Years of Poems and Spirits

It is a day of mixed feelings. On the one hand, China is truly a great country today. On the other, it is not the China I wished it is.

Every great nation in the history can point to a legendary past and say: that is what made us who we are. For the British, it was the birth of liberal capitalism, For the French, the French Revolution. The Americans, the first constitution in human history. Even Taiwan can say it was the first that transitioned from a dictatorship to democracy without bloodshed.

Modern China is identified with phenomenal economic growth that resulted in the improvement of a billion life in the shortest period in history. One may argue that some others, like the Germans and the Japanese, all went through industrialization quickly. Impressive as their respective history may be, the scale is still quite far apart.

At the same time, today’s China is also painfully lack of humanity. Not to say Chinese are innately lack of sympathy or empathy. Rather, one just don’t see organic growth of communities based on trust and reciprocity. As the country grow richer, instead of seeing more vibrant civic life, it is constantly flirting with a Hobbesian model: people don’t trust each other but are willingly submit to a Leviathan.

I have been following economic news in China. What I don’t understand is how China can develop so quickly without incurring some kind of severe financial crisis. There were small tremors, like the real estate bubble in Hainan in the late 80s. But nothing as debilitating as the Asian Financial Crisis or the Russian default in the late 90s. Even Hong Kong, where credit market is largely self-regulated, is spared.

None of the above (getting richer and more authoritarian, having spectacular growth but no bubbles, or inflation, or devaluation) makes sense to me. The same puzzle that haunted DS too I believe. If Americans can point to their greatness as evidence of “American Exceptionalism”, isn’t the Chinese experiment qualified for no less a grand claim? No to glorify China, but I just find the word “Exception” very disturbing.

But I still believe that China is heading toward a Crisis. Unlike the financial crisis in here, when the Crisis hits China, it will be as much social as economic. My arguments are, the Chinese economy is not efficient. Capital is very poorly deployed in an unbalanced industrial structure. The social fabric is fragile and the country is hold together by a blind faith in the future.

To be fair, not having the most efficient economy is not a predicament in itself. In fact, it is an opportunity. It depends on whether the incentive is for the capitalist to invest in long term efforts to improve the economy, or to exploit whatever short term gain there is at the expense of structural change.

I firmly believe the current political and economic environment inevitably lead capitalists (or every homo economicus) to choose the latter, so much so that those who made the other choice are only to prolong the arrival of the Crisis–which makes whatever lesson from the Crisis even harder to crystallize itself.

I understand that the $400 billion stimulus package is not likely to trigger massive inflation nationwide (although very likely regionally), because China still has excess labor that will absorb excess capital. In fact, as long as China has high unemployment or underemployment rate, spending won’t automatically trigger inflation.

China’s perfect storms will only arrive when natural resources become an issue, when worldwide commodity price rise quickly. Then, inflation, unemployment, and social inequity will mix together to be very explosive. In fact, before the credit crisis hit, China was heading down this path and the leadership was very concerned.  To them, the economic crisis was a gift from heaven.

But my guess is still that: a Crisis is coming. When it hits China, it will hit it very hard.

Growing Sour on Bernanke

I used to think of Bernanke as a a monetary conservative because he was said to be in favor of fixing inflation within the 2% range. Looking back, this was perhaps wishful thinking. After all, Bernanke made his name in arguing that the Fed was too conservative at the onset of the Great Depression. That part of history may have shaped his earlier thoughts more than anything else.

The New Yorker profile on him, in the Dec. 1, 2008 issue, portrays a loyal Greenspanian:

• “He wouldn’t have gotten into that club if he didn’t go along … Mr. Greenspan ran a tight ship”
• “Bernanke provided the intellectual justification for the Fed’s hands-off approach to asset bubbles” by developing the “global savings glut” (aka blaming the Asians) theory.
• When challenged by critics on the potential of a housing bubble, Bernanke reacted coolly: “really believes that it is impossible to lean against the wind on the way up and that it is possible to clean up the mess afterwards,”
• When he was appointed to the Fed Chairmanship, he stated his first priority would be “to maintain continuity with the policies and policy strategies (i.e. monetary philosophy?) … established during the Greenspan years”

In terms of the people I love to hate in the last eight years, Greenspan comes second only to Dick Cheney. Most people fail to realize what an ideologue he is, or the cost he has brought upon the nation for pursuing a personal belief formed in Ayn Rand’s reading room.  Ayn Rand may be a gifted writer, but she’s not someone should be entrusted with secular affairs. She lived through her formative years as a Jew in the Soviet Russia, then escaped to the U.S. and developed a fetish love with a fantasy Capitalism. She once said that she got sexually aroused by the sight of skyscrapers. To think our central bank was run by her Milhouse Van Houten for decades really makes me sick to the gut.

Just saw Richard Posner’s scathing criticism of Greenspan, A Failure of Capitalism: Reply to Alan Greenspan, which went after Greenspan’s self-defense article by article.  Lately, Greenspan has been using the “global economy making central bank less powerful” argument (which is exactly what Bernanke’s global glut refers to). Posner was sharp in his pursuit: the Fed is still relevant and we delegated Greenspan enormous power to keep the Fed relevant.

Another example -

He notes the dot-com stock market bubble of the late 1990s and explains that the Fed did not try to puncture it by raising interest rates, fearing that to do so would cause “a substantial economic contraction and possible financial destabilization.” But the article does not explain why he thought those consequences would have ensued.

Isn’t this a case of an ideologue carry out his plot while hiding behind technical smoke screen? Hurry Reid once called Greenspan the “biggest political hack in Washington”. Posner’s pointers are good footnotes.

Self-control, Ability to Suppress, Career Achievement

Jan 12, 2009

Keywords: child development, child psychology, focus suppression, the “marshmallow experiment”, correlation to adulthood achievement. Massive MRI scan on original subjects now in adulthood, trying to identify biological origin of the power of self-control.

Thoughts: Dan Turner’s experiment on watching video with a Gorilla man. Being able to focus, etc.

Adam Kirsch on Hannah Arendt

Same issue.

In reporting the Eichmann’s trial in Jerusalem, Arendt must have said something that is pretty upsetting to her fellow Jews.  However, whereas Samantha Powers glossed over this in a couple of sentences (in her Forward in the latest edition of The Origins of Totalitarianism), Kirsch wrote 10 pages on the New Yorker to reveal a deeper psych that could have produced such coldness to her own people.

In short, his conclusion is Arendt is less a Jew-hater than a German-lover. She drunk the Kool-Aid of the “Germanese”, epitomized by the work of her teacher-lover, Martin Heiddegger. So much so that she couldn’t overcome her own reasoning on what it means being Jewish.

To me, the article resonated with my own experience and observation of others who try to be “American” or “Western”. Kirsch paints Arendt’s story in a Shakespearean hue, a tragic play.

Came upon the news: China’s Banks Told to Boost Loans to Small Businesses

The Chinese government, thru fiat, mandates that “financial firms should make support for small and medium-sized businesses a priority in 2009, and ensure that loan growth to such firms exceeds overall loan growth, ”

Although the above news is a good thing for China, I find myself a bit disappointed. On the one hand, this is a right decision that will spur domestic growth. On the other, if the policy is successfully carried out, the private enterprises may become reliant on government money and soon lose its edge–not just political edge, but productive one too.

In recent years, headline growth mainly comes from heavy investment with diminishing returns. According to some, this growth pattern is almost cancerous. Huang Yasheng has been focusing on the lagging income growth behind that of GDP. Both he and Nick Lardy point out that the private sector is more productive and efficient, yet is terribly under-capitalized.

I too have been cheering for foreign private equity money going to China to pick up the slack. If there is a healthy private economy–private production by private funding–we may see a healthy property class asserting more political autonomy.

But the regime again stayed one step ahead. How come the bad guys always make the right decisions? The current regime is a parasitic, rentier-autocratic class. Yet it is so good at protecting itself from being replaced by anything even remotely progressive. It just has to assimilate the good guys until they are all the same …