Asymmetrical Information

The Economist is a fine journal, but it has been predicting gloom and doom for as long as I have been reading it. "Unless politicians stop talking and start acting, the world economy is heading for trouble"--that was the headline of a story in the Economist on April 14th of 2005. Since then the world economy has been doing very well. So much for their confident prognostications.

And concerning America, they have gotten it wrong time after time. All too often I have read there about the terrors of the housing bubble, or the dire threat of a dollar crisis caused by nightmarish global imbalances. In truth, the American economy is fundamentally sound and its long-term prospects are good. Clearly, if the Economist keeps predicting a downturn, it will eventually be correct, but it shouldn't be very proud of what is overall an abysmal forecasting record.

About China there is a deeper cause for concern. That country has problems in its banking system far deeper than what caused so much trouble in other parts of East Asia several years ago. There is too much corruption and government control and there will come a day of reckoning. Either China will make more radical reforms or it will hit a wall in its development. At any rate, there is little reason to fear that America will be surpassed any time soon.

I think China reaches it's economic peak in 2025 (maybe 2030) and will then begin it's rapid decline. The reason why I feel this way is related to the Chinese culture:

#1) The Government has been creating legislation that has restricted population growth and...

#2) Because Chinese familes still look at sons as wealth and daughters as debt, they are killing off too many of their girl babies and too many of those boy babies will be spouseless.

I see a very dark future for China. By 2020, I expect that there are going to be 10s of millions of marriage aged males looking for wives, and not finding any and that will further put a sever damper on China already restricted population growth. By 2030, it will be a nation of old people, getting older, and lonelier.

Re: China's future prospects

A darker view of the gender imbalance might be the Chinese seize upon the Western Tradition of sending unwnated males on dagerous military campaigns, either as mercenaries or in an imperialist bent.

Re: The Economist
They, like Barron's, seem perpetually bearish. No that their concerns are baseless, but that they harp so much on them, that when bad stuff happens, it often seems like, 'Yeah, it happened. And the world didn't end like youe said would.'

There are a few outcomes for China's gender problems.

Wars to use up all those angry surplus males
Increase in prostitution, sex industry
Increase in homesexuality

Or a combination of them all, which is most likely what we'll see.

I have a theory that we've cause a variety or problems by exporting western culture and technology to countries that weren't ready to receive it; Middle East, Africa, South Asia...

Basically it's like the star trek Prime Directive. These societies haven't evolved like western civ. has so they just don't see eye to eye with us on fundemental issues like not shooting your AK47 in the air when you're upset about something, or not killing your girl babies because you want a boy to work the farm (or factory), etc. etc.

Sadly, a large % of the population in these nations are not ready for our technology/culture, and our ridiculous sense cultral relativism won't let us point out their "inferiorities". Not that we don't have a lot to learn from them, but for the most part they aren't ready for us.

Ps - I think in many ways we aren't even ready for some of the technology and growth that Western Civ. developes, but we've got 1000 or so years of shared history going for us that these other nations/hemispheres don't.

And even now I see a split between America and Europe in terms of fundemental ideology, which probably stems from their fundemental rejection of religion while most in the US still embrace it.

I think the problem with the Economist's predictions are not appropriate for the same reason that most economic forecasting is inappropriate - we simply don't understand markets that well. We do suspect strongly a number of important correlations. For instance the relationship between interest rates and inflation seems pretty clear, and acting on those assumptions have kept things on a fairly even keel for several decades.

The problem with massive predictions, however, is that there are too many factors we don't understand. When that's the case, prudency dictates a more guarded explanation, one that references the complexity involved. What should happen is that economists should start phrasing things differently:

"We think that, because of the clear link between growth and inflation, the increase in growth in China could have an overall negative effect, which may create a feedback loop that would significantly damage their economy. This would be similar to what happened in (insert past examples of simlar phenomenon) and may similarly lead to (insert past consequences). [The probable counterexamples should be mentioned, buthow much honesty can we expect?] In this case, the interaction between Chinese markets and American markets makes this possible outcome liable to cause further impact. As we have seen in the past, recessions of this type cause unemployment..."

It's just to bad that there are so many journalists needing to sensationalize the news and professors that want to sound like they can predict the future.

Perhaps all of those lonely Chinese males will spark a run on mail-order brides.

Perhaps all of those lonely Chinese males will spark a run on mail-order brides.

Perhaps?

So instead of geeky, pimple-faced, propeller headed Americans, who have no confidence with women and have never been laid in their life importing women from Russia who are 25 years younger then they are, the Russian girls can just head "South" and hook-up with a Chinese male.

Right. After the hell that Russians went through (and are still going through) getting rid of Marxist Economics, I'm sure their women would just love to go back and live under Communist Rule?

It is more likely that China will simply relax its emmigration policy for unmarried men.

The world has a whole, after all, has a surplus of women. Just because China has too many men doesn't mean there aren't unmarried women out there somewhere.

Isn't investment about 45% of the Chinese GDP? Is the Economist telling me that the government doesn't control this? Are consumer spending and total factor productivity growth in China still low? Should we even believe their GDP growth numbers?

The world has a whole, after all, has a surplus of women. Just because China has too many men doesn't mean there aren't unmarried women out there somewhere.

Sure, there are 5 women over 65 for each man over 65, but in any age group where people typically get married, there's a preponderance of men. The natural sex ratio at birth is about 1.05 males/female, and artificial selection only makes it worse.

The world has a whole, after all, has a surplus of women. Just because China has too many men doesn't mean there aren't unmarried women out there somewhere.

Yes, slightly, because it's 4 men per 5 women over age 65. Under 65, there are more men. At birth, it's 1.05 males per female. Female infanticide only makes it worse.

David Manheim has a good point: "It's just to bad that there are so many journalists needing to sensationalize the news and professors that want to sound like they can predict the future." Part of the problem at the Economist is hubris--a failure to appreciate the inherent complexity of things and the difficulty of making predictions. But that is only part of the problem.

Not only is the Economist often wrong, but it is almost always wrong in the same way. It is generally overly pessimistic, especially about the American economy. Naturally one wonders why. I think that the writers there fail to appreciate fully the dynamic power of a free society. If housing prices ease off a little, it will be no calamity. If the dollar declines, that is nothing to fear. The flexibility of the American economy allows it to make significant adjustments without too much difficulty.

One would think that the Economist would appreciate the power of freedom, given its professed belief in (classical) liberal ideals, but it has a bad record on this. That record stretches back several decades at least. For in the 1940's F. A. Hayek singled that fine journal out for its weakness concerning personal liberty:

"Even a liberal paper like the Economist was a few years ago holding up to us the example of the French, of all people, who had learned the lesson that 'democratic government no less than dictatorship must always have plenary powers in posse... There is no restrictive penumbra of indicidual rights that can never be touched by government in administrative matters whatever the circumstances.'" (From "The Road to Serfdom")

In the 1970's they ridiculed the liberalization proposed by Margaret Thatcher and Sir Keith Joseph, though they later adopted Thatcherism as their own--while it was popular at any rate. More recently they seem to find an excuse for higher taxes in every other issue. They argued, with Robert Rubin, that Bush's tax cuts would raise real interest rates and slow productivity growth. Since then, productivity has surged--growing at the fastest rate in 40 years. Oops, wrong again.

So, a great magazine, yes, but a stalwart believer in liberty, no.

Any predictions about what will happen to China in the future because of a gender imbalance should recognize that it's nothing new. Remember the Great Leap famine? When there's not enough food for everyone in Confucian societies, girls die off fast.

I can remember all the stories in the 1990s about the poor Chinese peasants with paper wives (a paper figure of a wife, since they couldn't afford a real one), or about brothers having to share a wife, and of course about kidnappings of brides (the kidnapped women were afraid of being rejected by their families if they went back, so they often stayed).

A similar gender imbalance has been around for a couple of decades or more in South Korea, not because of government restrictions but simply because women have more economic opportunities and hate to take time off from work just to raise a daughter. The big losers will be North Korean men, if the borders ever fall, since the richer South Koreans and Chinese will snap up all the women. But at the rate Kim Jong Il has been killing off the population, the potential problem of losing women to South Korea is becoming smaller all the time.

There are a lot of pretty women in Singapore, Malaysia, Indonesia, Thailand and as the Chinese have more money to spend and exciting cities to live in there will be no shortage of brides. JMHO

How is the savings rate calculated? Is it only bank savings or does it also include 401k investment, etc.?

"Figures released this month show that China’s economy grew by 11.3% compared with the year before in the second quarter. After three years of 10% annual growth, this news is less welcome than one might think. On Wednesday Wen Jibao, China’s prime minister, called for “forceful measures” to stop the economy overheating. Chinese officials—and many analysts—are worried that the boom could be out of control. If not carefully managed, the current frantic pace of investment and expansion could spark inflation and asset bubbles. The hangover could leave industry with unused capacity, banks burdened with bad loans and the government threatened by enormous levels of unemployment."

Entirely backwards. If that growth is caused by real factors -- namely capital accumulation and technological advancement -- there is no danger, it is pure prosperity. It cannot cause inflation, or a "bubble." If, however, that growth is due chiefly to expansionary monetary and/or fiscal policy, it may only be paper growth, likely to disappear in a correction. Short story: Inflation (ie: expanding the money supply) causes bubbles, not the other way around.

I looked at the press release and did not see any adjustment for retiring baby boomers on the personal saving rate. I just turned 65 and am now beginning to draw down my savings. Coupled with retirement, I now have a negative saving rate. As more boomers leave the job market, look for this to accelerate.

Regards and I'm off to clean my gutters and putter arount the yard.

JJ

Paul - China isn't communist any more. Not for any practical purposes. Facist/capitalist/anarchist/oligarchist but not communist.

I went to China a while back. While the construction industry seemed to be going gangbusters I do question how accurate any information from China was.

Finally, while there's a skewed sex ratio in China, I get the feeling the official statistics are exagerated. Some parents have a kid but don't report a girl baby and send it off somewhere nearby to live so they can watch over it and still have a son.

The more they worry, the more comfortable I am.

I'll worry when credit card companies start drastically reducing rates to keep their customer from going bankrupt.

Along with Klug, I wonder what the number 'personal savings rate' means. Most of my long term savings is taken out of my paycheck before it shows up as disposable income. Also, it seems that most comparisons of savings rates ignore FICA contributions. Now I don't expect to ever collect Social Security, but certainly these contributions should be counted as savings.

If this number reflects more people moving their savings from after-tax to pre-tax vehicles, is it an indicator that we are spend-thrifts or just tax adverse?

"And concerning America, they have gotten it wrong time after time."

I think the Economist has got it wrong simply by underestimating the American consumer's willingness to take on more and more debt and buy more and more pieces of plastic and hang the future. There are three ways out of this:

a) a one-off dollar inflation which will reduce the burden of dollar debts. To do this adequately, the inflation would need to be vast. It would also amount, in essence, to a default so future lenders to America would charge huge premia;
b) American consumers start saving as much as they have been overspending. This would be such a disaster for short-term global growth that just about every policy-maker will do everything they can to avoid it. And personally, I don't think American consumers will rediscover thrift unless they are forced to do so;
c) the rest of the world (particularly Europe and East Asia) gets off its butt and starts to spend as recklessly as America's consumers have.

Of course it is possible that a combination of all three in roughly equal measure will allow imbalances to unwind quietly. That would be perfect, but we shall see if things turn out that way.

RE: Russian girls living under Communist rule--Communist rule, yes, Communist economics, very much no. It is this incongruity that will bring China down.

I don't understand how FICA can be considered savings. FICA "contributions" are simply taxes, and not really much different from personal income taxes. Most FICA revenue is used for payments to current retirees, widows, and the disabled. The so-called social security surplus is used to pay for grain subsidies and Alaska bridges and PBS and anything else Congress dreams up.

I will agree that Social Security promises are disincentives to savings. Why should Boomers save more? Politicians are promising that their grandchildren will forced to pay for Boomer's retirements.

Samwick is indeed correct to point out that many Americans are losing their ability to tread the rising waters of inflation.

And, this from Eric Janszen--itulip.com

on a related topic, to those who believe in the currently popular "Economic M.A.D."-theory in reference to the U.S. & the P.R.O.C. : Nations that appear to be Siamese Twins, inseparable without mutual mortality, will be revealed for what they are, not twins or brothers nor even friends, but nations with mutual interests, whose mutual interests will then be so weakened they are no longer significant. Other trade and investment relationships will become more important. Nations such as China, for example, have already hedged this risk by cutting energy deals directly with Russia, Iran and Venezuela and opening export markets that can in aggregate compensate for a drastic loss of revenue from exports to the US.

http://www.itulip.com/forums/showthread.php?t=252

China can try to diversify, but it's going to have a hard time finding other wide-open markets to which they can export. There just aren't all that many alternatives for China - will Europe welcome a flood of cheap Chinese products? does Africa have the money to buy them? - whereas the US can find other low cost manufacturing bases.

There would be adjustment costs for the US, and the costs in the end might be slightly higher if we had to find other low-cost production bases, but there are far more alternatives for the US than for China.

There are a few outcomes for China's gender problems.

Wars to use up all those angry surplus males
Increase in prostitution, sex industry
Increase in homesexuality

Or a combination of them all, which is most likely what we'll see.

Nah -- I predict a continued increase in obsessive online gaming will take care of the problem (and I'm only half-joking).

Comments are Closed.