hessler responded that the first thing you notice in these cities is the lack of institutions. There is no church, no volunteer groups, no libraries with reading groups, no coffee shops with a subculture hanging around them. It’s really just the Party and the businesses and millions of individual people and (sometimes) their families. Strong social groups would form at workplaces and would outlast that particular job, but there weren’t many friendships being formed outside that because of the aforementioned lack of institutions.

Levers of Governance – Reform in China?

China/Divide has a new post up reflecting how I feel about the Chinese governmental system on it’s best days.

Hence the great trade off of government. To paint in broad strokes and risk some coloring outside the lines, or to paint in fine strokes, which results in cleaner work, but at a bigger price? To let each pull in a different direction, or to have leadership and one decided direction, even if it may be an incorrect one at times? To afford the inefficiencies of debate, consensus and minority interests, or to address the greater good in a utilitarian manner, even if at the risk of alienating the minority?

America was once the greatest experiment in government in the world–the shining “city on a hill.” Today, Beijing’s running the next great experiment in government, a gradual evolution from classic communism to a social democracy with Chinese characteristics. Have recent events made Americans so nervous about our “city on a hill” status as to wish failure upon China, and fault-find its every step?

My best contribution to this idea is this: if the Chinese Communist Party allowed all of it’s members to vote for the top leadership, China would be roughly as democratic as America was in 1776. To wit, that would be 79 million people in a population of 1.3 billion or about 6% suffrage. Remember, in America’s most enlightened age only white land-owning men could vote in most states. That would mean ~60% of white men could vote, men counting for half the population, meaning only 30% of white adults could vote. My Google-Fu is failing me at finding the post-colonial demographics were of white, Native American, and slave populations but you get the picture though. Perhaps more Americans could vote in 1776 but it was anything but universal suffrage.

A second observation is that I prefer the Chinese government to the Filipino government, though I prefer the Philippines more open society (The Inquirer is one of the best newspapers on the planet!). A free press, civil society, and rule of law, for me, are the foundations of good governance that can approximate the positive effects of voting. Voting, in and of itself, does not make a democracy or good governance, lest anyone forget Hamas in Gaza. There is a culture of democracy and I think China and the Philippines fall far from it. Voting means understanding the issues, respecting honest debate, and voting for something more than tribal/clan or economic loyalties. I would argue that America, right now, is losing this culture. When a majority of Americans oppose a piece of Health Care Reform while also supporting the policy contents inside it, something is seriously amiss. I don’t see a lot of difference between the Tea Partiers/GOP Two Minutes of Hate and poor Filipinos being bought off with a bag of rice by parties with no platforms (really, go look at the political party platforms there – there are none!). Neither are terribly fit to vote when you’re voting on personalities and instead of real policy.

My final submission is this. China/Divide is far too optimistic about the scope and possibilities of reform. The problem with my thought experiment at the beginning is that this is a very safe idea not being considered. China has a lot of governing institutions that could be reformed with just a bit more accountability and transparency but they’re it’s just not happening, nor is it even being talked about publicly. Class and village elections are cheap glaze over some very deep structural problems. There are no real reform proposals on the table. Though the CCP’s ideas and goals have changed over the past 30 years, there has been almost no change in governance. The simple truth is that other levers of democratic governance – civil society, rule of law, and a free press – are being constantly weakened. When lawyers stop disappearing, when world-respected NGOs aren’t being accused of “infiltrating our interior”, and when the press stops getting memos like this, I’ll start believing that there’s anything shining about this example. It’s fine that someone wants to stand up in lead the boat of squabbling people, it’s another thing to throw dissenters to the sharks.

Bursting Housing Bubble Talk

Yesterday my landlord came demanding 500 yuan more a month – from 3000 to 3500. Two of my other friends who’ve resigned leases report the same (though from bases of 2500 and 5000, both 500 increases [at least we got a new couch out of it]). A straw poll of my adult students here shows a remarkable rise in real estate prices. We’re talking home prices going up 300% in less than five years. My own 75m apartment is worth about $130,000. I could buy a 3 bedroom house in my hometown for that. Let me answer a simple question a lot of people are asking: is there a housing bubble?

I don’t think so.

I think there’s two big reasons why not. The first is that half of Shenzhen people are living on what is officially farmland. They’re living shoulder-to-shoulder with each other in cheap units that are not for sale because they’re not supposed to be there. I’m looking east outside my 29th story window  now at my entire neighborhood (click here, we’re the white buildings along the wide road at bottom). Everything straight down and north of me is “real” urban property developed into what are locally called “gardens”. Straight ahead, to the east, is the most densely packed farmland you’ll ever set your eyes on. Usually seven-story buildings with alleys, little restaurants, and even a village where people draw water from a well. Most of these people aren’t poor. They’re mostly working white-collar jobs saving to buy a house. About 1km further is a brand new mall with Gucci and all that goodness. Then theme parks and on to Overseas Chinese Town. All those people down there want to buy what I’m renting right now. All of them. Unscientifically speaking, there’s a lot more of them down there than us up here.

The second issue is cultural. No house, no wedding. Not every single girl in China is like that but most of them are. My good friend who just got hitched sold his factory and moved off to Hainan where he thinks he can get a new job and a house at a reasonable price. It’s that important. This means there’s not as much pressure on the rental market – which is how I’m able to rent for about half the price of a similarly priced American house. People don’t mind living in “bad” housing if it means saving for a real house.

The government is already taking action to stop speculation. There is no “flipping” like we saw in America. Instead there’s a lot of holding. People who’ve bought houses on the outer edges of Shenzhen who are holding on to their units and waiting to sell. It’s driving prices up, sure, but I don’t think there’s anything artificial about this. This is the rise of the largest middle class on the planet. They want nicer things. Car sales are up 40% per year. Is anyone saying that’s a bubble?

The End of the Hukou? Educational Context

It looks like we’re about to see the end of the hukou. A dozen different papers across China had an editorial saying it was time to ditch the social engineering relic that I think played a key part in making the Chinese urban experience what it is. The Party is sending a pretty powerful message that things are about to change (I wonder if this has anything to do with the labor shortages in the cities?). I wrote a paper defending the hukou‘s role in education development in China while studying at Hong Kong University.

The Problem With Principles

Modern ethical philosophy fits pretty neatly into two camps, the world of Bentham and the world of Kant – the consequentialists and the deontologicalists. Bentham was concerned with the outcomes of actions – how much good or bad came out of whatever you were doing. Killing people produces lots of pain and misery, so it’s bad unless it’s for a greater good. Kant was more principled. His equation for living in the world was essentially “do unto others…” but more thought-through. Everything you do, run it through your head as if that’s the way it should always be done by everyone. If you think helping the poor is important, you need to give a few cents every time you see a real beggar.

Jane Jacobs made a compelling argument in Systems of Survival that we need different value systems (“ethical syndromes”) in different jobs – even in different parts of the day as we change roles going home from work. I’d like to take that idea and go a different direct. We should be principled in our personal lives, but consequences are about the only thing worth considering in the world of politics and policy.

An Anti-Torture Defense of Yoo

My position against torture is a little more nuanced than what you’d see over at the Daily Dish. I agree with Sullivan that the war on terror isn’t so fundamentally different that we have to break with the tradition of respecting human rights while fighting that crushed the Nazis in the Second World War. I think it’s immoral and abhorrent in all it’s forms – from the stress positions, waterboarding, to sleep and sensory deprivation. I think the Geneva Conventions should and does apply to this war like every other

Even with that, I offer a limited support to John Yoo and Bush’s Office of Legal Council’s (OLC) infamous “torture memos.” This is because almost every rule has to be broken or stretched at some point or another. I think this is the heart of what I hoe those memos are is that there might be a time when the Geneva Conventions would cause more harm than good.