If you look at it from the perspective of the Chinese this headline has got to be maddening. They are desperately driving millions of indigent citizens to work for next to nothing under extremely hazardous conditions to send real good to the US and elsewhere. The citizens are always ready to rebel due to this treatment, and the main goal of the Party in reality is to keep the citizens from rebelling. In return they are getting a heavier and heavier anchor that prevents them from their second goal, taking over Taiwan (the potential of repudiation of the US debt is pretty much the only thing that's keeping them from attacking) and military domination of everybody else around them. They can't stop this charade immediately, because then the citizens would rebel due to joblessness and thus it's being perpetuated. So they are shifting their debt into the Japanese government obligations and getting involved with the Japanese trade policy for a totally spurious reason. I'm sure if they knew how to make every citizen instantly rich and totally shift to domestic consumption with just some exports to nearby Asian countries they would. If all that wealth the government is sitting on could be distributed in a one-time deal, I bet they would go for it, but the logistics must be truly daunting.

Jeff Rollert writes:

I suggest you frame the point in a 100 year time frame, as China is doing now.

China has to look inwards for 20 years, or at least until this generation has trained enough world class managerial talent to run multiple multinationals, without foreigners.

By buying Jap debt, their are securing a flank. By buying our debt and acquiring the manufacturing through pollution/tax/labor cost arbitrage, they are industrializing quickly.

I look at their debt maturity in the same way a general looks at an opponents perceived strength and structure. Short term average suggests the need to protect is growing smaller. The size of the maturity buckets bought gives you an estimate of their timing for a reduction/increase in the perceived threat.

Debt weaponization…thrust (buy others debt) and parry (issue debt, then imply decline paying).

It's MAD all over again…we won't default to handle a Taiwan situation because it would remove our reserve currency yield advantage. China is not ready to assume anything near a reserve currency role….and they won't push us that way until they're ready to do so.

Stefan Jovanovich writes:

After the ruins of the Great War aka WW I, the negotiators at the Versailles Peace Conference spent days and weeks discussing the details of how the maps of Europe, the Middle East, Africa and the Western Pacific would be redrawn. No one did an accounting of the liabilities that had been incurred; they only discussed the real estate assets to be acquired. When– and if– the Chinese decide that they want the rewards of seignorage, I pray that the U.S. will follow the model of the Danish Department of Defense during the Cold War and have a recording that says "We surrender" in Chinese, Spanish and Arabic.

Also, take a look at this on the Gini Coefficient:

"The Gini coefficient of different sets of people cannot be averaged to obtain the Gini coefficient of all the people in the sets: if a Gini coefficient were to be calculated for each person it would always be zero. For a large, economically diverse country, a much higher coefficient will be calculated for the country as a whole than will be calculated for each of its regions. (The coefficient is usually applied to measurable nominal income rather than local purchasing power, tending to increase the calculated coefficient across larger areas.)

Gini coefficients do include investment income; however, the Gini coefficient based on net income does not accurately reflect differences in wealth-a possible source of misinterpretation. For example, Sweden has a low Gini coefficient for income distribution but a significantly higher Gini coefficient for wealth (for instance 77% of the share value owned by households is held by just 5% of Swedish shareholding households ).[10] In other words, the Gini income coefficient should not be interpreted as measuring effective egalitarianism.

Comparing income distributions among countries may be difficult because benefits systems may differ. For example, some countries give benefits in the form of money while others give food stamps, which might not be counted by some economists and researchers as income in the Lorenz curve and therefore not taken into account in the Gini coefficient. Income in the United States is counted before benefits, while in France it is counted after benefits, which may lead the United States to appear somewhat more unequal vis-a-vis France."

Rocky Humbert writes:

It would be interesting to see a Gini Coefficient for the major industrial companies of the world. (That is, income distribution within corporate enterprises … [i.e. the income dispersion between CEO's, staff and mail room clerks].It would be then be most interesting to see if there is a correlation between long term ROE/ROC/stock price performance and the Gini Coefficient…

Does anyone know of thorough study that has done this? I know of studies of CEO pay versus performance, but that's a different question. The study would have to analyze after-tax income of course…

Lars Van Dort comments:

Here is a paper from Belgium that addresses this question. Maybe not the major industrial companies of the world, but anyway.

PDF available for free download.

This paper examines the relationship between intra-firm wage dispersion and firm performance in large Belgian firms using a unique matched employer-employee data set. On the basis of the Winter-Ebmer and Zweimuller's (1999) methodology, we find a positive and significant relationship between intra-firm wage dispersion and profits per capita, even when controlling for individual and firm characteristics and addressing potential simultaneity problems. Results also suggest that the intensity of this relationship is stronger for blue-collar workers and within firms with a high degree of monitoring. These findings are more in line with the 'tournament' models than with the 'fairness, morale and cohesiveness' models.





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  1. Friedrich List: Kicking Away The Ladder « Late Monsoons… on September 18, 2010 10:55 am

    […] September 18, 2010 by dustysojourner The long-contested and now falsely-debated point (.) of disequillibria. […]

  2. douglas roberts dimick on September 25, 2010 12:46 pm

    A Currency of Dictatorial Errands – The Accident Waiting to Happen

    As the Castro Boys have of recent so recognized, Communism (with or without Chinese characteristics) has been proven in history, as Tom C. pens in his Sum of All Fears, to be “a fool’s errand.”

    By living, working, and playing in China since March 2006, one may find that the Friedrich List citation is spot on… “disequilibrium” – either directly or indirectly if not regardless relative to US-EU policies.

    Instability here in The 15th Dynasty is a matter of general relativity during daily life. The now famed and glorious capture of world manufacturing by this Communist regime is constantly reported as a forgone among corporatized media prognosticators and financial liaisons.

    Yet, with aging populations, medical and social welfare compounded by increasing occupational safety and health demands, and environmental concerns, Communist China is a contra-indicated display of the next manufacturing touchstone for global economics?

    The ipso facto of this conclusion is found in a single word: Robotics.

    The equilibrium of space (manufacturing) and time (technology) among national and global ecometrics at present appears to be in a state of “harmonic imbalance.” The top-down system’s (grandmother-like) kitchen-drawer accounting of China’s party-centric banking system continues to aggregate SOE (state owned entity) stock market and real estate regressions as part of this country’s bankrupt and obsolete way of governing.

    Relative to such related, usually caustic (when not toxic) levels of corruption and economic paralysis, all of which is presumed to go unnoticed by the natives here – to include those within the two provinces under military occupation – a la government owned media via censorship and micro-managed policing actions.

    That said, DsoJ’s closing excerpt is curious…

    “Why is Germany doing better than the U.S.? The answer is not so difficult,” said Hans-Jochen Beilke, chief executive of Ebm-Papst, the German ventilation company now dominating the Chinese market in refrigeration technology. “Our industrial base is simply much higher now than yours,” he said. “Look at the state of machinery manufacturing in your country. There are nearly no important American makers left anymore, and most of the ones you have now are German subsidiaries. And then, look at cars. Go ask the Chinese if they want to buy a BMW or a Ford.”

    Just today, en route to lunching with my colleague, Jimmy (Professor Le), who lived and worked in the US for seven years, commented when a white Mercedes passed by… “Awe, nice, a Mercedes… You like?”

    My retort of family Towncars and my most recent holdings of Z06 Corvettes caused my Bourgeoisie-Shanghai-ese, American-deified teacher of English to pause and recalculate – Chinese do that (instantaneously recalculate their intellectual and physical stances) all the time. Jimmy said nothing further.

    Note: He drives a white, mid-sized Chevrolet sports coupe with sunroof and NASCAR-like- aerodynamic body styling – being boxy and low in a China-fide sort of way.

    At first, I assumed that his recalculation of position on automotive discernment constituted a registering as self-doubt combined with lack of resolve as underscored by an absence of critical thinking, being the production of an inferior education system designed to maintain the Confucian model of unquestioning servitude to the emperor – a la allegedly 5,000 years, presently being the Communist Party of China (or CPC), Pro Tem. Such, however, cannot be the case with Jimmy, whom is as sharper than most any Chinese loban (or leader).

    Thus, the paradox for both, Jimmy on Benz vs. Vette as well as for the Communists seeking globalized profiteering aligned with social harmonization, becomes a question within a question… or an agreement not to agree.

    However, three years to research, write, translate, and publish the book then unmasked if not unmanned the flexionics attendant with this China syndrome of willow-in-the-wind-like dispositions among a country of 56 ethnic minorities.

    The truth? The truth here is that they don’t know.

    Who does not know? Nobody knows.

    That’s right: no one, even President Hu Jin Tao (particularly him) has no idea what in the hell they are doing. How can that be?

    What of the glorified five-year plans so touted by the party loyalists here?

    As a political scientist and doctor of law, the best comparative that I can come up with at this date is the US Government only like-so without a rule of law. Think of the Founding Fathers, only (a) Marbury v. Madison never took place, as the Communists attempt to control all that which controls to include the courts, and (b) General George Washington did not step down after his two terms as President – a la Mao clinging to his deified emperorship until death.

    I do know one Chinese person who does know what is going on. A middle school teacher, she is another of my colleagues and the Chinese mother of my second understudy, who just commenced his first year of study at Waseda University in Japan.

    As a leading teaching in a Number 1 Middle School here in Shanghai, Shelley chaperoned some 120 Shanghaiese middle-schoolers to the US in July. Upon her return, she informed me that she decided on a five-year plan to move to the US with her Communist Party member husband, my teacher, whom is one of the smartest guys that I have met during my tour of duty here in the Middle Kingdom.

    Why a five year plan, one may query? Sure, her son, my student, plans to attend Georgetown University after three years of study at Waseda. So, true to Chinese motherdom, Shelley can be there in the US to ensure that her son does the right thing – return to China, marry a Chinese girl, get a good job, have a little Chinese boy or girl of his own, and live happily ever after – all under the watchful eye of his Chinese mother…. How Chinese.

    At this point, one should note that the divorce rate in China is now above 30%, and here in Shanghai the rate is bantered about as being 38% to 55%. Among those whom are married, many a husband (who can afford it) lives to experience the culturally emblematic ritual of having one or more mistresses, while the idolized wives (at least in the home) shop and dine as the courtesans of China’s nouveau riche.

    Amongst all this noise, I am curious if the Chair’s China Desk has paused, pricked up their ears, and noticed the rather unusual quietness so resonating beyond the tree line of the Asian political habitat?

    Recently, Japan did a kamikaze on the majority party for the first time since coming to power in the occupation-reformation post WWII. The nation is reportedly awash with political indecision and lack of economic resolve. Hmm, sounds like a soon to be occurring event of the “switching tracks in time” – as Professor Stotsky would say when I was a 1L.

    Meanwhile, the Chinese Communists’ anti-Japanese manta continues to play seasonally in local cinemas throughout China. Note: National Day here is September 18th, when Japanese invasion and occupation commenced in retaliation for (or orchestration of) the destruction of a Japanese railroad bridge in Northern China.

    As then with the clacking of regional hegemony, is the stealth of new-age ideological and cultural power on the verge of being so launched?

    Yes, it is, and it may be found in the silence of robotic systematics.

    Those whom Truman may today view as the “smartboys” have tilled and sowed our social-political regimens since the 1980s (post Reaganomics) with daily supplements of globalize free trade among newly emerging capitalistic regimes and supporting eco-financial paradigms. China’s admission into the WTO in 2006 combined with the peeking of asset-backed derivative exchanges based on mark-to-market modeling is a prime example.

    In the aftermath, how are we to connect the dots?

    Follow the money?

    Perhaps the answer is most apparent in the articulation of human productivity for the coming era?

    In truth, as there is no free lunch, there is no free trade. US-EU CEO types tout such illusionary constructs to shift job bases from country to country and maximize quarterly earnings reports, while they provide politicians with electoral cover from native constituent blowback. Still, at the end of the day, albeit a given decentralized government that can start a trade war to justify renegotiating or simply not paying back nationalize debt owed to emerging country (neophytes), someone must pay… taxpayer, depositor, consumer.

    Even then, the emerging country neophytes taxpayers, depositors, and consumers must then pay.

    And therein are the malignancies spreading out from the egocentricities of China’s Communists. Party guardians have devalued their political currency a la proliferating macro risk with anti-Japanese cultural embedment. CPC ailments are now progressing to the point where their valuation as an economically viable contender for the next evolutionary step of globalization has zeroed out their ability to balance either social or financial inequities both at home and abroad.

    Yet those who still peddle the vanilla commentary, how China is the next superpower, focus on foreign currency reserves and domestic market predilections some 10-plus years outward without transparency, accountability, or recourse.

    Sure, the rest of the world is simply going to numb-up like some Chinese migrant construction worker and accept a progressively reduced, impoverished state of existence…

    Human history tells us, such as 14 failed dynasties here so evince, that corporate robber barons, green mailers, consolidators, nor Communist politburos can forever disenfranchise and indenture populations given the advent of information and technology. Rome could not do it. The former Soviet Union could not do it. So consider…

    As may be inferred by DsoJ’s wash, why would Germany continue to use China for manufacturing when it may erect robotic systematic embankments along a increasingly reconstructed, commercially refortified (post Communist Block) Eastern Europe?

    Now that Mexico is near ground zero in terms of social-economic desolation from culturally-emblemizing, drug-kingpin-monied corruption and violence, will not the US shift its manufacturing base to backyard, transnational-controlled financial hubs not unlike the Japanese bank-firm modeled corporate constructs?

    Does not the repeal of the Glass-Steagall Act in 1999 facilitate such a transformation of American if not European economic matrixes?

    This summer, I provided and ESL seminar at Shanghai University’s Robotics Department. I noted to my students during our last session that Chinese robotics appears 40 years behind the Japanese. Rose, one the top students, dropped her head to the table and said, “Ah, I agree.”

    Of course, it was Mao’s “Have more children to fight the foreigners” and “Strength in Numbers” gimmickry that ballooned China’s population from 500 million to 1.4 billion. We are talking such nonsense in a land where there were and remain not enough resources to feed, shelter, and develop a US sized population let alone a four-times multiple.

    So how can the Communists support the advent of robotic systems? They cannot.

    Yet US-EU ecometrics are increasingly dependent on adaption of this one, evolutionary aspect of humankind. Health care for aging populations as well as commodity and production correlations in a “connected” world demands such innovation, regardless of ideology and cultural norms.

    Note: I was recently told by a Shanghai University professor that basketball is now(though not government recognized as) the Number 1 Sport in China.

    Are ping pong and bad mitten the remnants of emperorship, censorship, and servitude?

    Does basketball represent a early form of democratization of China’s youth, a youth itself imbalanced from a suffering of one-child policies and female fetus matricide?

    Aside: After my first year of living here, then Wuhan, which may be considered China-Today, as old and new duke it out daily there, right in the streets, I then calculated such a notion of a one-time government distribution of hard currency to all Chinese citizens – give or take a 100 million or so – based on reported foreign capital reserves.

    The amount? $30,000 US per family of three or more.

    The result? US-EU economic stimulation; PRC banking and real estate crisis precipitated by collapse of both Chinese stock exchanges due to nonviolent overthrowing of Communist Party, and a constitutional convention leading to the restructure of another Modern China – being the third new China since the Revolution of 1911 (by my count).

    The misassumption: The “all that wealth the government is sitting on” is like the rest of the Communist doctrine; it is constituent of a variant set of eco-socio-cultural platitudes based on (since the Internet) an obsolete political ideology. In other words, it is not real.

    China’s Communist regime (what I term as The 15th Dynasty of China) is broke, both financially and in terms of ideology. It is analogous to that fabled story, The Emperor’s New Clothes.

    There are a bunch of foreign governments and their bankers and merchants whom continue to walk (and talk) around, post 2008 Olympics, how the Communist Government here is rich, flush with cash.

    Has anyone seem a balance sheet – a real balance sheet, ever?

    How about an independent audit?

    How can one surmise one’s assets without first fairly appraising one’s liabilities?

    My teacher, a member of the Communist Party, during our weekly dinner, mentioned a recent article he read. He said that the author surmised how, if the US and China went to war, that then China would lose not because of technology but because of lack of unity (in China).

    Somewhat dazed by the candor, I merely said, “Yes, I think so too.”

    Afterwards, I reflected on the premise of that article. My thought was, “Who in their right mind would want China?”

    Hence why the Taiwanese invest so much money here in the Mainland but simultaneously protest (as if being tortured) when being referred to or even being hinted as being Chinese? They are emphatic about being Taiwanese.

    What do they know?

    I now conclude that they are reminding us what 5,000 years (allegedly) reminds us…

    “No good comes from tyranny.”

    There is an accident waiting to happen when a politically and financially over-leveraged country operates on outdated and dysfunctional systematics – socially as well as economically speaking. As such, the population here is not poised to assimilate multi-media and market technologies, particularly robotics, which presents an answer to the social-geriatric-economic challenges facing most developed and developing countries – including China. Thus…

    I am reminded of Jack Nicolson’s line in The Departed… “Act accordingly.”



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