Who Owns America?

Here’s a quick and fascinating breakdown by total amount held and percentage of total U.S. debt, according to Business Insider:

• Hong Kong: $121.9 billion (0.9 percent)
• Caribbean banking centers: $148.3 (1 percent)
• Taiwan: $153.4 billion (1.1 percent)
• Brazil: $211.4 billion (1.5 percent)
• Oil exporting countries: $229.8 billion (1.6 percent)
• Mutual funds: $300.5 billion (2 percent)
• Commercial banks: $301.8 billion (2.1 percent)
• State, local and federal retirement funds: $320.9 billion (2.2 percent)
• Money market mutual funds: $337.7 billion (2.4 percent)
• United Kingdom: $346.5 billion (2.4 percent)
• Private pension funds: $504.7 billion (3.5 percent)
• State and local governments: $506.1 billion (3.5 percent)
• Japan: $912.4 billion (6.4 percent)
• U.S. households: $959.4 billion (6.6 percent)
• China: $1.16 trillion (8 percent)
• The U.S. Treasury: $1.63 trillion (11.3 percent)
• Social Security trust fund: $2.67 trillion (19 percent)

So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion.

Source.

Are China’s Rulers Finding Religion?

With worsening inflation, a slowing economy, and growing concerns about possible social unrest, China’s leaders have a lot on their plates these days. And yet when the Communist Party met at its annual plenum earlier this week, the issue given greatest attention was not economic policy but what it described as “cultural reform.”

The concern appears quixotic, but China is now in the grips of a moral crisis. In recent months, the Chinese Internet has been full of talk about the lack of morality in society. And the problem is not just associated with the very rich or the political connected—concerns shared in western countries—but with the population at large. This has been precipitated in part by a spate of recent incidents in which people have failed to come to aid of fellow citizens caught in accidents or medical emergencies. A few weeks ago, a two-year-old girl in Guangzhou was hit by a car and left dying in the street while eighteen passers-by did nothing to help her. The case riveted China, causing people to ask what sort of society is being created.

So, no sooner was the plenum over than the party indicated that it would limit the amount of entertainment shows on television and possibly set limits on popular microblogs. While it is easy to read this move simply as censorship, which it certainly is, it also reflects the new preoccupation with morality: many of the banned shows are pure entertainment—the party now wants more news programs—and Chinese microblogs have long been a forum for anonymous character assassination. Meanwhile, though it has been far less noted, Beijing is giving new support to religion—even the country’s own beleaguered traditional practice, Daoism.

After decades of destruction, Daoist temples are being rebuilt, often with government support. Shortly after the plenum ended, authorities were convening an International Daoism Forum. The meeting was held near Mt. Heng in Hunan Province, one of Daoism’s five holy mountains, and was attended by 500 participants. It received extensive play in the Chinese media, with a noted British Daoist scholar, Martin Palmer, getting airtime on Chinese television. This is a sharp change for a religion that that was persecuted under Mao and long regarded as suspect. What, exactly, is gong on here?

Read more here.

Three Kinds of Penis Wine

Dog, Deer and Seal, if you must know.

From National Geographic.

Puppetry vs. Engineering

A few years ago, Joe Therrien, a graduate of the NYC Teaching Fellows program, was working as a full-time drama teacher at a public elementary school in New York City. Frustrated by huge class sizes, sparse resources and a disorganized bureaucracy, he set off to the University of Connecticut to get an MFA in his passion—puppetry. Three years and $35,000 in student loans later, he emerged with degree in hand, and because puppeteers aren’t exactly in high demand…he’s working at his old school as a full-time “substitute”…[earning less than he did before].

…Like a lot of the young protesters who have flocked to Occupy Wall Street, Joe had thought that hard work and education would bring, if not class mobility, at least a measure of security…But the past decade of stagnant wages for the 99 percent and million-dollar bonuses for the 1 percent has awakened the kids of the middle class to a national nightmare: the dream that coaxed their parents to meet the demands of work, school, mortgage payments and tuition bills is shattered.

This is fairly uncommon example of wasted educational dollars – puppetry should replace basketweaving in our standard example of a useless college major – but offers a salient point: not all education is worth the price. In fact, the price of education has outpaced inflation due to both government subsidies for education and our mistaken belief that if some education is good, more must be better. That is not always true. We believe that if college is good for some, then it must be good for all. While the average college graduate makes more lifetime earnings than one with a high school degree alone, that scale may be tipping. And it should. (China is having the same problem.)

If the average college student was studying the works of classical Greece, the literature of the Western Canon, hard sciences like chemistry and physics, and advanced mathematics, the argument for more college for more students would be a strong one. But that is not the average college experience, which is usually associated with alcohol, drugs, sex, “finding yourself,” and classes slightly more rigorous than puppetry but a far cry from the rigor of an engineering curriculum. $200,000 to learn electrical engineering is a sound investment, if it is learned well. But $150,000 for a degree in sociology or “critical theory” (which for the un-indoctrinated is Marxism)?

When talking heads speak of how the rise of China and India’s educated classes will challenge our international and economic strength, they are not referring to China’s production of 24-year-olds with MAs in education or, to take the five examples Time used for their article on student debt, “I Owe U,” specialized studies, multimedia design, English, history, and global studies. China and India may overtake us, however, if they take the lead in educating top-rate engineers, scientists, and those with degrees in technical fields. This is not to deny the value of English, history or specializations – wait, what exactly is “specialized studies?” – but rather the returns on those investments, for an individual or society, will not be the same as a degree in biochemistry or chemical engineering.

A letter to the editor at Time put it this way:

Of the five young adults featured with large portraits in your article, there was not one with a major in science or math. Specialized studies, multimedia design, English, history and global studies? Give me a small break. Nothing wrong with an interest in these areas, but it’s pretty predictable that the people who major in them are unemployed or underemployed.

Three additional notes on higher education. 1, the myth of Chinese and Indian engineers overtaking us is just that, a myth. 2, We have the best technical graduate schools in the world… that do a fine job of educating foreigners. Those foreigners are often sent back home in what has been called a “reverse brain drain.” They should be allowed and encouraged to stay. 3, Charles Murray has argued for more education, which is different from more schooling.

“Nearly everyone needs more education after high school,” Mr. Murray said. “What they don’t need is to chase after this fraudulent, destructive, antediluvian thing called a B.A. The B.A. is really the work of the devil.”

The source of the quotation on puppetry was The Nation via Alex Tabarrok at Marginal Revolution. His comments are worth reading.

And for the record, my MA is in economics – somewhere between global studies and engineering in both rigor and value. As a financial decision, grad school was, as of now, not worth the money. Besides two years lost wages and the price of tuition, I returned to the job market at a lower salary then when I left due to a career change. I value the education I received though, which is more important to me than the money. It was an individual decision though, not one made because I felt I had to get an MA. Thus I have no right to complain about my “crushing” student loan payments.

The Seven Fastest Growing Cities in the World

Try to guess at least the countries. (I really doubt you’ll be able to guess the exact cities.) They are not what, or rather where, I thought they would be. So guess which six countries (one of them repeats). Scroll down for the answers. Hint: the photo is of one of the cities.

Kedar Pavgi compiled the list for FP:

1. Beihai, China

2. Ghaziabad, India

3. Sanaa, Yemen

4. Surat, India

5. Kabul, Afghanistan

6. Bamako, Mali

7. Lagos, Nigeria

I only got two right: India and China, which are easy answers. I wasn’t close on the rest. Sanaa? Kabul? Mali? I thought for sure Indonesia, Bangladesh, and Brazil would be on there.

They Should Know Better

I wish there were a class called China 101 that every member of Congress had to attend. This would be the first lesson: If you really want the Chinese to do something, never pressure them about it in public. Loss of face is anathema in the Middle Kingdom. Which is why when the U.S. Senate passed a bill hinting at tariffs on Chinese goods if Beijing doesn’t let the value of its currency rise, the People’s Bank of China promptly and defiantly responded by pushing the value of the renminbi lower.

It’s ironic, because Beijing had been doing just the opposite until politicians like Chuck Schumer decided to start posturing and make China’s currency a proxy for a highly politicized discussion about globalization and unemployment in the U.S. The idea is that if Chinese money were worth more, American firms wouldn’t export so many jobs to China (because labor there would be more expensive) and the Chinese would be able to buy more U.S. goods and services, thus cutting trade imbalances between the two nations and helping put the global economy back on track.

It is a good diplomatic lesson to be remembered during future dealings with China: praise in public, reprimand in private. But it’s also unfortunate in that the lesson need not have been learned. China had already allowed the value of its currency to rise.

Many of the changes the Schumer bill argues for are already in the works. The Chinese, who know they desperately need to rebalance their economy in order to maintain longer-term growth, have already let their currency appreciate 30% against the dollar since 2005 and a full 10% last year. Wages are rising; in fact, that’s the reason there’s a nascent trickle of higher-level manufacturing jobs back to the U.S., as Chinese pay hikes (coupled with higher energy and transport costs) make it less profitable to do business in China relative to the U.S. What’s more, American exports to China are actually increasing. Andy Rothman, a China expert at CLSA investment bank in Shanghai, recently pointed out to me that despite all the rhetoric about currency, U.S. exports to China rose 468% in the past decade. The next fastest growth rate to a major market was 64%, to Germany.

Which of the presidential candidates know this? Probably only Huntsman. Which are willing to say it? Probably only Huntsman. Romney may know it, but he’s gone the opposite direction by confronting China and campaigning to wage a trade war. Obama has been too soft, he argues. Does Obama know this? I assume he does, but also assume he’ll ignore the reality. His campaign will be based on two arguments. (It can’t be based on his record.) First, that things would have been much worse without him. Yes, there is 9% unemployment, but had we done nothing like the Republicans wanted we would now be looking at 13 or 14% unemployment. Second, he needs to spread more of the blame. He’s already blamed Bush, the Tea Party and Republicans in Congress, the EU, the Japanese tsunami, the Arab Spring… Blaming China is easy, especially since neither Romney, Perry, or Cain would care to challenge him on this. They will only up the blame placed on China and escape discussing our own faults for our ailing economy.

“We may as well try to enjoy it while it lasts.”

China is producing cheap solar panels and essentially subsidizing our green energy. Should we rejoice at the free panels or feel a Sputnik moment for fear of letting this future industry slip away?

Megan McArdle:

But won’t they gain a permanent strategic advantage over us, I hear you cry?

Well, this does sometimes happen. But it’s actually really rare. Notice how all the electronics goods seem to be manufactured in China? Even though we invented many of them (and the Japanese are responsible for a lot of the rest?)  Notice that all the jobs assembling sneakers and looming textiles seem to have moved along with them?  Sure, we had know-how and strategic supplier networks.  But these were no competition for enormously cheap labor.

Green energy will only be the next great industry for us if we are the ones to profit from it. Being the first mover in an industry does not guarantee the profits. Subsidies do, however, guarantee that we pay the R&D costs. Let China continue to subsidize our solar power consumption while we work on advancements in industries in which we have a comparative advantage.

The Rise of China: A Debate

The Panda Hugger vs. The Dragon Slayer.

Both are longer articles from the Sept/Oct 2011 issue of Foreign Affairs, and together offer a thought-provoking contrast on how to interpret the likelihood and impact of the rise of China in the next few decades.

Reliably High-Yielding 211-Year Investments

If economists cannot predict the GDP growth in the U.S. in a year or two, how can they predict the GDP growth in 5 years? Or in 30? The Nobel Prize-winning economist Robert Fogel believes that China will have an average annual growth rate of eight percent until 2040. This sounds ominous, until you stop to ask how Fogel knows what China will look like in 30 years.

In 1950, Mao and his Communist forces had just won the Chinese Civil War and proclaimed the People’s Republic of China. They were financially drained from both their civil war and the Second World War (Sino-Japanese War). To have had accurately predicted the growth rates from 1950 to 1980, one would have had to have known of the forthcoming Great Leap Forward, the Cultural Revolution, the Sino-Soviet split, and the opening of trade with the US. Understandably, all 30-year predictions of China’s growth were wildly off the mark.

In 1980, China was only beginning the “Reform and Opening” under Deng Xiaoping, including increased trade,  the decollectivization of agriculture, and special economic zones, combined with their one-child policy and massive urbanization. Who in 1980 predicted that China would soon be growing at ten percent per annum for two decades? They would have been laughed at.

Yet we still take such predictions seriously: barring any unforeseen events, China will become a juggernaut in X years. Unfortunately there are always unforeseen events that have significant effects.

In response to Fogel, Salvatore Babones says,

Like many other forecasts of China’s continued rise, these projections are based on careful formal economic modeling. But are they convincing? Extrapolating from current trends may make sense when predicting growth in the next year and the year after that, but once the years turn into decades, such assumptions seem more questionable. If my ancestors had invested a penny in my name in 1800 at a real compound interest rate of six percent per year above inflation, that penny would now be worth about $280,000. That does not mean, however, that reliably high-yielding 211-year investments are easy to find. Things change; things go wrong. Past returns are no guarantee of future performance.

When it comes to gauging China’s future growth, economic modeling can offer only so much guidance. The models predict future economic outputs on the basis of projected future levels of economic inputs, but future economic inputs are impossible to predict. In the end, there is little to do but extrapolate from current inputs. But inputs, as well as other key features of any economy, change over time. China’s economy is evolving rapidly: from subsistence agriculture to smokestack industries to the latest electronics to consumer services. And at some point in the future, perhaps in the not-too-distant future, China’s excess growth rates will level out and its economic growth will slow down, returning to rates more like those experienced by comparable countries.

The article is a great read to counter the steadily growing body of writing that suggests China’s rise is inevitable. But in addition, it offers us this important reminder: be skeptical of long-term forecasts and predictions.