Demographic Change and Fiscal Crisis

September 19, 2024 by Dan Mitchell @ International Liberty

I just finished a speech at a conference in Miami that looked at changing demographics and the implications for tax competition.

To elaborate, I explained how an ever-growing burden of government spending will lead to more class-warfare tax policy, which will give politicians even more incentive to attack low-tax jurisdictions.

For today’s column, I want to focus on the portion of my presentation dealing with demographics.

I started with this chart from the OECD showing the old-age dependency ratio in member nations. As you can see, Japan currently has the most old people relative to the rest of the population.

These 2023 numbers show why there is some pessimism about Japan’s fiscal outlook.

Simply stated, the number of old people receiving benefits (government pensions and health care) is very large compared to the number of working-age people paying taxes.

Which is why taxes already have increased in Japan and that worrisome trend will continue.

And that brings me to my second chart, which shows the estimated 2075 old-age dependency ratio.

At first glance, these two charts may not look that different, but notice that the vertical axis on the top chart only goes up to 60 while the bottom chart goes up to 100.

So the critical takeaway is that almost every developed country 50 years from now will have a demographic profile that is worse than today’s Japan.

If governments don’t reform their entitlement programs, it is no exaggeration to say that these numbers have grim implications.

• More spending
• Higher taxes

And when they pursue those policies, uncompetitive governments will have even greater incentives to undermine low-tax jurisdictions in hopes of reducing the freedom of people to escape bad policy.

Peter Zeihan: Japan's Navy Gets Teeth

By Rich Kozlovich 

China has been playing the bully boy big kid on the block in South East Asia, demanding the world buckle under to their claim they own the South China Sea, and just about everything else within their "nine dash line".  Well, all this economic bully boy stuff has generated a backlash, and that includes Japan, and realizing they needed to alter their concept of national defense.

,

 

I read recently that China's military expenditures have now reached the level of the United States, and there's a lot of sack cloth and ashes over that.  I also believe that's being used to get more DOD dollars out of the Congress.  But I also like the fact they're spending all that money because it's money they don't have, and just like competing militarily with the United States bankrupted the Soviet Union, China's on the way down the economic drain. 

 

Pearl Harbor: Why was it chosen? What did FDR know? What was Stalin's role? Was it a sneak attack?

A selection of propaganda free posts on the road to World War. Was Pearl Harbor a sneak attack? Or a provoked attack?

By Michael Flores Dec 7, 2023 

I bet less than 10% of the country actually knows how and why Pearl Harbor was selected by Japan. Conspiracy theory? I have an annoying habit of naming names and their roles. Russia and Japan had fought before. They were sworn enemies. The target was supposed to be Russia....

The international spy ring had orders to prevent a war between Russia and Japan, who had many conflicts large and small over the years. In June of 1941 when Hitler broke the peace pact with Stalin the fear was that Japan would launch an attack from the East and force Stalin to fight a two front war.

The Soviet master spy Sorge who had set up spy rings all over the world using Communist Parties as recruitment centers, went to Japanese newspaper journalist and spy Hotsumi Ozaki and Kinkazu Saionji and ordered them to get to work trying to stop Japan from attacking Russia but instead to attack the United States, British and Dutch outposts. 

Ozaki had worked his way from his press position to adviser to Prince Konoye, Saionji was a member of the group that met every morning with the Imperial Cabinet to discuss the international politics of the day. Both began arguing that without an attack on western forces, there wouldn't be enough oil for Japan to fight a war, and Russia had little of it. The Japanese military, which had wanted to attack the Soviet Union, began to change their minds.

In the United States Communists and spies sprang into action. .............To Read More....Much More, and worth your time.

A Communist with a Truthful Agenda

August 28, 2023 by Dan Mitchell @ International Liberty

In large part because of an economic system completely at odds with human nature, communists have a nasty habit of never delivering on Marx’s vision

 

• They promise equality, but the elite enjoy lavish lifestyles while ordinary people suffer.
• They promise better lives for workers, but they deliver deprivation and suffering.
• They promise harmony, but the reality of socialists societies is division and discord.

One obvious conclusion is that communists are despicable people  That’s true, and the people who give aid and comfort to communists also deserve scorn.

Another conclusion is that we should disbelieve anything communists say.

Based on the above examples, that would be an understandable conclusion.

But I have found a communist who is semi-truthful. His name is Kohei Saito and I trust him because he is telling people that his policies will lead to less prosperity.

Here are some excerpts from a New York Times story by Ben Dooley and Hisako Ueno.

When Kohei Saito decided to write about “degrowth communism,” his editor was understandably skeptical. Communism is unpopular in Japan. …So a book arguing that Japan should view its current condition of population decline and economic stagnation not as a crisis, but as an opportunity for Marxist reinvention, sounded like a tough sell. But…Mr. Saito’s book “Capital in the Anthropocene” has sold more than 500,000 copies, exceeding his wildest imaginings. Mr. Saito, a philosophy professor at the University of Tokyo, appears regularly in Japanese media to discuss his ideas. …Mr. Saito said, …“there are too many cars, too many skyscrapers, too many convenience stores, too much fast fashion,”… Mr. Saito is not clear exactly what shape a world under degrowth communism would take, but he insists that it would be…focused on expanding communal resources.

It is safe to say that Mr. Saito is an immoral idiot.

But I have to give him credit for accidental honesty. Communism is very capable of delivering “degrowth.”

If Japan follows Saito’s advice, it is a sure bet that there will be fewer cars, fewer skyscrapers, fewer convenience stores, and less fashion.

By the way, in addition to being an immoral idiot, Mr. Saito is also a hypocrite (a common problem on the left).

Mr. Saito’s critics have called him out for castigating the capitalist system he himself has benefited from… He recently moved into a three-story home in an upscale neighborhood..

It’s unfortunate that the New York Times decided to devote attention to a crank like Saito, though I guess it is somewhat newsworthy that he has sold 500,000 books.

So I won’t criticize the authors for writing the story. But I can’t resist pointing out some economic illiteracy in their report. They write about supposed problems with capitalism, but the Japanese policies they cite – easy money and wasteful spending – are examples of statism.

Mr. Saito has tapped into what he describes as a growing disillusionment in Japan with capitalism’s ability to solve the problems people see around them… Japan, the world’s third-largest economy, has worked for years to promote economic growth… But there are strong indications that the country’s…policies of ultracheap money and big government spending are reaching their limits.  The interventions have done little to stimulate growth.

Keynesian policies didn’t work? At the risk of being overly sarcastic, I’m shocked, shocked.

I’ll close with a few general observations about Japanese economic policy.

The good news is that post-war capitalism enabled Japan to become reasonably prosperous.

But the bad news is that a range of misguided policies, starting with industrial policy in 1960s and 1970s and continuing with Keynesian spending and tax increases in the 1990s and beyond, have eroded Japan’s competitiveness. The nation is slowly but surely falling behind.

Mr Saito wants to accelerate his country’s decline. Hopefully Japanese policymakers will ignore his poisonous advice.

China's Economy Is Struggling. Still Want to Emulate it?

  Veronique de Rugy

China's economy is struggling post-COVID-19. Growth is slower than expected, demographic trends are negative, youth unemployment is high, overbuilding has created a housing crisis and government indebtedness is ballooning. These are only a few of the symptoms ailing the country, and things could get worse. Did any of the Americans who not long ago wanted to implement some of China's top-down economic policies see this coming? Of course not. We've seen these pessimists make similar mistakes before........ The only question that remains to be answered is this: Why do we Americans always seem to believe those who tell us that industrial policy is a surer path to prosperity than economic freedom?.........To Read More.....

 

 

Japan Joins the Anti-Convergence Club

July 23, 2023 by Dan Mitchell @ International Liberty

Economists assume that poor countries should grow faster than rich countries over time, a process known as convergence.

It’s a reasonable theory, but only if poor countries and rich countries have similar levels of economic liberty.

But that’s often not the case, which is why I put together an anti-convergence club. I have dozens of examples of richer countries growing faster than poorer countries.

And not just for one or two years. Every example in the anti-convergence club is based upon multiple decades of data.

Even more important, every example shows that you get faster growth in nations with free markets and limited government.

Now we have a new member of the anti-convergence club. Here’s a chart that Mike Bird of the U.K.-based Economist shared on Twitter. It shows that Japan has been steadily losing ground compared to the United States over the past three decades.

So what’s the reason for Japan’s long-run decline?

Some of it presumably is caused by demographics. But there’s also been fiscal decline measured by both taxation and spending burdens.

And this chart on competitiveness is very depressing.

Amazingly, some people on the left think the U.S. should copy Japan. I’m guessing those people can’t answer this question.

China Balks as South Korea, Japan Leaders Plan to Attend NATO Summit

John Hayward 10 Jul 2023

China’s state-run Global Times struggled to contain its editorial blood pressure on Sunday as it reported the leaders of South Korea and Japan will attend this week’s NATO summit in Vilnius, Lithuania, for the second year in a row.  “Such a short-sighted move will surely trigger China’s strong opposition and result in regional countries’ heightened vigilance!” the Global Times shrieked.  Actually, most regional countries are busy heightening their vigilance against China, which keeps insisting the entire South China Sea is its property, no matter how many international courts rule against it..........To Read More...

Japan’s Failed Experiment in Industrial Policy

November 1, 2022 by Dan Mitchell @ International Liberty

I’ve expressed opposition numerous times to so-called industrial policy because I don’t want politicians and bureaucrats to provide special favors to certain businesses or industries at the expense of everyone else.

 

That’s a practice known as cronyism, and it is absurd to think that selfish, election-focused politicians somehow correctly identify and subsidize the technologies of tomorrow.

But there are still people who think government should try to steer the economy – including some supposed conservatives.

Let’s remind ourselves why this is a bad idea. Samuel Gregg of the American Institute for Economic Research has a new article about the topic for National Review.

…several polling outfits have indicated an uptick in the number of Americans who say they are disillusioned with capitalism and willing to consider socialism as an alternative. This, however, isn’t the most immediate threat to American capitalism. …It is best labeled “corporatism.” …Examples of full-blown corporatism include distinctly authoritarian regimes such as Mussolini’s Italy, Dollfuss’s Austria, and Franco’s Spain until the mid 1950s. …Following World War II, corporatism took on milder expressions. …whatever the form, corporatism creates serious political and economic problems. Even soft versions of corporatism provide established companies with political mechanisms to advance their interests over those of consumers, taxpayers, and new entrepreneurs… This undermines the ability of businesses to make necessary but often difficult changes. The chances of a business’s becoming complacent and disappearing, along with the jobs it provides, thus multiply. …The expansive versions of stakeholder capitalism favored by progressives and woke capitalists are almost indistinguishable from corporatism. …World Economic Forum chairman Klaus Schwab, for instance, wants a trinity of governments, businesses, and NGOs working together to pursue political goals that are always of the progressive variety. …Not every corporatist is a fascist, but every fascist is a corporatist. Authoritarian economics isn’t just economically foolish. It is also an affront to human liberty and dignity.

Writing in August for Reason, Michael Farren documented the failure of industrial policy.

The once-beleaguered CHIPS Act…reflect a cross-party shift toward embracing industrial policy—the idea that the government should jump into the economy with both feet and have fun getting wet. Facetiousness aside, the neoliberal era from the late 1970s through the 1990s—when economic thinking carried more political sway and resulted in massive deregulation of airlines, railroads, and interstate trucking and the privatization of the internet—is far behind us. …Whether it’s encouragement via subsidies or constraint via regulation, using the government to guide the economy is akin to thinking that just a little bit of cyanide won’t hurt. …Compounding the problem is that people, not some agnostic supercomputer, determine which industries and companies are considered worthy of a boost. Humans are subject to influence and pressure, turning industrial policy into a contest of who can secure the most government favoritism… Lastly, industrial policy motivates “unproductive entrepreneurship.” Some of the best and brightest minds inevitably withdraw from productive activities premised on voluntary exchange, and instead use their skills to find autocratic mechanisms to extract political payoffs… The crystal balls policy makers peer into are easily clouded by charlatans, and we all lose when they win.

For those who want real-world evidence, the unhappy experience of Japan is very enlightening. Adam Thierer wrote last year about the failure of industrial policy in that nation.

American pundits and policymakers are today raising a litany of complaints about Chinese industrial policies, trade practices, industrial espionage and military expansion. …In each case, however, it is easy to find identical fears that were raised about Japan a generation ago. …In 1949, the Japanese government created the Ministry of International Trade and Industry (MITI) to work with other government bodies (especially the Bank of Japan) to devise plans for industrial sectors in which they hoped to make advances. …By the late 1970s, however, U.S. officials and market analysts came to view MITI with a combination of reverence and revulsion, believing that it had concocted an industrial policy cocktail that was fueling Japan’s success at the expense of American companies and interests. …Just as Japan phobia was reaching its zenith in the early 1990s, Japan’s fortunes began taking a turn for the worse. The Japanese stock market crashed… The Nikkei Index peaked at 38,915.87 on Dec. 29, 1989, then began a dramatic fall. It has never reached that level since. …Japan suffered a brutal economic downturn that became known as the Lost Decade, which really lasted almost two decades. Microeconomic planning failures—including many missteps by MITI—were also becoming evident during this time. MITI had made a variety of industrial policy bets that were originally feared by U.S. pundits, only to become embarrassing failures a few years after inception. …by the late 1990s many scholars came to view most Japanese industrial policy initiatives as a costly bust. Marcus Noland of the Peterson Institute for International Economics noted in a 2007 study of Japanese industrial policy efforts, “Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. …Perhaps most notable in this regard was the Japanese government’s own admission that the MITI model had not worked as well as planned. A 2000 report by the Policy Research Institute within Japan’s Ministry of Finance concluded that “the Japanese model was not the source of Japanese competitiveness but the cause of our failure.”

Writing for Forbes, Stuart Anderson also debunks the notion that industrial policy helped Japan.

…it appears each generation must relearn the lessons of the past as today governments in China, Europe and the United States support industrial policy. Policymakers are convinced that government planning will make national economies better than market forces. “Industrial policy in Japan was not responsible for the country’s economic achievements in the post-war era or the international performance of leading sectors, including autos and electrical machinery,” according to a new study by economist Richard Beason for the National Foundation for American Policy. …He found Japanese industrial policy from 1955 to 1990 did not improve growth rates by sector, provide greater efficiency through economies of scale or result in improved productivity growth or “competitiveness.” …To conduct the research, Beason examined four measures of industrial policy used by the Japanese government during the 1955-1990 period: 1) subsidized government loans to industry, 2) subsidies, 3) tariff protection and 4) tax relief. …“Industrial policy tools generally also had no positive and significant impact on productivity growth (“competitiveness”) for the various sub-periods from 1955 to 1990. …Beason notes that policymakers in Japan abandoned industrial policy, viewing the policies costly, unsuccessful.

Sadly, many American politicians now want to copy those unsuccessful policies.

Will that make the United States as bad as today’s China? Or the former Soviet Union?

Fortunately not. Today’s industrial policy is cronyism, not full-fledged central planning. But it is nonetheless a bad idea to move in the wrong direction.

P.S. Both in the past and today, industrial policy is very vulnerable to corruption.

 

“Fueling” a counter-revolution in Europe: Can it happen here?

By Duggan Flanakin September 13th, 2022 Energy 44 Comments @ CFACT

 

Shades of Emanuel Macron! 

California Governor Gavin Newsom has horrified his core constituency by announcing his state will NOT be shutting down the Diablo Canyon nuclear power plant. The state legislature, perhaps remembering that power outages two decades ago led to Gov. Gray Davis being recalled, voted to extend the life of the plant until 2030, only because of an urgent need to boost uncertain grid reliability:

The last-minute decision not to close Diablo Canyon, for now reverses the anti-nuclear trend begun by Boy Governor Jerry Brown in the 1970s that stopped all new construction and eventually led to the closure of power plants at San Onofre and Rancho Seco.

Across the United States, according to the fifth annual ecoAmerica survey, support for nuclear energy has risen to 60% (up from Gallup-reported 51% in 2015. Business Wire says support for nuclear has never been higher, though the survey also reported a majority still harbor fears about nuclear solid waste disposal, health and safety, security and weaponization, and cost.

According to the survey, despite these concerns support for spending more on next-generation nuclear energy research and development has grown to over 60%, not far behind the 77% who support wind and solar energy and far above the 47% who still support natural gas R&D. Despite the nation’s continued heavy reliance on oil and coal, these fuels command support at low levels of just 36% and 27%, respectively.

The failure of the U.S. to match the pace of France’s 1980s adoption of nuclear power plants is a major reason for today’s alleged climate change “disasters,” according to Anthropocene Institute nuclear engineer Dinara Emakova. This “failure” is largely due to massive protests following the relatively minor incident at Pennsylvania’s Three Mile Island power plant in 1979.

Speaking of France, back in February (just before the Russia-Ukraine war broke out), President Emanuel Macron announced his country would build six new nuclear reactors in the coming decades. What a reversal from Macron’s 2018 promise to shutter 14 of the nation’s existing 58 nuclear reactors by 2035!

By contrast, the German government, reacting to the Fukushima nuclear incident in Japan, closed three of its remaining six nuclear reactors in January, a major step in fulfilling the 2011 commitment to end nuclear power generation by the end of 2022. The German retreat from nuclear began in 2002 under Gerhard Schroeder. Angela Merkel originally opted for extending the life of German nuclear plants but conceded to the anti-nuke movement after Fukushima.

Spain, Italy, Belgium, and Austria have also pledged to close existing nuclear power plants, while the British – who are even calling for fracking and renewed oil and gas exploration and development in the North Sea – are bullish on nuclear energy today despite plans to close five of its eight old reactors. Finland and Hungary are also building new nuclear plants, and Poland, Romania, and the Czech Republic want to go nuclear.

The German retreat now seems ridiculous given that Japan, the only nation that suffered significantly from nuclear incidents since Chernobyl, has recommitted to nuclear power. Just days ago, Yasutoshi Nishimura, Japan’s minister of economy, trade, and industry, announced that nuclear power is once again the key to his nation’s energy security.

Nishimura stated that Japan has already secured 10 plants for reactivation and is working to reactivate another seven plants by the end of 2023. With the nation currently 94% dependent on imports for its energy supply, the 1 million tons worth of energy produced by each reactivated nuclear plant will go a long way toward securing energy for the nation’s future, he added.

According to the Energy Information Administration, as of July 1, the U.S. had 92 reactors operating at 54 nuclear power plants in 28 states. These power plants have supplied about 20% of America’s electricity since 1990. Surprisingly, the EIA says that the U.S. has the world’s largest nuclear electricity generation capacity of any nation and has generated more nuclear electricity than any other country.

On the other hand, the most recent nuclear power plant in the U.S. is Watts Bar Unit 2 in Tennessee, which went online in October 2016. Two other units in Georgia – Vogtle Units 3 and 4 — remain in the construction stage. Despite Congressional directives dating to 2006, the “nuclear renaissance” projected by the U.S. Nuclear Regulatory Commission has yet to generate any other new reactor licensing applications. One reason may be the oppressive regulatory jungle that nuclear operators have to negotiate.

Beyond Nuclear, which opposes nuclear energy, reported in January that no utilities are seeking new construction or operating licenses for earlier nuclear designs (Gen I and II), and the demonstrated failure of prior applicants has caused many companies to suspend or cancel initiation of new Gen III light water reactors in the U.S.

Beyond Nuclear also claims the “nuclear renaissance” has proven to be an “empty propaganda slogan,” and says the NRC and the nuclear industry are now hoping that an American nuclear future is achievable through construction of thousands of small modular reactors (SMRs). But opponents argue that these SMRs can be weaponized if exported to other nations, and that the cost per energy generated is higher than that for larger reactors.

The group further notes that back in January the NRC staff rejected a license application for an “advanced reactor” filed by Okio Incorporated, which wanted to design, construct, and operate its pilot “Aurora PowerHouse” microreactor at the Idaho National Laboratory. Once again, Beyond Nuclear and 27 other anti-nuke consumer and environmental groups fought the application.

So, while panic-stricken California lawmakers have perhaps extended their political lives by NOT shutting down Diablo Canyon, and despite a more favorable climate in the U.S. for nuclear energy than at any time since Three Mile Island and Chernobyl, any hopes for nuclear supplying this nation with new electricity are about as likely as the Washington Generals beating the Harlem Globetrotters.

Other nations, despite their own anti-nuclear activists and funding concerns, are much more likely to move ahead with nuclear power than the United States. China and India are building new nuclear power plants at a rate that will soon push both nations ahead of the U.S. in nuclear energy generation. Even energy-deprived African nations are actively seeking a nuclear future.

With three-quarters of America still Jonesing for wind and solar (though often not in their own backyards), and anti-nuke groups with huge war chests, I might even bet on the Generals.

This article originally appeared at Real Clear Energy

Author

• Duggan Flanakin

  Duggan Flanakin is the Director of Policy Research at the Committee For A Constructive Tomorrow. A former Senior Fellow with the Texas Public Policy Foundation, Mr. Flanakin authored definitive works on the creation of the Texas Commission on Environmental Quality and on environmental education in Texas. A brief history of his multifaceted career appears in his book, "Infinite Galaxies: Poems from the Dugout."

 

Gimmicky Public Policy from Japan

December 27, 2021 by Dan Mitchell @ International Liberty

It’s hard to be optimistic about Japan’s economic future, in large part because the burden of government is expanding thanks to an aging population and a tax-and-transfer entitlement system.

 

Maintaining that approach is a recipe for ever-higher taxes (especially since Japan already has record levels of debt).

And Japanese politicians definitely have been grabbing more money, enabled to a considerable extent by a money-grabbing value-added tax.

To make matters worse, the country’s economy has not enjoyed much growth ever since a bubble burst about thirty years ago.

Sadly, the current prime minister, Fumio Kishida, doesn’t seem to have any sensible ideas for his country.

Instead, as reported by Ben Dooley and Hisako Ueno in the New York Times, he’s latched on to a very silly proposal.

Japan’s prime minister…wants…to…Give…employees a substantial raise. The reasoning is simple. Wage growth has been stagnant for decades in Japan, the wealth gap is widening and the quickest fix is nudging people…to pay their employees more. Higher wages, the thinking goes, will jump-start consumer spending and lift Japan’s sputtering economy. …the prime minister is calling on employers to increase pay as much as 4 percent in 2022. Companies that comply will be allowed to increase their overall corporate tax deductions by up to 40 percent. …Mr. Kishida said…Increasing pay “is not a cost,” he added. “It’s an investment in the future.”

Kishida’s scheme is a bizarre mix of industrial policy and Keynesian economics.

He wants a special loophole in the tax code, but only if companies jump through certain hoops.

All based on the flawed notion that consumer spending drives the economy (it’s actually the economy that drives consumer spending).

Unsurprisingly, the private sector isn’t very impressed by the prime minister’s approach.

Business groups, union leaders and others have questioned the feasibility… That businesses would resist increasing wages even when essentially paid to do so shows just how intractable the problem is. Years of weak growth…have left companies little room to raise prices. …The reaction to the wage proposal is an inauspicious sign for Mr. Kishida, who took office two months ago promising to…put Japan’s economy back on track through a “new capitalism.”

Kishida’s “new capitalism” sounds even worse than some of the gimmicky ideas that have been pushed on the right in the United States (reform conservatism, common-good capitalism, nationalist conservatism, and compassionate conservatism).

From an economic perspective, he needs to learn that sustained higher wages are only possible if there’s more productivity, which translates into more income for both companies and workers.

And that’s not a description of what we find in Japan.

…there is the issue of unprofitability. For nearly a decade, a majority of Japanese businesses have been unprofitable — around 65 percent in 2019, the lowest figure since 2010. They have been kept afloat by cheap money underwritten by the Bank of Japan, but no profits mean no corporate tax liability, so those businesses would not be eligible for Mr. Kishida’s incentives.

The bottom line is that Japan’s political elite has been marching steadily in the wrong direction, and they never seem to learn from previous mistakes.

The government has long tried to find something, anything, to stimulate the economy and push up prices. It has pumped money into financial markets and made borrowing nearly free. But it’s been to little avail…the Japanese government has turned to even larger amounts of stimulus, showering consumers with cash handouts and companies with zero-interest loans. …In 2013, Prime Minister Shinzo Abe introduced a similar plan, with little success. Today, average wages remain stuck at around $2,800 a month, about the same level as two decades ago.

P.S. Part of the problem is that Japanese politicians may be listening to terrible advice from left-leaning bureaucracies such as the International Monetary Fund and Organization for Economic Cooperation and Development.

P.P.S. Here’s another example of a foolish gimmick by Japanese politicians.

P.P.P.S. And let’s not forget that Japan may win a prize for the strangest example of regulation.

 

U.S. vs. China: You Don’t Beat Cronyism with Cronyism

August 1, 2021 by Dan Mitchell @ International Liberty

Editor's Note:  While both Dan Mitchell and I are in harmony saying China's not the economic dynamo so many think, and much of what he says here I think is of value, however,  I think comparing Japan with the United States is silly, and I don't agree with him on what he calls Trump's failure on trade agreements.  There's a difference between decisions on trade based on economics versus politics.  Otherwise, I think this is an interesting piece. RK)

China is not going to surpass the United States as the world’s dominant economy.

As I first wrote back in 2010, China is a paper tiger. Yes, there was some pro-market reform last century, which helped reduce mass poverty, but China only took modest steps in the right direction.

According to the latest edition of Economic Freedom of the World, China scores just 6.21, which places it 124th out of 162 nations.

 

Is that better than a score of 3.69, which is where China was in 1990?

Yes, of course.

But does that score indicate that China will become richer than the United States, which has a current score of 8.22 (the world’s 6th-highest level of economic liberty)?

Of course not.

My answer might change of China engaged in more economic liberalization, as I have urged. But it seems the opposite is happening and China is backsliding toward more state control.

 

And that means the United States almost surely will remain far more prosperous.

(While Joe Biden is doing his best to drag economic policy in the wrong direction, but it would takes decades of far-worse policy to bring the U.S. down to the level of France (#58) or Greece (#92), much less all the way down to being on par with China).

But some people must not be very familiar with data about China and its economy.

For instance, President Trump’s former top trade official, Robert Lighthizer, wrote that the United States should copy China’s cronyism in a column in the New York Times.

I’m not joking. Mr. Lighthizer openly embraces industrial policy and protectionism.

…we need a multifaceted long-term strategy. …Our strategy must include…an industrial policy that includes subsidies to foster the development of the most advanced science and technology…and a robust plan to combat China’s unfair trade practices. …The Senate legislation would achieve some of what is needed. It calls for $200 billion to bolster scientific and technological innovation, $52 billion to rebuild our capacity to make semiconductors, and a supply-chain resiliency program… The House should perfect the provisions of the Senate bill that restructure and enhance federal support for science and innovation and strip out those that weaken our trade laws and encourage Chinese imports.

Geesh, no wonder Trump’s trade policy was such a disaster.

Lighthizer not only doesn’t understand economics, he also doesn’t know history.

Adam Thierer of the Mercatus Center points out that the current angst about China is a repeat verse of a song we heard over and over again in the late 1980s.

Back then, everyone though Japan was on the verge of overtaking the United States, ostensibly because that nation had wise politicians and bureaucrats who knew how to pick winners and losers.

Thierer’s article tells us what really happened.

In 1949, the Japanese government created the Ministry of International Trade and Industry (MITI) to work with other government bodies (especially the Bank of Japan) to devise plans for industrial sectors in which they hoped to make advances. Although not as heavy-handed as Chinese planning authorities are today, MITI came to have enormous influence over private-sector research and investment decisions during the next five decades. The organization used a variety of the same policy levers that Chinese officials do today, with a particular focus on trade management and industrial policy investments in sectors perceived to be “strategic” for future economic advance. …By the late 1970s…, U.S. officials and market analysts came to view MITI with a combination of reverence and revulsion, believing that it had concocted an industrial policy cocktail that was fueling Japan’s success at the expense of American companies and interests. …By the end of the 1980s, fears about “Japan Inc.” had reached a fever pitch. …Just as Japan phobia was reaching its zenith in the early 1990s, Japan’s fortunes began taking a turn for the worse. The Japanese stock market crashed in 1990… Japan suffered a brutal economic downturn that became known as the Lost Decade, which really lasted almost two decades. …by the late 1990s many scholars came to view most Japanese industrial policy initiatives as a costly bust.

Amen.

I wrote that Japan was a “basket case” back in 2013. A bit of hyperbole, to be sure, but I was trying to drive home the point that the nation’s politicians have made some costly mistakes.

 

Not just industrial policy, but also tax increases, Keynesian spending, and other forms of intervention.

No wonder the country has gone downhill in terms of competitiveness.

But let’s not focus too much on Japan (which, despite all my grousing, still ranks #20 for economic liberty).

For purposes of today’s column, the main points are 1) that China is no threat to overtake the United States, and 2) that copying that nation’s industrial policy would be a mistake.

P.S. If China wants to pursue industrial policy and other forms of cronyism, that’s a mistake that mostly hurts the Chinese people. To the extent such policies are designed to subsidize exports (as Lighthizer argues), the best response is to utilize the World Trade Organization, not to copy China’s misguided interventionism.

China's strange endorsement of "net zero"

The Chinese path to supposed decarbonization starts with a lot more coal

By Duggan Flanakin

You have to hand it to Xi Jinping. The Chinese “president for life” schmoozed United Nations royalty last September with his unexpected pledge that his country aims “to have CO2 emissions peak before 2030 and achieve carbon neutrality (Net Zero) before 2060.” 

Xi also urged other nations “to pursue innovative, coordinated, green and open development for all” through rapid deployment of new technologies, to “achieve a green recovery of the world economy in the post-COVID era and thus create a powerful force driving sustainable development.”

Confident that the mantle of world leadership was passing from the United States to him and China, Mr. Xi concluded by saying: “The baton of history has been passed to our generation, and we must make the right choice, a choice worthy of the people's trust and of our times. Let us join hands to uphold the values of peace, development, equity, justice, democracy and freedom shared by all of us and build a new type of international relations and a community with a shared future for mankind. Together, we can make the world a better place for everyone.”

Just how is China preparing itself for Net Zero?

The London-based energy and climate research group Ember reports that China generated 53% of the world’s total coal-fired power in 2020, a jump of 9 percent from 2015, while adding 38.4 gigawatts (GW) of new coal-fired power installations in 2020 alone. China is also financing billions of dollars’ worth of coal-fired power plants in African, Asian and other “developing” nations.

In 2020 China also added a record 71.7 GW of wind power and 48.2 GW of solar, while setting a goal of 70 GW of installed nuclear energy by 2025. But “progress is nowhere near fast enough,” says Ember power analyst Dave Jones, who insists “coal power needs to collapse by 80% by 2030 to avoid dangerous levels of warming.” Or so he and President Biden believe.

A joint analysis by Climate Analytics and the Asia Society Policy Institute concludes that, to reach the Paris Agreement’s goal limiting the global industrial era (post Little Ice Age) temperature rise to of 1.5o C, China would have to reach peak CO2 emissions by 2025 and reduce them rapidly thereafter, with a total phase-out of coal-fired power by 2040. Highly unlikely. 

However, a typical coal-fired power plant has a 40-year lifespan. Would China throw away massive investments just to kowtow to the UN? Draworld Environment Research Center chief economist Zhang Shuwei says Chinese coal may have to absorb over $300 billion in stranded assets if the nation follows through and undertakes a “cliff fall of coal power generation after 2030.” Also highly unlikely. 

Indeed, says the New York Post, China’s betrayal of its commitment to Hong Kong, its duplicity over the COVID pandemic and its dissembling on treatment of Uighurs suggest the Middle Kingdom cannot be trusted to keep its word. It shows there is no point negotiating with the Chinese Communist Party on issues like climate change, the Post added.

Agence France-Presse reported in March that China’s latest five-year plan increases investment in coal and omits any cap on total energy consumption. Centre for Research on Energy and Clean Air analyst Lauri Myllyvirta also compares Xi’s words with China’s deeds, concluding “the central contradiction between expanding the smokestack economy and promoting green growth appears unresolved.”

Japanese journalists also questioned China’s commitment to any “green” economy. They contrasted China to supposedly “excellent” efforts by Japan and its Western allies to ramp up wind and solar – while failing to mention that new Japanese coal plants exceeded retirements in 2020, or that India and many other nations are also beefing up coal mining and power generation. 

Other journalists are equally offended by China’s apparent duplicity. “Despite pledges to cut emissions, China goes on a coal spree,” a Yale Environment360 headline proclaimed. In the article, China-based free-lancer Michael Standaert argued that there is a “real and figurative haze about how strong its climate ambitions really are and how quickly the country can wean itself from … coal.” Mother Jones reposted the article under the headline “China is bingeing on coal.” 

Vox correspondent Lili Pike provides a backstory excuse for China’s seemingly contradictory behavior. China’s provinces, she notes, have authority to approve new power plants on their own and see new coal plants as a way to boost their GDP and provide jobs. The economic slowdowns linked to COVID provided extra incentives for them to do so. 

Perhaps Vox thinks the provinces will recognize their ill-considered investments and shutter their coal plants once their economies are again rolling along. Perhaps pigs will fly.

China’s “slouching towards Net Zero” approach belies the panicked warnings of UN Secretary-General Antonio Guterres, who insists “the climate emergency” is the defining crisis of our time and is happening even more quickly than we feared. It “is a race we are losing, but it is a race we can win,” he says. 

Guterres made a toothless plea to China last July to stop building new coal plants, but he giddily applauded Xi’s rhetoric in September. Xi has also won praise from mega-billionaire Bill Gates, who gushed over China’s “determination” to prioritize the climate and its contributions to carbon reduction. 

Said Gates: “It's great that President Xi is making climate a priority and wants to work with other countries on this…. Without the contributions of China, many of the key ingredients [in fighting climate change], like batteries and solar power, wouldn’t be so affordable." [We’re on the same team, babee!]

In the real world, not every environmental disaster prediction has come true. Actually, hardly any of them have. For example, Paul Ehrlich’s best-selling book, The Population Bomb, opened with this frightful assertion: “The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate.” 

The greatest famine since Stalin and Mao deliberately starved tens of millions to death never happened. 

More recently, Ehrlich’s ideological offspring Greta Thunberg proclaimed: “The world is going to end in twelve years if we don't address climate change…. Around 2030 we will be in a position to set off an irreversible chain reaction beyond human control that will lead to the end of our civilization as we know it.” Criticizing China for detaining a young Chinese “climate striker,” Thunberg added: “Billions of people will die, and children will die while parents lose their jobs!” 

Perhaps Xi Jinping knows it’s too late to save the planet – so why not just “binge” on coal, keep his carefully watched subjects happy, and keep playing President Biden and other Western leaders like a piano. Perhaps he’s read the tea leaves, or the astronomical charts, and knows another killer asteroid is heading toward Earth – so why worry about death by fossil-fuel-driven climate change. 

Or maybe he figures that by 2030 the whole world will be under his control.

Duggan Flanakin is director of policy research at the Committee For A Constructive Tomorrow (www.CFACT.org)

It’s amateur hour at the White House when the Japanese Prime Minister visits

April 17, 2021 By Andrea Widburg 

On Friday, Japanese Prime Minister Yoshihide Suga became the first world leader to visit the Biden White House. These visits help set the tone for an administration. That being the case, the new administration’s tone is inept and rude. Biden was also absent for the first part of it, leaving an awkward Kamala Harris to trash the U.S. for gun violence before turning to welcome Suga. When Biden took over, things went downhill.

Much as the media liked to present President Trump as a coarse madman, he was in fact a polished man of the world. He was entirely comfortable in the presence of world leaders and they seemed to like him. The opposite is true with Harris and Biden.

The problems began the moment the Prime Minister arrived at the White House. According to The Conservative Treehouse, there was “no-one greeting the head of the Japanese government upon arrival. When you consider the leftist narrative about stopping Asian hate, there is a rather ironic aspect to this visit and snub.” Things didn’t get better after that.

Normally, when a foreign head of state arrives, the President gives him or her a formal greeting. This time, however, the President was nowhere to be found. Instead, the President-in-waiting, Kamala Harris, was the speaker. Her statement was awful in so many ways............To Read More....

No-Show Joe? Kamala Harris Greets Japanese Prime Minister Ahead of Bilateral Meeting

By Debra Heine April 16, 2021

 

Joe Biden was nowhere in sight when Japanese Prime Minister Yoshihide Suga arrived at the Eisenhower Executive Office Building on the White House campus for a bilateral meeting, Friday morning.  Instead, Kamala Harris was on hand at the ceremonial office to greet the Japanese Prime Minister.  “It is my great pleasure to welcome the prime minister of Japan, and to thank him for this visit, which is the first visit to the United States of a world leader since we came in office,” Ms. Harris said..............

 

My Take - As we watch all this incompetence unfold so to are the world's leaders, who initially thought it was just wonderful Biden was in and Trump was out.  Well, I've no doubt they're seeing just how bad a mistake that was.  Joe Biden has never been successful at anything in his life except getting elected to the Senate and while there for decades, did nothing honorable or worthwhile, and clearly not the brightest pebble in the brook for all those years.  Nothings changed.  In case I didn't say it clearly enough: Joe Biden is dumb, lazy, incompetent and corrupt, and his VP is even worse. 

Japan's Road: Past, Present and Future

 By Rich Kozlovich, Updated 10:00 AM and October 15, 2:30 AM

I'm a subscriber to Geopolitical Futures, which I highly recommend, as a result, I get updates on every political issue going on around the world daily.  While many of the issues seemingly appear very small, the potential long term consequences are very real.  

 

As an example, how much to you know about, Conflict in the Caucasus and the New American Strategy?   Or the Nagorno-Karabakh conflict.  That area of the world is now, and has always been, a flash point, but you will not see very much of this in the mainstream media.  Turkey is part of the scene, and Turkey has been in the news a lot lately, but I think most of what we're reading is horsepucky, however, this free piece, As Turkey’s Economy Goes, So Goes Its Ambitions, by Caroline D. Rose gives a much better analysis than we normally see. 

 

To be clear, I don't get anything for promoting them. They have a crew of writers who are generally young, brilliant and dedicated, often specializing in one area of the world, which gives them a deeper historical perspective than you would normally expect to see. 

 

I don't always agree with them, but I'm unendingly impressed with their work, and that's what P&D is all about.  P&D is a not for profit passion dedicated to the mission of promoting history and reality in order to define what's actually happening in the world.   At my age, I hope I'll still be able to fulfill the goals of that mission for a while longer.  

Phillip Orchard posted this piece, Japan’s Glacial Ascendance, which is a free article,  excellently drawing a picture of what's wrong with, and good about, Japanese politics and geopolitics, and the careful road they're always walking. 

 

I believe they also recognize the Bretton Woods era is over and will have to travel this mine laced road on their own far more than in the past.  An Asian NATO is talked about a great deal, but all these countries remember what the Japanese did during WWII, especially South Korea, who are also trying to find their way through that same mine field, but like Japan, without as much U.S. support, and they’re not forgetting easily.

 

However, I do think China, who, in my opinion, foolishly attempting to impose a military/economic hegemony on Asia, and with their rhetoric and posturing, they're going to become so scary that India, Japan, Taiwan, South Korea, Cambodia, Laos, Vietnam, Australia and the Island nations of S.E. Asia, may feel it necessary to create a weak consortium of allies against China, and none of them want a shooting war with China. 

 

A similar scenario came into play with the Soviet Union and the United States.  They convinced the world they really were a major military power capable of defeating, or at the least, devastating the west, triggering a massive military buildup they were completely incapable of competing with.  Consequence of that?  They went broke and ceased to exist, and that problem continues for Russia. 

 

Russia, and China’s whole foreign policy foundation is based on bluffing everyone to do their will.  Do this or I’ll be mad.  Do this or I won’t trade with you.  Do this or else….blah, blah, blah.  But China’s not in a position to be drawing long term red lines in the sand anymore than was Obama.  

 

America is essential to their military buildup and maintenance.  We’ve been funding it with trade since the Nixon administration, and that’s ending with Trump, who is capable of seeing a enemy as an enemy.  The long term consequences of tariffs, or even diminished trade, will be devastating to China’s CCP. 

 

China doesn’t want a real shooting war either, as they’re incapable of winning it, even against smaller countries, and they know it.  That’s why they only conduct object lesson wars as with India in 62.  But that’s not playing out well for them this time, and if they really get into it and lose, their entire foreign policy ceases to be meaningful.

 

They’re incapable of continuing their massive military budget, and they’re incapable of creating a natural capital generating economy.  End result?  Even a weak Asian NATO wins!  But Japan must be the driving force for it to come into being, but their politics, along with their history, is a daunting force against it. 

 

But, as the reporter in Charlie Wilson’s War said: We’ll See! 

 

Editor's Note:  Here's a post by Pat Buchanan you might find useful.   Is War With China Becoming Inevitable?

 

Update:   Japan plans to sign an agreement allowing it to export defense equipment and technology to Vietnam, part of its push to bolster the defense capabilities of Indo-Pacific nations to counter Chinese maritime advances.

Prime Minister Yoshihide Suga announced Tuesday that he will make his first foreign trip in his new job next week, visiting Vietnam and Indonesia. He is expected to sign the Vietnam deal as part of this.

Security cooperation is expected to emerge as a key topic in Suga's meetings with the countries' leaders. Vietnam in particular faces competing claims with China in the South China Sea, where Beijing continues to build up islands and its military presence. A China Coast Guard vessel also collided with a Vietnamese fishing vessel in the waters this April.

Will America Learn from Japan’s Fiscal Decline?

August 10, 2020 by Dan Mitchell @ International Liberty

Compared to most of the world, Japan is a rich country. But it’s important to understand that Japan became rich when the burden of government was very small and there was no welfare state.
Indeed, as recently as 1970, Japan’s fiscal policy was rated by Economic Freedom of the World as being better than what exists today in Hong Kong.

Unfortunately, the country has since moved in the wrong direction. Back in 2016, I shared the “most depressing chart about Japan” because it showed that the overall tax burden doubled in just 45 years.

As you might expect, that rising tax burden was accompanied by a rising burden of government spending (fueled in part by enactment of a value-added tax).

And that has not been a good combination for the Japanese economy, as Douglas Carr explains in an article for National Review.

From 1993 to 2019, the U.S. averaged 2.6 percent growth, …far ahead of Japan’s meager 0.9 percent. …What happened? Big government happened… Japanese government spending was just 17.5 percent of the country’s GDP in 1960 but has grown, as illustrated below, to 38.8 percent of GDP today. …the island nation’s growth never recovered. The theory that government spending boosts long-term growth has failed… What government spending does is crowd out investment.

Amen. Japan has become a parody of Keynesian spending.  Here’s a chart from Mr. Carr’s article, which could be entitled “the other most depressing chart about Japan.”  As you can see, the burden of government spending began to climb about 1970 and is now represents a bigger drag on their economy than what we’re enduring in the United States.

Unfortunately, the United States is soon going to follow Japan in that wrong direction according to fiscal projections from the Congressional Budget Office.  Carr warns that bigger government in America won’t work any better than big government in Japan.

Rather than a problem confined to the other side of the world, Japan’s death spiral is a pointed warning to the U.S. The U.S. and Japanese economies are on the same trajectory; Japan is simply further along the big-government, low-growth path. …The United States is at risk of entering a Japanese death spiral.

Here’s another chart from the article showing the inverse relationship between government spending and economic growth.

Moreover, the U.S. numbers may be even worse because of coronavirus-related spending and whatever new handouts that might be created after the election.

The negative relationship of government spending with growth and investment holds with adjustments for cyclical influences such as using ten-year averages or the Congressional Budget Office’s estimates of cyclically adjusted U.S. government spending. CBO data highlight how close the U.S. is to a Japanese-style death spiral. …Of course, CBO’s recent forecast was prepared before the coronavirus shock and does not incorporate spending by a new Democratic government, so this dismal outlook is likely to worsen.

So what’s the solution? Can the United States avoid a Greek-style future?
The author explains how America can be saved.

Boosting growth means restraining government. Restraining government means reengineering entitlements… Economically, it shouldn’t be too difficult to do better. We have an insolvent, low-return government-retirement program along with an insolvent retiree-health program — part of a Rube Goldberg health-care system.

He’s right. To avoid stagnation and decline, we desperately need spending restraint and genuine entitlement reform in the United States.  Sadly, Trump is on the wrong side on that issue and Biden wants to add fuel to the fire by making the programs even bigger.

P.S. Here’s another depressing chart about Japan.

P.P.S. Unsurprisingly, the OECD and IMF have been cheerleading for Japan’s fiscal decline.

P.P.P.S. Japan’s government may win the prize for the strangest regulation and the prize for the most useless government giveaway.

Three-nation naval drill in South China Sea

Tuesday, July 21

Japan's Maritime Self-Defense Force says it is currently conducting a joint military exercise with the US and Australian navies in areas including the South China Sea.  The MSDF on Tuesday announced that its destroyer Teruzuki, the American aircraft carrier USS Ronald Reagan, and an Australian amphibious assault ship are taking part along with six other vessels.

The drill began on Sunday. The MSDF says that the defense officials of the three countries are simulating various battle scenarios in Asia-Pacific waters from the South China Sea to the sea off Guam and are checking the role of each ship, and the ability to share information.

The US Navy revealed that earlier this month it had deployed two aircraft carriers to the South China Sea in two different drills. The ongoing multinational drill could be aimed at emphasizing the cooperation of the three countries as the United States has been increasing pressure on China's growing military presence in the region..... .To Read More....