NYT Says That China's Economists Are As Corrupt As U.S. Economists

Given the failure of the economics profession to see the economic crisis coming or to devise an effective path forward, many people have come to question its competence and/or integrity. Somehow its assessments often seem to favor the rich.

For example, economists can be counted on to get really hot under the collar over a 20-30 percent tariff barrier that is designed to temporarily protect manufacturing workers, but don't even notice that patent protection for prescription drugs raises their price by tens of thousands percent. Economists can't even seem to remember that in a system of floating exchange rates, like the one we have, a decline in the value of the dollar is supposed to be the remedy for a trade deficit.

The NYT tells us that China's economists are equally incompetent and/or corrupt. It tells us that they are worried that the Chinese are not having enough kids:

"Pressure to alter the policy [the one child policy] is building on other fronts as well, as economists say that China’s aging population and dwindling pool of young, cheap labor will be a significant factor in slowing the nation’s economic growth rate."

Yes, that sounds like a real problem: "a dwindling pool of cheap labor." Any economist who complains about this is working for the people who want to employ cheap labor, he/she does not give a damn about the economy.

Insofar as growth is a measure of anything, it is per capita growth that matters. Why would anyone be happier if the economy grew 20 percent, but population grew 50 percent? This is unambiguously bad for the country as a whole, even if there are some people who might benefit from being able to hire cheaper labor.

Economists who are not employed by rich people understand that "cheap labor" means that lots of people are working for little money. This should not be a goal of any honest economist.

The numbers presented later in the article show how utterly absurd the supposed demographic problem in China is. We are told:

"the number of Chinese older than 60 would be 411 million, up from 171 million today. The working population — people between the ages of 20 and 60 — would drop to 696 million from 817 million today. "

Okay, let's turn to our friend Mr. Arithmetic. China's productivity growth has been close to 10 percent a year, but let's say it falls to 3 percent a year. This means that in 2040, an average worker will be producing 2.3 times as much as they do today. Let's say that retirees consume 75 percent as much as the working age population.

With a current ratio of working age people (not workers) to people over age 60 (not retirees) of roughly 4 to 1, each worker is able to consume a bit more than 80 percent of their output, with the rest going to support retirees.

According to the numbers presented by the NYT, the ratio of the working age to the over 60 population will be just 1.7 to 1 in 2040. This would mean that the average worker would be able to consume a bit less than 60 percent of what they produce in 2040 in order to provide the huge number of retirees in China.

That sounds really dire, but Mr. Arithmetic reminds us that the average workers will be producing 2.3 times as much in 2040 as she does today. The portion of this output left over for our 2040 worker will be more than 60 percent higher than what workers today get by on. (They get 60 percent of their average output, which is 230 percent of average output today. That compares with current workers who get a bit more than 80 percent of average output.)

Of course this is a gross simplification; when we look at the issue more closely the demographic problem is likely to be considerably smaller than these numbers suggest. As wages rise, more working age people are likely to actually be working, this will increase the ratio of workers to working age people.

Similarly, as wages rise and the Chinese people become wealthier and healthier, more people are likely to choose to work into their sixties. This will both increase the number of workers in the population and decrease the number of retirees, meaning that the ratio of workers to retirees will not fall nearly as much as my calculation assumes.

Furthermore, the percentage of young people in the population is likely decline. This means that less income will have to be diverted to supporting young dependents. This will further increase the living standards of working age people.

Finally, I have assumed an unrealistic slowing of productivity growth. It is almost inconceivable that China would see the sort of plunge in productivity growth assumed in my calculation.

In short, in almost any conceivable scenario demographics will not prevent the Chinese from enjoying far higher living standards in 2040 than they do today. Economists who are worried about an insufficient supply of cheap labor are working for China's rich, they are not expressing a real concern for the country as a whole.

Bravo Dr. Baker
written by Robert Salzberg, July 22, 2012 9:14

I love the rant and the fabulous analysis but what It all boils down to Is that exploitation of labor increases profits. If you go far enough down that rabbit hole you get slavery. The next level up is indentured servitude and a couple of layers later you're married to your mortgage or your car payment. Just a little further up the line and you make minimum wage which isn't enough to be able to afford rent in any of the fifty states of our great country.

Exploitation of labor to increase profits always has and always will be a driving force of Capitalism. The real question is with the precipitous decline of the countervailing force of Labor, what form should the countervailing force take and is there any entity besides government than can achieve it?

Greet your destiny.
written by diesel, July 22, 2012 9:48

Dean, you're being entirely too reasonable. The underlying purpose of such articles is to get our population on board with the program of population growth right here in the good ol' U. S. of A. We are being programmed to not merely passively acquiesce to our current seemingly inevitable demographic explosion but embrace it as a "solution" to all that ails us. Indeed, it is a thought crime to regard runaway population as a cause of any of our social ills.

...
written by Brett, July 23, 2012 12:45

For example, economists can be counted on to get really hot under the collar over a 20-30 percent tariff barrier that is designed to temporarily protect manufacturing workers,

It's more that "temporary tariffs" are like bail-outs for Wall Street: the short-term crutch becomes a long term crutch, until you've got a constituency that's entirely dependent on the crutch to survive and will fight its removal.

That sounds really dire, but Mr. Arithmetic reminds us that the average workers will be producing 2.3 times as much in 2040 as she does today. The portion of this output left over for our 2040 worker will be more than 60 percent higher than what workers today get by on.

That's still a significant chunk of their income going towards paying for retirees. Can you imagine how long Social Security would survive if all Americans were paying a 40% flat income tax that went directly into Social Security transfer payments?

Moreover, once you factor in the need to save (China can't be a 100% consumption economy), their share of consumption would actually be lower.

Similarly, as wages rise and the Chinese people become wealthier and healthier, more people are likely to choose to work into their sixties. This will both increase the number of workers in the population and decrease the number of retirees, meaning that the ratio of workers to retirees will not fall nearly as much as my calculation assumes.

This is more likely. Heaven only knows what health care is going to be like in 2040. Probably something that involves 3D-Printed Organs/Skin/Tissue, anti-aging treatments, and robotic surgery/nanotechnology. 60 might be the "new 30" in that situation.

-4

Chinese Conspiracy to Lower Population Linked to American Doctors and Lawyers
written by Last Mover, July 23, 2012 5:28

Having noticed how American white collar professionals prosper from barriers to competition that create artificial shortages and high pay while preaching free markets to everyone else, China has decided to reduce its population to achieve the same effect.

When asked by an American economist how China expects to maintain output without enough people to produce it, a Chinese spokesperson responded:

Exactly. It's all about higher prices and lower quantities for the benefit of out children.

...
written by Jack, July 23, 2012 8:31

"Economists who are not employed by rich people understand that 'cheap labor' means that lots of people are working for little money. This should not be a goal of any honest economist."

That is why honest economists should favor ending mass immigration.

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written by skeptonomist, July 23, 2012 8:33

US economists are generally biased against the interests of labor. They almost always approach economic problems with the assumption that the natural working of the free-market, or "capitalist" system leads to greatest overall benefit, and may only need to be slightly corrected with minimal regulation. In reality a system in which decisions are made on the basis of maximizing the profit of capitalists leads to - surprise - maximizing the the profits of capitalists and minimizing compensation of workers. I suppose such bias is inevitable if capitalist benefactors of universities influence appointments and also on account of capitalist influence on the media, but there is also the fact that our national enemies for a long time were socialist.

At some point economics will have face up to the fact that economic growth is not necessarily unlimited or continuous. Resources of all kinds are limited and the capacity of the earth for waste products will be reached at some point. Economic progress over the last 200 years has been based on energy from fossil fuels, exploitation of which may come to an end either through exhaustion or the effect on climate. There is no guarantee that other energy sources will be found. Fossil fuels may be the reason for the escape from Malthusian economics.

...
written by skeptonomist, July 23, 2012 8:52

The rate of population growth in the US has been pretty stable for almost 40 years, so unless this changes it is possible to predict future retiree/working ratios. This ratio will not increase to infinity, but will stabilize around 2030. China's trajectory will be similar. The ratio of non-working/working does not actually change a great deal (as Dean has pointed out before) since when the birth rate is high there are lots of children to be supported. The whole idea of demographic catastrophe from increased aged population is a myth. The real problem is total population in relation to resources and waste capacity of the earth.

Excellent point Dean
written by John Wright, July 23, 2012 9:45

The economists that promote the need for continual population growth seem to be ignoring that there are other ways to accomplish per capita economic growth without growing population.

For example, machines are evolving faster than humans to judge from the improvement in CNC equipment, computers, and robots.

And many industrial tasks are evolving to preclude human labor.

For example, a printed circuit board may have thousands of precisely located small diameter drill holes, all drilled at high speed under numerical control.

And the surface mount parts on the PCB's are usually machine placed, in fact, some component manufacturers require machine placement.

As an aside, before someone recycles a piece of electronic gear, they might want to take it apart to see all the precision machining that goes into it. You might want a low power microscope to see some of the details.

A human, working for free, is unlikely to do either the aforementioned drilling or placement job efficiently or well.

This entire quest for population growth may be related to a nation's desire to support a large human army and for businesses to lower their price of labor.

It is not based in concern about the well being of the average worker.

And many of the current problems with resource allocation and climate change become far more tractable with a smaller population base.

Why not emphasize "capital growth" over "population growth"?

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written by skeptonomist, July 23, 2012 11:58

This graph shows the percentage of the population in working vs non-working ages from 1900 to 2050 (census data).

www.skeptometrics.org/PopByAge.png

The percentage of working age in 2050 is projected to be slightly higher than it was in 1900. I don't have census data for China, but it is likely to show the same thing - not much variation in this percentage. People who want to make demographics look scary talk about the retired/working ratio (green curve), but that's not the important number. For the benefit of people who don't understand graphs, the percentage of working age in the population is a good number to emphasize.

"dwindling supply of cheap labor"
written by Kat, July 23, 2012 3:44

God, that is so offensive.

correction
written by mel in oregon, July 23, 2012 6:16

in 1950, the united states had 150 million people, today it is over 300 million. in 1950 the world population was 2 billion people, today it is 7 billion. to have a standard of living equal to our wealthiest 5% in the united states for everyone on the planet would require about 8 or 10 earths. based on what china has done in the last 30 years, all the gloom & doom about china falling apart in the near future seems to be overblown. we know out own standard of living in the united states is declining rapidly. it might be a good idea for us to follow in china's footsteps & limit families to 1 child apiece since we are obviously unable, to fix our roads, infrastrucuture, educational system or provide enough jobs or income for most families. RIP alexander cockburn.

Trade deficits
written by Calgacus, July 23, 2012 11:27

Rest of the article is fine, but:
Economists can't even seem to remember that in a system of floating exchange rates, like the one we have, a decline in the value of the dollar is supposed to be the remedy for a trade deficit.

It's good if they don't remember that, because it makes little sense and isn't true. A trade deficit is not a problem. If anything it is a benefit, a "hostile gift" (Lerner).

The problem that a trade deficit can cause is a demand leakage, which is very easily remedied by government spending to attain & maintain full employment. The spending is the remedy, not the currency revaluation. If spending boosts imports and lowers the dollar, perhaps eventually raising exports and lowering imports and the deficit then OK. If it doesn't lower the dollar, so much the better. The rest of the world is telling Uncle Sam he is running his economy so well that they want to continue to accumulate dollars, rather than spending them to lower their trade surplus. There's no imbalance. Ever.

Read Abba Lerner, so much clearer & to the point than anyone else on international trade. And much else.

NYT Says That China's Economists Are As Corrupt As U.S. Economists

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