Sunday, March 01, 2009

Quote of the Day: Becker on China-Bashing

China bashing during the past decade is reminiscent of the Japan bashing that occurred during the 1980s. It turned out that Japan's substantial export surplus with the US, its extensive accumulation of US Treasury bonds, and its purchases of assets in the US did not hurt the United States, but were for the most part foolish actions on the part of the Japanese government and businesses. I believe that similar conclusions will be reached about the parallel Chinese practices.

~Nobel economist Gary Becker

17 Comments:

At 3/01/2009 10:31 AM, Anonymous Anonymous said...

It turned out that Japan's ... extensive accumulation ... of assets in the US did not hurt the United States, but were for the most part foolish actions on the part of the Japanese government and businesses. I believe that similar conclusions will be reached about the parallel Chinese practices.


I don't know, the Chinese at least seem to recognize a bargain.

 
At 3/01/2009 3:15 PM, Blogger PeakTrader said...

People recognize bargains, because they're rational (although, a person with less information than another may be perceived as irrational by a more informed person, and a person with more information than another may be perceived as irrational by a less informed person).

Perhaps, the Chinese elite are looking for places to live in case they have to flee the country.

Many foreigners can raise their living standards substantially by selling their assets, exchanging their currencies for dollars, and moving to the U.S. (given prices, interest rates, currency exchange rates, etc.).

Also, I may add, conventional wisdom believes the U.S. education system is inferior to many countries, because of low test scores. However, is that really true?

I heard, Singapore scores very high on test scores. An education minister explained why Singapore citizens underperform Americans in real world achievements: The U.S. education system teaches students how to think. The Singapore system teaches students how to take tests.

A Chinese student, who could have attended the best university in China, was rejected at a university in Hong Kong. Why? The educators concluded he didn't really know anything beyond taking tests.

Many foreign students can dazzle educators with facts and figures, basically picking and choosing pieces of a puzzle, and then logically putting it all together, perhaps by reverse engineering. They seem to impress rather than innovate.

Forecasting

If someone doesn't really understand the past, will he be correct predicting the future?

If a prediction remains static in a dynamic system, will his prediction turn out true?

 
At 3/01/2009 5:18 PM, Anonymous Anonymous said...

Source your verbiage, Peak Trader.

Roubini's doomer prognostications were far more prescient and accurate than Mr. Carpe Diem. The latest ray of sunshine from Carpe Diem, the Baltic Dry Index, seems to have been blocked by a stratocumulus. LOL

 
At 3/01/2009 5:26 PM, Anonymous Eric Tyson said...

Professor - I got an email saying an my entire Roubini article was posted here...while I'm flattered, please leave the first two paragraphs with the link.

Thanks,
Eric Tyson

 
At 3/01/2009 6:21 PM, Anonymous gettingrational said...

"China Bashing" seems to reduce anybody's analysis of the trade relationship to a non-sensical cliche. The official 2008 Report to Congress by U.S.-China Economic and Security Review Commission can be found at: http://www.uscc.gov/annual_report/2008/annual_report_full_08.pdf

Is this China Bashing? No it reports the on-going illegal trade practices of China and it's damages to the U.S. Common sense says that the two trillion dollars in the Chinese Soverign Wealth fund could be used to purchase a trmenedous amount of goods and services in the U.S. The Chinese can use these funds as leverage and to buy natural resources all over the world. The Chinese have copied the Japanese trade practices and refined them. This is insanity for the U.S.

 
At 3/01/2009 6:25 PM, Blogger PeakTrader said...

Anonymous, you're only fooling yourself.

 
At 3/01/2009 6:44 PM, Blogger PeakTrader said...

Gettingrational, I've stated before, China created a virtuous U.S. cycle of consumption and investment by selling its goods too cheaply and lending its dollars too cheaply. The cycle turned into a boom, which was unsustainable. The U.S. has little or no control over poor foreign economic policies. If China wants to work almost for free, there's little the U.S. can do about it, except maximize its gains of trade.

If China wants to pay premiums for natural resources, it can. However, it'll continue to buy U.S. Treasury bonds, because it wants to maintain acceptable employment levels. If China stops buying U.S. Treasury bonds, its economy may collapse, since it exports about half of its economy. Generally, China imports capital goods and spends on public goods rather than import consumer goods and spend on private goods.

 
At 3/01/2009 6:49 PM, Blogger randian said...

The U.S. education system teaches students how to think.

Given the high school and college students I see these days, who unthinkingly regurgitate leftist talking points, I'd say that's a very debatable point.

 
At 3/01/2009 7:03 PM, Anonymous gettingrational said...

"PeakTrader" it is obvious that people did not work for free in China. They are enjoying a fabulous boom and now have a two and half trillion wealth fund. I agree we can't control foreign economic policy - imports into China were down 43% in Jsn but exports were only down 17.5% during the same period. This is management on a grand scale by the Chinese and we can not cope with this (the wealth transfer rate grows even faster

 
At 3/01/2009 7:08 PM, Anonymous gettingrational said...

In my previous comment I had a typo. The statistic I cited were for January 2009 for China. Imports down 43% and exports only down 17.5%

 
At 3/01/2009 7:24 PM, Blogger Craig said...

"we can not cope with this (the wealth transfer rate grows even faster"

Trade is not a "transfer" of wealth, it's an exchange of wealth. We are not poorer for having purchased something from the Chinese; if we didn't value the stuff as much as we value the dollars we spent, we wouldn't trade.

Now, if you want to talk about a transfer of wealth, then let's debate our trade deficits with Washington D.C..

 
At 3/01/2009 7:30 PM, Anonymous gettingrational said...

Craig, you do not acknowledge that we are supposed to have certain rules that China as our "trading partner" is supposed to abide by. I think most of the U.S. poulation believes that trade is compeition BUT the Chinese have managed trade as pretty much a one-way valve. You and I are living on borrowed funds and more so everyday. It's getting crazier.

 
At 3/01/2009 7:57 PM, Blogger PeakTrader said...

Gettingrational, the U.S. and China have a trade relationship where the U.S. underproduces and overconsumes, while China overproduces and underconsumes.

The U.S. offshored low profitable goods, e.g. heavy goods or goods with declining prices, to China, and then imported those goods at lower prices. U.S. multinationals and China's state owned firms signed contracts, which raised U.S. profits and made China the world's low cost producer, e.g. through economies of scale. The freed-up resources were shifted into U.S. "core" goods, i.e. goods with market power or lighter goods.

When social costs are taken into account (which are one-time costs), China may be working almost for free. China's communist elites benefit at the expense of the masses. China's U.S. paper assets have been losing up to 10% a year in real returns (e.g. through low interest rates, inflation, and currency exchange rates), although there have been adjustments to spur Chinese consumption of U.S. goods recently.

 
At 3/02/2009 8:56 AM, Blogger 1 said...

"Roubini's doomer prognostications were far more prescient and accurate than Mr. Carpe Diem"...

Yeah, right!

Invited guests on Cavuto's Fox News Channel show had been saying similer things since early 2005, what's the big deal?

 
At 3/04/2009 1:21 AM, Blogger OBloodyHell said...

> the wealth transfer rate grows even faster

Which is bullshit, since you don't grasp that they aren't getting wealth, they're getting paper.

If they sit too long on that paper, they'll have something worth exactly what it's printed on.

And the longer they DO sit on it, the MORE likely it will be spent poorly whenever they do decide to actually trade the paper in for something.

This whole "trade imbalance" thing is just flat-out crap. It's argued based on the one single time it was a "good sign", which was the post-WWII timeframe wherein America was the only significant player with substantial industrial might.

 
At 3/04/2009 1:25 AM, Blogger OBloodyHell said...

> Invited guests on Cavuto's Fox News Channel show had been saying similer things since early 2005, what's the big deal?

LOL, they're all National Enquirer's Jeanne Dixon, now, since too many idiots can't figure out that, if you predict doom and gloom for 10 years, and it finally does happen, it wasn't skill that made the prediction work.

 
At 3/05/2009 1:06 PM, Anonymous gettingrational said...

Regarding the "trasnfer of Wealth" to the Chinese: The Oxford dictionary defines transfer as convey or turnover and wealth as money, assets, etc. The Chinese can use this wealth of foreign currency (two trillion dollars) to buy a lot of lot of natural resources all over the world. Almost all wealth is measured in the form of the coin of the realm. Does warren Buffet have his wealth measured in oranges or bagels? No it is measured in U.S. dollars which he and the companies he controls can use to buy assets. Thus the managed mercantile export economy of China does not want to give up defiance of trade agreements with the U.S. because they would have to convey back money to U.S. producers.

 

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