“The downward pressure on China’s economy is intensifying.”
Chinese Premier Li Keqiang, Thursday, March 5, 2015.
Li’s remarks came at the most important political meeting of the year (the National People’s Congress), where he also pegged the economic growth target at 7% for the current year, the lowest in a quarter century. Growth last year came in at roughly 7.4%, slightly missing the anticipated 7.5%, which was also the lowest in a quarter century.
The People’s Bank of China (such an Orwellian name that the US Federal Reserve ought to adopt something similar) has been aggressively trying to thwart the monetary fall-out (deflation, mainly) from declining economic activity, cutting its headline interest rate three times over as many months. It has also loosened bank reserve requirements multiple times lately. Its stated aim is to fight deflation, or more aptly, a decline in the inflation rate that threatens soon to slip into negative territory. CPI ran about 2.06% for 2014, but has now fallen well below 2%. Declining inflation increases real borrowing costs, so the PBOC moves have served mainly to forestall the negative monetary consequences of declining economic activity, but have not been enough to juice activity going forward, or so The Economist believes.
It’s hard to ever tell what is really happening inside China. The Middle Kingdom has always been something of an enigma to Western observers, but this much is clear: China’s economic activity is slowing. By how much its activity is slowing is not apparent, but the evidence is overwhelming that the days of double-digit expansion are, for now, over.
It is also obvious from glancing over the headlines of official Chinese newspapers (specifically, China Daily) that the Chinese view aggregate economic growth as a matter of national pride, something of a collective enterprise that all Chinese must endeavor to do their part in helping. When Li speaks of a 7% “target”, what he really means is a 7% goal for the Chinese people to attain. This could be considered a vestige of the communist ideology of collectivism, or could just be a cultural tic, or could represent something more sinister.
It is not often in the developed world these days that aggregate economic growth is considered a matter of national pride, but that has not always been the case. Before their imperialist adventures in the early twentieth century, Germany and Japan, among others, conflated their value as a people and nation with growth in their aggregate national output. Individual desires were subordinated to state prerogatives, and the main state prerogative was economic modernization and growth, the profits from which were then funneled to military spending. There’s no reason to think that China’s rapid modernization might also end (like, e.g., Japan’s and Germany’s) with a violent attempt at imperialist expansion. But there’s also no reason to think it won’t.
Though China’s economic growth has declined to the high single digits, military spending will mark its fifth straight year of double digit growth in 2015.
Spotlight on Argentina
Buenos Aires (literally, “good air”), the capital of Argentina, is reputedly the Paris of Latin America. On a per capital basis,, Argentina was, in the early part of the twentieth century, the richest country in the Western Hemisphere. It has a population of roughly 43 million, of which some 13 million live in the capital.
Argentine income today is roughly $18,000 per person, about 75th worldwide, behind the likes of South Korea, Hungary and Portugal, among many others. The reasons for its relative decline, or more aptly, its failure to keep up, would make for a decade’s worth of Ph.D economics theses at leading graduate schools. Roughly speaking, Argentina seems to do exactly what it shouldn’t in terms of economic policy whenever presented with a situation demanding action.
Argentina is, like the US, a nation of immigrants, most of whom in its case hail from Spain or Italy. Though it infamously served as something of a post-WW2 Nazi hideout, people of German descent make up only a small portion of the population. Argentina is not a belligerent country. It has fought only one very minor war with Great Britain in the early 80’s over a windswept group of craggy islands off its Atlantic coast where sheep outnumber humans in an ordinary year. It lost, but didn’t much seem to care.
Argentina’s economy imploded in the early 2000’s, when it defaulted on external debt and was forced to abandon its one-to-one peg with the US dollar. But it quickly rebounded, growing at Chinese-esque type rates of 8.5% per year for several years, until finally slipping back into recession in 2009, along with the rest of the world. It today faces the specter of high inflation, with all its accompanying travails, due to chronic deficit spending by the government. In characteristic Argentinian fashion, instead of attacking the problem of fiscal imbalance that is causing the inflation, it has slapped price controls on a great many imported goods, while also throwing up extensive barriers to free trade. Exactly the opposite of the appropriate economic policy in the premises.
Argentina is interesting for a number of reasons, but one which stands out. Why has it never sought empire? What about its national psyche kept it focused inward, rather than outward, content to fight among its own rather seeking new worlds to conquer? Is it the Latino heritage? That wouldn’t make sense. Spain and Italy have quite extensive historical experience with empire building, if not lately. Is it the lack of British influence? The British seem to have a genetic predisposition to colonization and empire building. To someone in the US, which was largely settled by the British, the idea that being a significant force internationally may be less than appealing seems foreign, ridiculous even. What Manifest Destiny, Argentina? For me, it’s something of a pleasant anomaly that Argentina, possessing such beauty and riches that its first city is compared to Paris, doesn’t seem to have caught the imperial bug and all the belligerence normally accompanying it.
Tellingly, through all of Argentina’s economic problems, even as most of them are self-initiated, the Argentine people haven’t suffered anything remotely approaching, e.g., the Irish Potato Famine, or the famine that killed millions during China’s Cultural Revolution. Perhaps Argentinians have a different view of the economic purposes of government than that offered by the West or the East.
Compare Argentina’s debt default to Greece’s. The world economic system barely shrugged in 2001 when Argentina defaulted on all its external debt. It is again barely paying attention as another round of defaults loom. Yet Greece, a tiny country of 12 million, with a GDP only a third as large as Argentina’s, has kept the world, and particularly the manic-depressive financial markets, enthralled for years as to whether or not it would “Grexit” and bring the whole Euro experiment down. Short of German invasion, Greece can’t and won’t pay back its creditors, a roughly $350 billion haircut. Or, about a month’s worth of spending by the US government, or a slight percentage of the total annual output of the eurozone. Yet Greece’s problems get the press coverage, while Argentina only makes the news when its political class is proved again to be particularly venal, such as when a prosecutor preparing to indict President Cristina Fernandez De Kirchner was suspiciously murdered.
Nobody pays much attention to Argentina. I get the sense that Argentinians prefer it that way.
295,000 new jobs added in February, unemployment rate falls to 5.5%
Reversing a downward trend since November’s blowout numbers, there were 295,000 new jobs added in February, a gain of over 55,000 from January’s revised 239,000. The economy has added an average of 288,000 jobs over the last three months.
Curiously, I could find no explanation pinning the quite robust job numbers on the weather, which would surely have been the case had the jobs report come in weak. Apparently weather (or for that matter, climate change) doesn’t matter except for explaining anomalously poor results. Following the logic of commentators who blame the weather for every bad report (for example, the increase in first time unemployment claims, noted below, was blamed on the weather) it could be argued that this strong a report in the face of relentless blasts of wintery Arctic weather means the jobs market is really going gangbusters. Perhaps that’s why the stock markets didn’t like the report.
Stocks and bonds fall; dollar soars
What a fine mess of things the US Federal Reserve has made. Ever since its initiation of ZIRP (zero interest rate policy, or as I like to call it, “free money for bankers”), good economic news means all the financial metrics go to shit.
Stocks dropped by over a percent Friday, the day the jobs report was released. Ten year bond yields zoomed skyward, up over 6% in one day, and, after bouncing around all week, also for the week. The dollar has steadily climbed this year, and on a trade-weighted basis has now well exceeded the level it enjoyed as a ‘safe-haven’ currency during the financial crisis.
The fact that good economic news means bad financial news makes the Fed’s plan to raise interest rates later this year just that much more complicated.
First-time claims for unemployment benefits rises
For the second consecutive week, first-time claims for unemployment benefits rose by 7,000, bringing the seasonally adjusted total of first-time claims to 320,000. As noted, the increase was attributed to bad weather, which apparently failed to negatively impact the jobs market, if the pundits and prognosticators are to be believed.
New orders for manufactured goods slipped 0.2 percent in January
The decline comes on the heels of a 3.5% decrease in December from November.
Banking and Finance
All 31 Too Big To Fail Banks passed the quantitative portion of the Fed’s Stress Test
The US Federal Reserve released the results of its latest stress test of the 31 financial institutions that it has deemed are systemically too important to ignore (or fail, though they would never say as much). It says the intent of the stress tests, as required by Dodd-Frank, is to ensure that losses due to bank failures are borne by the shareholders and not the taxpayers (as they were in 2009).
Imagine the level of hubris that must obtain to believe every possible contingency has been accounted for in creating a model that predicts whether or not banks will fail at some point in the future. The Fed can model risk. It can’t model uncertainty. Russia, anyone?
The Fed’s stress test modeling is of a piece with the hubris-besotted idea that models can be created that can reliably predict the earth’s future climate, even as no weather model yet devised is able to predict with any reasonable precision for a particular locale whether precipitation in Alabama, or the South generally, will fall as snow or sleet or freezing rain or just plain rain when area receives a blast of Arctic air. The weathermen down here are something like zero for eight in their winter weather predictions going back to last year.
Not surprisingly, all of the too-big-to-fail banks passed this quantitative portion of the test. Whew! We can all rest easy, at least for a short while. The qualitative portion of the test results will be issued next week.
Monetary velocity in the US reaches an all-time low
The velocity of money sounds more complicated than it is. It is simply a measure of how many times a particular unit of currency changes hands in a particular time period. For the measure used by the Federal Reserve, it is the amount of times each dollar changes hands each quarter. The latest reading, for the 4th quarter of 2014, was 1.53, down from the previous quarter. Except for a very brief interlude in 2010, the velocity of money has been steadily declining since 2006, a couple of years before the recession began.
What does money velocity tell us? It might indicate (if rising) the potential for inflation, because as prices rise, each dollar must change hands more frequently to buy the same amount of goods. Or, it may indicate (again, if rising) that more goods and services are being purchased while prices are relatively stable. What is unusual today is how low the velocity has dropped, even as economic activity has picked up, and the overall money supply has ballooned. More money supply combined with lower monetary velocity indicates sluggish activity, and prices that rise very little, if at all. In other words, pretty much what is going on about now. Declining money velocity ameliorates the impact of loose monetary policies that tend to increase the money supply.
As the Fed should be learning, even given its vast infusion of cash into the US economic system over the last five years, prices that want to fall eventually will (see, e.g., oil). Money has sneaky ways of distorting or altogether avoiding the Fed’s monetary policy prerogatives.
And now, news from the social cesspool
A pair of articles explain that there’s nothing wrong with the world that women can’t fix
Writing in the New York Times, Sheryl Sandberg, Facebook COO and self-appointed social scold to women whose posture remains centered, asserts that it is in the best interest of men to promote female participation and equality in the work force, from the article:
Studies reveal that women bring new knowledge, skills and networks to the table, take fewer unnecessary risks, and are more inclined to contribute in ways that make their teams and organizations better.
This is a bit confusing to me. Does Sandberg advocate that women should be given more opportunities because they are the equal of men, or because they are superior to men? Because if the latter were true, then there is a whole lot of human history that is nothing less than a confusing anomaly. If women are superior to men, why aren’t women the superiors of men, more or less all the time? And please, don’t tell me that it’s because men have been holding them back. How could an inferior hold back a superior?
Sandberg goes on to say that the sexiest thing a man could do for a woman would be a load of laundry, calling it “choreplay”. Oh, how cute. It is not just a little bit condescending that Sandberg would think guys are that easily manipulated. Or, that the price for sex, especially sex with one’s wife, is that cheap. Marital sex is a whole lot more expensive than a load of laundry. Every husband knows that.
Not to be outdone, the Wall Street Journal also published an op-ed weighing in on the gender wars. Melvin Konner is a professor of anthropology at Emory University, but it is a subject about which he is apparently ill-informed, from the article:
Our own species hasn’t always suffered from male supremacy. Among our hunter-gatherer ancestors, living in small, mobile communities, group decisions were made face to face, among men and women who knew each other intimately. Men tried to dominate, but it wasn’t easy. They could show off by hunting, but war, that universal booster of male status, wasn’t common.
The notion that our hunter/gatherer ancestors were noble, peaceful savages has been by now so thoroughly debunked that it almost seems pitiful that this poor man, supposedly an expert in the field, somehow failed to hear of it. Even Steven Pinker, who is not an anthropologist but knows a thing or two about the human animal in society, debunked the idea in his book-length treatise on the decline of violence, The Better Angels of Our Nature: Why Violence has Declined. Among the extant hunter/gatherer societies that have been studied, violence is endemic–a natural part of life. And practically all are patriarchies. Even E.O. Wilson, the famed Harvard biologist, who is as devout a believer in the progressive ideal of non-violence, plaintively answered ‘yes’ to the question of whether human beings are innately aggressive. (In On Human Nature, page 99.)
The premise behind Mr. Konner’s argument is that women are better suited for leadership, at least in today’s world, than are men, and to allow them to so lead would return us to something more akin to our hunter/gatherer social organization. He gets the hunter/gatherer social organization wrong, so the rest that follows is bunk.
And his argument begs the question: If men and women were at one time relative equals in leading hunter/gatherer clans, then what happened to vault men to the top? How was it that an equal became an inferior? Did it happen without a fight, because men were more athletically and aggressively gifted? If so, then men and women weren’t equals and never have been, which given the substantial sexual dimorphism in human biology (men being taller, heavier, stronger, etc.) sounds plausible. Which means that Konner gets not only the social organization wrong, but also the human biology behind it.
Konner argues, unintentionally ironically, that women are better adapted biologically to leadership in today’s information-driven society basically because they lack the testosterone-fueled aggression that is innate to men. But female leaders are just as capable of all the depredations attributed to male leaders. The only reason it seems they aren’t is they haven’t been given sufficient opportunities to prove their equally maleficent character. To cite one of Konner’s examples, Christina de Kercher, President of Argentina, very probably had assassinated a prosecutor preparing to indict her for complicity in the bombing of a Jewish community center. Something similar to what that most manly of men, Vladimir Putin of Russia, did with one of his political rivals.
The gender wars continue apace, though it is not possible there will ever be any winners. The battle is zero-sum on each side. If women win and men lose then women also lose. If men win and women lose, men also lose. The notion nowadays gaining purchase is that men are no longer needed in society–that all that aggression and testosterone just gets in the way. But the notion can only be considered because men built a society so rich and so free and so secure that it can contemplate the luxury of discarding the attributes to which it owes much of its success. Men can’t be blamed for all the ills of society without which they get some credit for its many successes.