Questioning China's Economic Model: One Spark?

The New York Times’ As Growth Slows, China’s Economic Model is Questioned sets a tone in marked contrast with its enthusiastic accounts of China’s prowess. One of its most respected columnists, Thomas Friedman, has been singing the praises of  Chinese infrastructure for years. In New York City, Friedman sees potholes. In China, gleaming highways. Friedman never met a cement mixer he does not like. China has plenty. We have too few because the Republicans won’t authorize an infrastructure bank. We have political stalemate, while China is run by wise technocrats dressed in muted business suits who decide what is best for the country and are not hobbled by the rule of law, property rights, and other small things that get in the way of progress.

The Times piece raises an uncomfortable question for those who regard the Chinese model as the way of the future. Could it be that China is a house of cards, ripped apart by political infighting over political power and spoils, that is kept alive only by embattled  private enterprise?  Could it be that the polite men in dark business suits, who are feted in Washington as our equals, rob state enterprises for their personal benefit, suppress dissent because they know that one spark can destroy their party monopoly, and compete among themselves to see who can waste public savings the fastest by pouring concrete faster than their regional competitors.

go to forbes.com

Dr. Gregory's latest book can be found at Amazon.com.

What Jobs Program, Mr. President?

President Obama took advantage of the signing of the debt limit increase to “pivot” to jobs.

He proposed that Congress pass the following jobs program:

1)      Extend unemployment insurance

2)      Enact a payroll tax credit for employees

3)      Overhaul patents

4)      Approve free trade deals

5)      Create an infrastructure funding bank

In his remarks, the President rebuked Congress: “It should not take the risk of economic catastrophe to get folks in this town to work together and do their jobs.”

The problem is that, other than approving free trade deals, the President’s job programs will not create any jobs.

Extending unemployment benefits subsidizes unemployment and keeps the unemployment rate high.

A temporary payroll tax credit does not alter firms’ hiring decisions because they know the credit cannot last long. (PS. Economists know that it does not matter who pays the tax – the employer or employee, but having the employee payment credit makes for better politics.)

The overhaul of patents may be a good idea, but its effect will not be felt for a very long period of time.

The approval of free trade deal will raise employment but this will not happen because of Democrat lobbying for too generous adjustment benefits for displaced workers.

The infrastructure bank would be a new Fannie Mae financial disaster set up to fund boondoggles for political cronies. It would establish yet another “independent” corporation with implicit guarantees of government bailout. Ten years down the road we must face the huge cost of bailing out Obama’s infrastructure bank.

In my view, this is not an employment program, Mr. President. Congress should ignore it. We'd be better off if the President pivots to something else where he can do little harm.