StickWithANose

This post by Andy Xie is a long but fascinating read dealing with future prospects for China’s economy. I claim no expertise in global economic theory, but this is just too good to not pass on…

First Xie supplies some context:

In previous financial crises, big shots who contributed to bubbles went to jail; Americans expect heads on pikes after a financial crisis. Jailing even a few crooks is extremely important because it resets the system with a new psychology. For example, after the junk bond bubble burst in the 1980s, junk bond king Michael Milken and top executives at many bankrupt savings and loans went to jail. And after the IT bubble burst in 2000, jail terms were ordered for top guys at Enron, Tyco and even some Wall Street analysts.

The bubble that just burst was bigger than any in the past, yet none of the big shots went to jail. Instead, the president has dined with them and begged them to support his financial reforms. Americans see this as a farce. And if the Obama administration is unwilling to change, voters will choose someone else.

In addressing the financial crisis, Obama’s team continued a Bush administration policy aimed at protecting the status quo. Obama didn’t have to, but the government needed a financial system to protect the economy. It could have let the system go down before nationalizing it, leaving a clean sheet for a new system without the flaws that led to the bubble. Instead, the Obama administration created an enemy to its own financial reforms by bailing out the existing system wholesale. No one could expect the same people who benefited from the system’s flaws to support abolishing them…

On Obama’s new strategy:

With the Fed restricted by inflation and the government paralyzed by gridlock, the only policy option for the United States is to pursue export expansion…

One option for expanding exports is to devalue the dollar. But as the Fed enters a tightening cycle, the dollar can’t fall much. Indeed, as I wrote a few months ago, the dollar has bottomed. Its lowest point was in May 2008 when the dollar index reached 71, and it peaked during the crisis at 90 when safe haven trade pushed money into the dollar. It has been in the 75-80 range for the past six months, and will likely stay there for the rest of 2010.

As devaluation isn’t a way out, the United States will likely turn to trade policy to increase exports. China is the most obvious target. The yuan peg to the dollar is likely to be the focus again. During the crisis, the peg was a stabilizing force, preventing a total collapse of the dollar while the Fed maintained a zero interest rate. Now that financial stability has been restored, and the Fed is ready to raise interest rates, the yuan’s dollar peg isn’t as important to the stability of the dollar. Actually, it could make the dollar stronger than what the United States wants. So breaking the yuan-dollar peg is now in the best interest of the United States.

U.S. pressure over China’s exchange rate policy began with protectionist measures, such as tariffs on steel pipes, tires, poultry and electric blankets. Protectionist measures against China are so far worth several billion dollars, which is small relative to total imports from China and won’t create enough U.S. jobs to make a dent in the unemployment rate. But the publicity is good for Obama, who will likely step up protectionist measures. Since unemployment is a do-or-die issue for the administration, it must be seen as doing something…

Looking forward:

It is extremely likely the United States would push China to play the same role Japan played two decades ago. Its policy focus could be aimed at forcing China to double its currency value. But as the profitability of China’s export sector is already poor, the economy would face enormous pressure.

China is already experiencing a big property bubble. The overvaluation of China’s property stock may already exceed 100 percent GDP, higher than the peak excess value during the U.S. property bubble but still much lower than the 300 percent GDP overvaluation that Japan saw during its bubble period. So it is possible that China’s bubble may triple.

Even before lurching into a destructive property bubble, Japan was a high-income economy. China is still at a lower-middle income level, with a per capita income that’s one-tenth Japan’s. So a China property bubble bursts would stagnate the economy a la Japan but at a lower income level, trapping China at a low level, perhaps permanently.

However, it would be unwise not to respond to U.S. pressure constructively. Without benefiting from China’s growth, the United States lacks incentive to be China’s biggest export market. So to pressure China, I expect many more U.S. protectionist measures this year. Before the November mid-term election, Congress could pass a bill that calls for a 30 percent tariff on all Chinese products unless China appreciates its currency by the same amount.

Not sure what I make of that last one. I think that Xie has a little too much faith in our esteemed Congress to actually do something, especially policies that would face the stiff wind of corporate lobbying.

Otherwise, it’s a fascinating essay, and its worth your time to read. We live in interesting times for sure…

“Being willing to sit in a boring classroom for 12 years, and then sign up for four more years and then sign up for three or more years after that—well, that’s a pretty good measure of your willingness to essentially do what you’re told,” Samuel Bowles

I was going to dedicate today’s post to this blatant attempt by Tennessee House Replicants to open the door to the state’s university system to an even greater level of cronyism and corruption than we currently enjoy [please do call your representatives on this one], but then I came across this really good idea being pushed by Vanderbilt University to improve the institutional capacity of high-need schools in Nashville.

Vanderbilt University is partnering with Metro Schools to offer a free masters degree to 24 middle school teachers willing to take on an urban school assignment.

The teachers have to agree to work in Metro Schools for five years. Two of those years will be spent earning a master’s degree in teaching and learning in urban schools.

The district is hoping to raise private funds to cover the tuition, which is valued around $32,000. Vanderbilt is offering a discount to the district, and will also offer in-classroom mentoring and support to teachers going through the program.

As I’ve noted previously, the on-going disaster that is the Obama administration’s approach to education reform is little more than a policy push designed to create yet another conduit for the looting of public treasuries. Today’s example comes from the great state of Florida. Take a peek at how the state plans to spend its share of the $1 billion dollars that it requested as part of Arne’s ‘Race to the Top’. [h/t SchoolsMatter]

If the state gets the whole $1.1 billion it asked for (which some say is a very long shot), the Department of Education would spend half and school districts that agreed to take part would share half.

While there are as yet no plans on how individual districts would use their share of the money, the state has suggested to the dollar how it will spend its $570,811,435.

And “contractual” expenditures, including busloads of consultants, would account for $462,815,452.

I’m still looking, but here are a few examples.

To help districts set up new systems to evaluate teachers and administrators — 60 consultants at a cost of $15 million.

To help districts figure out how to compensate teachers and administrators for getting better performance from students, the state plans to contract with 63 financial consultants at a cost of $45 million.

And there is $10.7 million for consultants to develop “lesson study tool kits” so teachers can study “effective lesson development.”

In today’s Slate, Jacob Weisberg lays out the problems facing our nation without candy coating, and it speaks to a subject that is near and dear to my heart. The primary issue facing our nation is, at its root, an educational one.

In trying to explain why our political paralysis seems to have gotten so much worse over the past year, analysts have rounded up a plausible collection of reasons including: President Obama’s tactical missteps, the obstinacy of congressional Republicans, rising partisanship in Washington, the blustering idiocracy of the cable-news stations, and the Senate filibuster, which has devolved into a super-majority threshold for any important legislation. These are all large factors, to be sure, but that list neglects what may be the biggest culprit in our current predicament: the childishness, ignorance, and growing incoherence of the public at large.

Anybody who says you can’t have it both ways clearly hasn’t been spending much time reading opinion polls lately. One year ago, 59 percent of the American public liked the stimulus plan, according to Gallup. A few months later, with the economy still deeply mired in recession, a majority of the same size said Obama was spending too much money on it. There’s nothing wrong with changing your mind, of course, but opinion polls over the last year reflect something altogether more troubling: a country that simultaneously demands and rejects action on unemployment, deficits, health care, climate change, and a whole host of other major problems. Sixty percent of Americans want stricter regulations of financial institutions. But nearly the same proportion says we’re suffering from too much regulation on business. That kind of illogic—or, if you prefer, susceptibility to rhetorical manipulation—is what locks the status quo in place.

At the root of this kind of self-contradiction is our historical, nationally characterological ambivalence about government. We want Washington and the states to fix all of our problems now. At the same time, we want government to shrink, spend less, and reduce our taxes. We dislike government in the abstract: According to CNN, 67 percent of people favor balancing the budget even when the country is in a recession or a war, which is madness. But we love government in the particular: Even larger majorities oppose the kind of spending cuts that would reduce projected deficits, let alone eliminate them. Nearly half the public wants to cancel the Obama stimulus, and a strong majority doesn’t want another round of it. But 80-plus percent of people want to extend unemployment benefits and to spend more money on roads and bridges. There’s another term for that stuff: more stimulus spending.

The usual way to describe such inconsistent demands from voters is to say that the public is an angry, populist, tea-partying mood. But a lot more people are watching American Idol than are watching Glenn Beck, and our collective illogic is mostly negligent rather than militant. The more compelling explanation is that the American public lives in Candyland, where government can tackle the big problems and get out of the way at the same time. In this respect, the whole country is becoming more and more like California, where ignorance is bliss and the state’s bonds have dropped to an A- rating (the same level as Libya’s), thanks to a referendum system that allows the people to be even more irresponsible than their elected representatives. Middle-class Americans really don’t want to hear about sacrifices or trade-offs—except as flattering descriptions about how ready we, as a people, are, or used to be, to accept them. We like the idea of hard choices in theory. When was the last time we made one in reality?

The only thing that I would add to this is that We the People are not only spoiled children, but we are also detached from our larger social reality. Caught up in the vortex of day-to-day life even those who should be the best informed and most active in politics retreat into their own world in which the norms, fads, and movements driving the larger polity remain at a comfortable distance.  The driving force behind this status quo is fragmentation.

The charter school juggernaut is not only an educational failure… It is a failure of civil rights.

While segregation for blacks among all public schools has increased over the last two decades, black students in charters are far more likely than their traditional public school counterparts to be educated in intensely segregated settings. Fully 70 percent of all black charter students attend schools that have student populations that are 90-100 percent racial and ethnic minorities, nearly twice the rate of traditional public schools. Also, more than 40 percent of black charter school students are in schools that have 99-100 percent minority student populations.

It is now official. Obama’s administration has not only adopted Republican education policies as its own, but he has also embraced their methodology for accomplishing its ultimate goal.  There is only one option left for those who value public education as being a public institution immune from corporate looting… Schools Matter:

The only thing remaining for teachers, professors, and others to do is to break out the veal pen and get into the state Houses, the Congressional offices, and into the streets. This will be a fight to the death, and if not, then just death of the profession.

As someone with a background in Cultural Studies, this piece from the BBC hit home for me. Cultural Studies emerged from Birmingham, England in response to the rise of Thatcherism. The central question that occupied the minds of those at the Centre for Contemporary Cultural Studies was the question of why it is that poor and working-class voters internalize a politics that undermines their own interests and well-being.  It is a research question that remains salient to this day.

The Republicans have learnt how to stoke up resentment against the patronising liberal elite, all those do-gooders who assume they know what poor people ought to be thinking.

Right-wing politics has become a vehicle for channelling this popular anger against intellectual snobs. The result is that many of America’s poorest citizens have a deep emotional attachment to a party that serves the interests of its richest.

Thomas Frank says that whatever disadvantaged Americans think they are voting for, they get something quite different:

“You vote to strike a blow against elitism and you receive a social order in which wealth is more concentrated than ever before in our life times, workers have been stripped of power, and CEOs are rewarded in a manner that is beyond imagining.

“It’s like a French Revolution in reverse in which the workers come pouring down the street screaming more power to the aristocracy.”

Has Obama grown a couple? Or is this just more rhetorical magic lacking in substantive action?

If you’re wondering why President Obama is now adopting a policy position that candidate Obama rightly ridiculed John McCain for you need look no further than the Rubinites advising him. Obama’s supposed spending freeze is but the opening act for the headliner: making significant cuts to social security, medicare and medicaid. NYT

It is the growth in the so-called entitlement programs — Medicare, Medicaid and Social Security — that is the major factor behind projections of unsustainably high deficits, because of rapidly rising health costs and an aging population.

But one administration official said that limiting the much smaller discretionary domestic budget would have symbolic value. That spending includes lawmakers’ earmarks for parochial projects, and only when the public believes such perceived waste is being wrung out will they be willing to consider reductions in popular entitlement programs, the official said.

I am afraid that the Obama administration is becoming nothing more than symbolism wrapped in Republican lite politics. First off, social security is just fine. Raise the cap on social security taxes and what little of problem there is would be resolved. The real problem is medicare/medicaid. However, the best way to address those structural problems is through health care reform, a prospect that now looks to be quite dead. Obama’s corporatist deals with Pharma and the insurance industry and his ceding of control over the health care reform process to the House of Lords doomed any possibility of real health care reform, so now he is adopting the Clinton model by listening to the same tools that advised Clinton after his own health care meltdown.

The lesson being: We can’t fix the structural problems facing our nation, so the costs of resolving our fiscal problems will come out of poor and working people’s asses.