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Weekend reads on the state of America — and China

Summary:
Two pieces stood out from some weekend internet meandering. Marginal Revolution points to an excellent long letter from Dan Wang on China.A trenchant part of Dan's essay is, curiously, a few reflections on America. Not bad for living in Shanghai: The US, for starters, should get better at reform. The federal government has found itself unable to build simple ...

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Two pieces stood out from some weekend internet meandering. 

Marginal Revolution points to an excellent long letter from Dan Wang on China.

A trenchant part of Dan's essay is, curiously, a few reflections on America. Not bad for living in Shanghai: 

The US, for starters, should get better at reform. The federal government has found itself unable to build simple infrastructure or coordinate an effective pandemic response. Somehow the US has evolved to become a political system in which people can dream up a hundred reasons not to do things like “build housing in growing areas” or “admit people with skills into the country.” If the US wants to win a decades-long challenge against a peer competitor, it needs to be able to improve state capacity. ...

Since the US government is incapable of structural reform, companies now employ algorithm geniuses to help people navigate the healthcare system. This sort of seventh-best solution is typical of a vetocracy. I don’t see that the US government is trying hard to reform institutions; its response is usually to make things more complex (like its healthcare legislation) or throw money at the problem. The proposed bill to increase domestic competitiveness against China, for example, doesn’t substantially fix the science funding agencies that are more concerned with style guides than science; and the infrastructure bill doesn’t seem to address root causes that make American infrastructure the most costly in the world. Congress is sending more money through bad channels.

 Stop and savor. 

In the "strategic competition" with China, 

.. the US has demonstrated a superb capacity for self-harm... Entrepreneurial firms in China previously had no time for domestic technologies, preferring instead to buy the best, which is usually American. Then the US government designated them to various blacklists, giving them for the first time ever a business case for building up the domestic ecosystem. The result is that the US has turbo-charged Chinese competition by aligning the country’s most dynamic firms more firmly with Beijing’s self-sufficiency agenda. And in December, I wrote a piece for the Atlantic on US prosecutions of scientists. The state has subjected scientists to the tender mercies of the US criminal justice system, usually for charges related to relatively unimportant issues implicating research integrity. ..

One redeeming fact for the US is that there has been significant domestic pushback to some of the government’s actions—especially the prosecutions of scientists—such that it’s within the realm of imagination that the US government will substantially modify bad policies. This sort of correction after public criticism is more difficult in China, where critics might end up jailed. The US though should take more seriously the task of cultivating both strong entrepreneurs and a strong state.

A strong state, a strong civil society, and a strong scientific / technocratic establishment are  ones that allow and responds to criticism that deviates from The Narrative. Here and in China. 

Back to China, the point of the letter. Regional differences and the power of local governments are quite interesting. I can't effectively summarize observations on Beijing vs. Shanghai vs. Hong Kong vs. Shenzhen, so do read the original. 

Beijing’s control tendency isn’t the only story in this country. That spirit is resented by Shanghai and Shenzhen, which mediates it with their commercial tendencies. Pushback from local governments can occasionally mitigate Beijing’s worst ideas. Shanghai and Shenzhen are also sometimes able to help improve the institutional capacity in Beijing. 

On the recent regulatory crackdown: 

When Beijing punished Ant Financial and DiDi, all of us were nervous that these companies were pawns in a game of elite politics whose rules aren’t revealed to anyone who isn’t a player. At this point, however, the punishment of these two firms looks rather small compared to everything that happened afterwards: the decapitation of online tutoring, new restrictions on video games, anti-monopoly actions against internet platforms, and passage of statutes governing data and privacy.

No small number of commentators have pointed out that any individual regulation passes muster on technocratic grounds. The US and Europe after all are debating rules with similar shapes—although they would never implement them with China’s speed and severity. I agree both with the commentators who see a sound technocratic foundation for these rules as well as with commentators like Naughton who note that they add up to an unprecedented new program of political control on firms. Beijing expects companies to comply not only with formal regulations but also to a broader ideological agenda.

We will see how much US regulation of internet companies also forces conformity with an ideological agenda. 

Hong Kong is no longer Milton Friedman's free market paradise: 

... Hong Kong was also the most bureaucratic city I’ve ever lived in. Its business landscape has remained static for decades: the preserve of property developers that has created no noteworthy companies in the last three decades. That is a heritage of British colonial rule, in which administrators controlled economic elites by allocating land—the city’s most scarce resource—to the more docile. Hong Kong bureaucrats enforce the pettiest rules, I felt, out of a sense of pride. On the mainland, enforcers deal often enough with senseless rules that they are sometimes able to look the other way. Thus a stagnant spirit hangs over the city.

...Beijing locals have adapted to the proliferation of rules not with complete obedience, but discernment of which can be safely ignored. 

Chinese exports, brands, and quality: 

Chinese firms have not created many global brands, but I have confidence that will change. Entrepreneurs are still full of big dreams, having failed to receive the memo that globalization is dead. Those who sense foreign hostility towards China would keep their identity quiet, with the hope that the product quality will speak for itself. In segment after segment, I find that the quality of Chinese products has become strong. And I expect that good branding will follow good quality.

A metric of general quality improvement I like to use is the standardization of slow-casual chain restaurants. ...chains featuring Sichuan sauerkraut fish and Shaanxi breads and meat are now plausible and even fun places to go to lunch. Anyone in food management can tell you that it’s hard to achieve a high degree of consistency across stores and across cities. That is something that Chinese managers have in recent years figured out.

There used to be a Big Mac price index. A Big Mac corporate quality control index is a fun idea. 

Dan is skeptical that social media is the investment of the future, as is the Chinese government. 

... Beijing will not be friendly towards the Metaverse. Already state media has expressed suspicion of the concept. If the Metaverse will exist in China, I expect it will be an extremely lame creation heavily policed by the Propaganda Department. ...The Metaverse, which represents yet another escape of American elites from the physical world,... is too much of a fun game, like cryptocurrencies, played by a small segment of the population, while the middle class dwells on more material concerns like paying for energy bills. It might make sense for San Franciscans to retreat even further into a digital phantasm, given how grim it is to go outside there. But Xi will want Chinese to live in the physical world to make babies, make steel, and make semiconductors.

The question is whether the CCP will find useful alternative investments. Steel? Great Leap Forward II? I remain suspicious of the standard view the US must engage in a grand industrial policy "strategic economic competition" with China to "dominate the industries of the future." The federal government is the one worse mechanism for capital allocation than markets. Even the positive examples are all unintended -- the space program was not funded extravagantly to produce Tang, Teflon, and microprocessors for social media. See instead fracking vs. ethanol in the energy innovation. But there is a worse allocation mechanism still: Let China's central planners figure out the industry of the future, and then try to outdo them on that one. 

The conclusion -- parallel to the academic's call for more research -- 

To figure out how far decoupling will go, as well as a hundred other important questions, we’ll need a better understanding of what’s going on in China.

Elsewhere

The good and/or bad thing about China is that everything changes every 18 months. So it’s all the more important to observe reality on the ground.... For newsrooms, that entails spending time away from Beijing. For the good of readers, papers should deploy journalists in places where politics is not the only concern, instead of devoting still more reporters in the capital to obsess over Xi Jinping Thought.

However, from earlier,  

Beijing worsens the situation with its need to answer every insult with insult. It unfortunately cannot practice restraint by invoking the proverb: “A decade is not too long for the gentleman to await his revenge.” Like clockwork, every time China decides to push back against claims that it is too brutal, the government can’t help but undertake an act of extraordinary pettiness to bully a critic. Last year, it expelled the cream of the western reporting corps for a reason still hard to believe today—that the opinion section of the Wall Street Journal published an insensitive headline—such that only a handful of reporters remain on the ground between the Journal, the Times, and the Post. This year, Beijing proved that there is no country, company, or individual too unimportant to be the subject of state-media tirades or state-sponsored economic punishment. 

I.e. Lithuania. Well, now you know why there aren't journalists outside of Beijing. 

*************

Bari Weiss' favorite essays of 2021  points to "The Bullshit" by Walter Kim. Walter used to write for Time Magazine and writes scathingly on what has happened to media. In the final result, is our media really all that different than China's? Except that ours supports The Party's Narrative voluntarily.

On the nature of the business: 

Until business began to suffer, requiring cut-backs, the magazine kept an in-house research library, the better for checking even the smallest facts. The burden of accuracy lay heavy on Time. Its mighty name required nothing less.... 

the press used to maintain certain boundaries in the relationship, observing the incest taboo. It kept its pants zipped, at least in public. It didn’t hire ex-CIA directors, top FBI men, NSA brass, or other past and future sources to sit beside its anchors at spot-lit news-desks

One great paragraph summarizes last year's Official Narratives, or more technically, "bullshit": 

... Russian plots to counterfeit presidential children’s laptops, viruses spawned in Wuhan market stalls, vast secret legions of domestic terrorists flashing one another the OK sign in shadowy parking lots behind Bass Pro Shops experiencing “temporary” inflation, and patriotic tech conglomerates purging the commons of untruths. ...And Build Back Better. That’s the sermon.

More later, 

The other day when Cuba erupted in protests, numerous stories explained the riots, confidently, instantly, as demands for COVID vaccines. The accompanying photos didn’t support this claim; they featured ragged American flags and homemade signs demanding freedom. One wire-service headline used the protests to raise concerns about viral spread in crowds. A puzzling message. It wasn’t meant for the defiant Cubans, who weren’t at liberty to read it and whose anger at their rulers clearly outweighed their concerns about contagion. It had to be aimed at English-speaking Americans. But to what end? American protests of the previous summer hadn’t raised such cautions from the press. To the contrary. Our riots, if one could call them that (and one could not at many companies) were framed as transcendent cries for justice whose risks to public health were negligible, almost as though moral passion enhances immunity. And maybe it does, but why not in Cuba, too? To me, the headline only made sense in the context of the offensive against domestic “vaccine hesitancy” and its alleged fascist-bumpkin leaders. The Reuters writer had seen in Cuba’s revolt a chance to glancingly editorialize against rebelliousness of another type. The type its staff abhors day in, day out, no matter what’s happening in Cuba, or, for that matter, in America. The bullshit is consistent in this way, reducing stories of every kind into nitrogen-rich soil for the same views. These views feel unusually ferocious now, reflecting the convictions of those on high that they should determine the fates of those on low with minimal backtalk and no laughter. Because science. Because Putin. Democracy. Because we’re inside your phones and know your names. 

Pious bullshit, unceasing. 

On motives

Comfort yourself with the thoughts that the same fortunes engaged in the building of amusement parks, the production and distribution of TV comedies, and the provision of computing services to the defense and intelligence establishments, have allied to protect your family’s health, advance the causes of equity and justice, and safeguard our democratic institutions. Dismiss as cynical the notion that you, the reader, are not their client but their product. Your data for their bullshit, that’s the deal. 

But what to do? 

One option, more popular each day, is to retreat to the anti-bullshit universe of alternative media sources. These are the podcasts, videos, Twitter threads, newsletters, and Facebook pages that regularly vanish from circulation for violating “community standards” and other ineffable codes of conduct, oft-times after failing “fact-checks” by the friendly people at Good Thoughtkeeping. Some of these rebel outfits are engrossing, some dull and churchy, many quite bizarre, and some, despite small staffs and tiny budgets, remarkably good and getting better. Some are Substack pages owned by writers who severed ties with established publications, drawing charges of being Russian agents, crypto-anarchists, or free-speech “absolutists.” ...

Caveat emptor in the free-speech world:  

This wilderness of “contrarianism” – a designation easily earned these days; you merely have to mention Orwell or reside in Florida -- requires a measure of vigilance and effort from those who seek the truth there. ...

A little reader skepticism would be a good habit in all cases. 

 

 

John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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