Posts tagged ‘Japan’

Settled Science

I mostly ignore, and tend to be skeptical of, most pronouncements on foods that supposedly kill us and foods that are supposedly superfoods.  I have a solid love of meat and have never let the fear of saturated fat stop me from enjoying a good steak from time to time.

I had heard that a lot of the "settled science" on saturated fat was iffy but I had no idea it was this bad.

Our distrust of saturated fat can be traced back to the 1950s, to a man named Ancel Benjamin Keys, a scientist at the University of Minnesota. Dr. Keys was formidably persuasive and, through sheer force of will, rose to the top of the nutrition world...

As the director of the largest nutrition study to date, Dr. Keys was in an excellent position to promote his idea. The "Seven Countries" study that he conducted on nearly 13,000 men in the U.S., Japan and Europe ostensibly demonstrated that heart disease wasn't the inevitable result of aging but could be linked to poor nutrition.

Critics have pointed out that Dr. Keys violated several basic scientific norms in his study. For one, he didn't choose countries randomly but instead selected only those likely to prove his beliefs, including Yugoslavia, Finland and Italy. Excluded were France, land of the famously healthy omelet eater, as well as other countries where people consumed a lot of fat yet didn't suffer from high rates of heart disease, such as Switzerland, Sweden and West Germany. The study's star subjects—upon whom much of our current understanding of the Mediterranean diet is based—were peasants from Crete, islanders who tilled their fields well into old age and who appeared to eat very little meat or cheese.

As it turns out, Dr. Keys visited Crete during an unrepresentative period of extreme hardship after World War II. Furthermore, he made the mistake of measuring the islanders' diet partly during Lent, when they were forgoing meat and cheese. Dr. Keys therefore undercounted their consumption of saturated fat. Also, due to problems with the surveys, he ended up relying on data from just a few dozen men—far from the representative sample of 655 that he had initially selected. These flaws weren't revealed until much later, in a 2002 paper by scientists investigating the work on Crete—but by then, the misimpression left by his erroneous data had become international dogma.

In 1961, Dr. Keys sealed saturated fat's fate by landing a position on the nutrition committee of the American Heart Association, whose dietary guidelines are considered the gold standard. Although the committee had originally been skeptical of his hypothesis, it issued, in that year, the country's first-ever guidelines targeting saturated fats. The U.S. Department of Agriculture followed in 1980.

Don't these guys know this is settled science?  These saturated fat skeptics must be in the pay of big cattle.

The cherry-picking and small sample sizes are unfortunately a staple of science, but I particularly laughed at the practice of assessing meat consumption during Lent.

Climate Alarmism In One Statement: "Limited Evidence, High Agreement"

From James Delingpole:

The draft version of the report's Summary For Policymakers made the startling admission that the economic damage caused by "climate change" would be between 0.2 and 2 percent of global GDP - significantly less than the doomsday predictions made in the 2006 Stern report (which estimated the damage at between 5 and 20 percent of global GDP).

But this reduced estimate did not suit the alarmist narrative of several of the government delegations at the recent IPCC talks in Yokahama, Japan. Among them was the British one, comprising several members of the deep green Department of Energy and Climate Change (DECC), which insisted on doctoring this section of the Summary For Policymakers in order to exaggerate the potential for more serious economic damage.

"Losses are more likely than not to be greater, rather than smaller, than this range (limited evidence, high agreement)"

There was no evidence whatsoever in the body of the report to justify this statement.

I find it fascinating that there can be "high agreement" to a statement for which there is limited or no evidence.  Fortunately these are all self-proclaimed defenders of science or I might think this was purely a political statement.

Note that the most recent IPCC reports and new published studies on climate sensitivity tend to say that 1) warming in the next century will be 1-2C, not the much higher numbers previously forecast; 2)  That warming will not be particularly expensive to manage and mitigate and 3) we are increasingly less sure that warming is causing all sorts of negative knock-on effects like more hurricanes.  In other words, opinion is shifting to where science-based skeptics have been all along (since 2007 in my case).  No surprise or shame here.  What is shameful though is that as evidence points more and more to the lukewarmer skeptic position, we are still called evil heretical deniers that should be locked in jail.  Like telling Galileo, "you were right about that whole heliocentric thing but we still think you are evil for suggesting it."

Historical Revisionism

Revisionism on the causes of WWI seems to ebb and flow like a 20-year clock.  It was Germany's fault, no it wasn't, yes it was.  Etc.  Here is the latest iteration.

I have read quite a bit on the topic of late.  It was horribly complex, but here are a few thoughts.

  • At some level, it was everyone's fault, at least as measured by the enthusiasm that greeted the war in nearly every country.  It was the last war begun by folks who thought it would be incredibly romantic and glorious.
  • Austria simply has to bear a lot of the blame.  No doubt a crisis in the Balkans could have been started by Russia or Serbia, and in an alternative universe where the Archduke was not assassinated, they might well have.  But the fact is that Austria made this one happen.  They crafted a set of demands on Serbia that were supposed to be unreasonable.  They were meant to be a Casus Belli.  Austria had determined it was going to war with Serbia.
  • Much is made of the German blank check to Austria, but the key fact for me were the actions of Germany several weeks later.  In response to a building crisis in the Balkans to their southeast, the Germans entered the war attacking to the northwest, into Belgium and France.  With conflict inevitable in the Balkans, the Germans (with a helping hand from the Russians) helped turn a limited conflict into a World War.

The Germans were also responsible through bad decisions in bringing the US into the war, via a u-boat campaign that failed to achieve its goals (starve the Brits) but managed to bring US troops to Europe at almost the exact moment when British and French troops might have collapsed.  Incredibly, the Germans made the exact same mistake in WWII, declaring war on the US so they could initiate a u-boat campaign against US shipping, when Congress might well have been happy to keep America's war limited to Japan.

 

Wealth and China Through History

The media tends to talk about the growth of the Chinese economy as if it is something new and different.   In fact, there probably have been only about 200 years in the history of civilization when China was not the largest economy on Earth.  China still held this title into the early 18th century, and will get it back early in this century.

This map from the Economist (via Mark Perry) illustrates the point.

economic map

 

Of course there is a problem with this map.  It is easy to do a center of gravity for a country, but for the whole Earth?  The center in this case (unless one rightly puts it somewhere in the depths of the planet itself) depends on arbitrary decisions about where one puts the edges of the map. I presume this is from a map with North America on the far left side and Japan on the far right.  If one redid the map, say, with North America in the center, Asia on the left and Europe on the right, the center of gravity would roam around North America through history.

For the Left, Do Asians "Count"?

I was filling out my EEO-1 forms the other day (that is a distasteful exercise where the government is leading us towards a post-racial society via mandatory reporting on the race of each of my employees).  For each employee there are five non-white categories:  Black, native American, native Hawaiian, Hispanic, and Asian.  I started to think how interesting it is that the Left supports numerous government interventions in support of the first four, but never mentions Asians.

This can't be solely due to lack of past discrimination.   Watch a movie from the 1930's or 1940's and you will see Asians shamelessly stereotyped** as badly as any other race.  And generations who lived and fought WWII had many members, even a majority, that harbored absolute hatred against one Asian people, the Japanese.  We only sent one group to concentration camps in the 20th century, and it was not blacks or Hispanics.  Of course "Asians" is an awfully broad categorization.  It includes Chinese, with whom we have had a complicated relationship, and Indians, for whom most Americans until recently probably have had little opinion at all one way or another.

One problem for many on the Left is the fact that Asians are considered a serious threat (both as immigrants and as exporters) to the Left's traditional blue collar union base.  Another is that they are an emerging threat to their little darlings trying to get into Harvard.  I have heard the squeakiest-clean, most politically correct liberals utter to me the most outrageous things about Asian kids.  Which is why I was not really surprised that white parents in California who claim to support merit-based college admissions immediately change their tune when they find out that this will mean that far more Asia kids will get in.

I have been working with some data on state voting and voter registration patterns by race in the wake of the recent Supreme Court decision vis a vis the Voting Rights Act.  The Left went nuts, saying that blacks and Hispanics would again be discriminated against in the South, and the Obama Administration vowed to get on the case, saying that it would begin with Texas.

By the way, Texas may make perfect sense politically for Obama but is an odd choice based on the data.  Minority voter registration and voting rates as compared to the white population are usually used as an indicator of their election participation and access.  In the last election, according to the Census Bureau in table 4B, blacks in Texas both registered and voted at a higher rate than whites.  In Massachusetts, by contrast, in that same election blacks registered at a rate 10 percentage points lower than whites and voted at a rate about 7 points lower.

But if you really want something interesting in the data, look at the data and tell me what group, if we accept that low participation rates equate to some sort of covert discrimination, deserves the most attention (from the same table linked above):

US Voter Registration Rates (Citizens Only)

White:    71.9%

Black:    73.1%

Hispanic:     58.7%

Asian:     56.3%

US Voting Rates (Citizens Only, last Presidential election)

White:    62.2%

Black:    66.2%

Hispanic:    48.0%

Asian:    47.3%

 

** Postscript:  I am not an expert on discrimination, but I watch a lot of old movies and read a lot of history.  To my eye, stereotyping of Asians has been more similar to anti-Semitic portrayal of Jews than to stereotyping of blacks or Hispanics.  Blacks and Hispanics have most often been stereotyped as lazy and unintelligent.  Asians and Jews are more frequently stereotyped as scheming, plotting, and intelligent-but-evil.  Frank Capra, who directed a lot of good movies also directed a series of heavy-handed propaganda movies for the government during the war.  The one on Japan is interesting -- your gardener's quiet mien is actually masking a nefarious scheme.  Even in the 1940's Japan was portrayed as economically frightening to us.

Update:  Over the last couple of elections, Asians have shifted to voting fairly heavily Democratic.  So a cynical person would suggest that they might suddenly "discover" this group.  We shall see.

California Schadenfreude

From Zero Hedge:

The hoped-for April spike in personal income tax revenues for the State of California fell once again below theoveroptimistic assumptions used to get the budget to “balance.” Instead of the $9.4 billion that the government had counted on collecting in April, it only collected $7.4 billion, according to the nonpartisan Legislative Analyst's Office. A 21% shortfall! In addition, corporate taxes were $450 million below forecast. After months of “disappointing” tax revenues, the total shortfall in income taxes now amounts to $3.5 billion for fiscal 2012 ending June 30.

The budget, supposedly balanced when it was passed last summer, had been spewing red ink from day one. Tax revenues were one problem. Expenditures were the other. The most recent re-revisions pegged the deficit at $9.2 billion. That was a few weeks ago. Now it’s going to be re-re-revised to nearly $12 billion.

Just how bankrupt does a budgeting process have to be for a budget that is supposedly in balance turn out to be $12 billion overdrawn barely 9 months later?  I have a California state tax refund on my desk -- better cash it quick or else its going to be replaced by scrip again.

The same article has this interesting tidbit about California high speed rail:

The CHSRA plan assumes that it would cost 10 cents per passenger mile (the average cost of carrying one passenger one mile at a given load factor) when international high-speed rail systems averaged 43 cents per mile, according to a report that just surfaced. The low-cost leader was Italy with 34 cents per mile; at the upper end were Germany and Japan with 50 cents per mile; Amtrak’s Acela Express, though not truly high speed, was in the middle with 44 cents per mile. And in California, it’s going to be 10 cents per mile?

The CHSRA correctly assumes that train tickets compete with air fares and the cost of driving, which, despite our incessant complaints, are lower in California than overseas. Thus, the US market requires cheaper tickets. And to make the project appear profitable, and thus more digestible for the taxpayer, the CHSRA lowered its projected operating costs to less than a quarter of the international average.

But if actual operating costs are 43 cents per mile and not 10 cents per mile, annual subsidies of $2 billion to $3 billion would be required just to keep the trains running, according to the report. Yet, AB3034, the California High-Speed Train Bond Act, makes these subsidies illegal. A conundrum that the Legislature, the Administration, and the CHSRA have so far successfully ignored.

Trade is Cooperation, Not War

First, I will admit that this was probably a throwaway line, but it does represent the worldview of a lot of Americans.  In an article showing a funny story about poor preparation of college students, Kevin Drum ended with this:

This does not bode well for our coming economic war with China, does it?

Trade is not war.  Trade is cooperation, exactly the opposite of war.   By definition, it benefits both parties or it would not occur, though of course it can benefit one more than the other.

Treating trade like war is a very dangerous game engaged in by some politicians.  At best, it leads to protectionism that makes the country poorer.  At worst, it can lead to real war.

Consider two examples of a country treating trade like war, both from Japan.  In the 1930's, Japan developed an imperial desire to directly control all the key resources it needed, rather than to trade for them.  The wealthy ports of China and iron-rich Manchuria were early targets.   This desire was compounded when the US used trade embargoes as a policy tool to protest Japanese invasions and occupation of China.  This eventually led to war, with Japan's goal mainly to capture oil and rubber supplies of southeast Asia.  Obviously, this effort led to Japan essentially being left a smoking hole in the ground by late 1945.

The second example was in the 1980's, as Japan, via MITI, actively managed its economy to promote trade.  The "trade as war" vision was common among Japanese leaders of the time.  The results was a gross, government-forced misallocation of resources and bubble in the real estate and stock markets that led to a couple of lost decades.

 

What I Should Have Said on TV About Rail

If I were any good at the two minute sound byte interview, I would have summarized this about the superiority of the current US private rail system vs. the systems in Europe and Japan:

Link here (sorry, for some reason the link did not show up the first time, probably something to do with my iPad)

 

Final Indicator, if You Needed One, of a Looming China Crash

Here is what I remember from the late 1980's - just about every technocratic pundit of the leftish bent, and a number on the right, all hailed Japan as the government economic planning model the US should follow.  One fawning essay after another lauded Japan's MITI and its top-down approach to economic investment.

Practically within hours of when these editorials peaked, the Japanese economy began to crumble.  We know now that MITI and other Japanese officials were creating gross distortions and misallocations in the economy, and inflating an economic bubble with gobs of cheap credit.  These distortions have still not been entirely cleared from the Japanese economy 20 years later, and the country experienced what was called "the lost decade" which may become the lost two decades.

For over a year, it has appeared to me (and many other observers more knowledgeable than I) that China was headed for a crash for many of the same reasons as Japan.  I am now sure this is true, as today Andy Stern (formerly of the SEIU) writes an essay lauding the Chinese top-down state-planned economic model.

The current debates about China's currency, the trade imbalance, our debt and China's excessive use of pirated American intellectual property are evidence that the Global Revolution—coupled with Deng Xiaoping's government-led, growth-oriented reforms—has created the planet's second-largest economy. It's on a clear trajectory to knock America off its perch by 2025....

There is no doubt that China will pass the US in total economic size -- it has three times more people than we do.  But their success is clearly due to the small dollops of free enterprise that are allowed in a statist society, and advances are made in spite of, not because of, the meddling state.

Exactly how much economic progress had China made before its leaders brought in the very free market ideas Stern says are dead?  None, of course.  To read China as a triumph of statism and as the death nell of capitalism, when in fact it is one of the greatest examples in history of the power of capitalist ideas and how fast they can turn around a starving and poverty-stricken country, is just willful blindness.

I will include just one other excerpt

While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.

Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.

My first thought on reading this was that Houston used to look exactly like this, with cranes all over the place building things, until we had an Administration that actively opposed expansion of domestic oil production.  My second thought is that this reads so much like the enthusiast essays written by leftists when they used to visit the Soviet Union and came back telling us Russia was so much superior to the US -- just look at the Moscow subway!

The emergence of hundreds of millions of people in China and India from poverty is exciting as hell, and at some level I don't blame Stern for his excitement.  But I fear that what he is seeing is the US housing bubble on steroids, a gross misallocation of capital and resources driven by a few technocrats who think they can manage a billion person economy from their office in Beijing.

Disclosure:  I seldom do anything but invest in generic bond funds and US stock funds, but right now I am out of US equities and I have a number of shorts on Chinese manufacturing and real estate.

Post Hoc Prioritization

For a while, there has been a contrarian school of thought in historical study of WWII that FDR, wishing to have the US enter the way against a strong isolationist streak in the general population, purposefully ignored evidence of an impending Japanese attack at Pearl Harbor in order to create a casus belli.  A few historians have used some intelligence warmings combined with the insane un-preparedness of Pearl Harbor as their evidence.   Instapundit links to a new declassified memo that warns of Japanese interest in Hawaii just three days before the attack.

This is a fun but generally foolish game.  The same game was played after 9/11, pointing to a few scraps of intelligence that were "ignored."  But the problem in intelligence isn't always lack of information, but too much information.  In late 1941, the US government was getting warnings from everywhere about just about everything.   It is easy as a historian to pick out four or five warnings and say they were stupidly (or purposely) ignored, but this fails to address the real point -- that those warnings were accompanied by a thousand false or misleading ones at the same time.  The entire Pacific theater had already had a whole series of alerts in the months leading up to Dec 7, one false alarm after another.  It is Monday morning quarterbacking that strips the intelligence problem of its context.  To prove that something unusual happened, one would have to show that these warnings were processed or prioritized in a manner that was unusual for the time.

And sure, the readiness issue at Pearl Harbor is inexcusable.  But while historians can always find a few people at the time who argued that Pearl Harbor was the most logical attack target, this ignores the thousands in and outside the military who thought the very idea of so audacious an attack that far from Japan was absurd.   Historians are failing in their job when they strip these decisions of context (if you really, really want to get on someone about preparedness, how about McArthur, who allowed most of his air force to be shot up on the ground despite having prior notification of the Pearl Harbor attack hours before).

It's Hard To Change Corporate DNA

Especially when the government is doing all it can to damp the forces of evolution and extinction.  Via Mickey Kaus

Dysfunctional–or at any rate, not-functional-enough–corporate cultures are hard to change. That would include both the culture of the Old GM and that of many of its suppliers. Obama should have been more skeptical about “New GM’s” ability to turn itself around with its same old workforce and same old union

I warned of something similar long before GM was rescued by Bush and Obama:

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM’s DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM’s of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM’s DNA has a less than one multiplier, then releasing GM’s assets from GM’s control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe’s productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe’s most productive human and physical assets into organizations with DNA multipliers less than one.

A China Scare I Might Actually Entertain

I am not one for China-bashing (or Japan-bashing 20 years ago).  But it is interesting to consider just how sane and peaceful a country will be if it is dominated by 100 million men who can't get laid.

Labor and Capital Mobility, and the Recovery

I was thinking this weekend that one reason the US recovery may be slow is related to labor and capital mobility.

One substantial avenue to recovery in a recession has always been labor and capital mobility.  The fast labor and capital can be redeployed from losing industries to improving ones, the faster a recovery occurs.  One reasons Japan and certain European countries have had slower recoveries in the past than the US is that our mobility was higher and barriers to entrepreneurship lower.

But it strikes me that two things are going on in the US to endanger this advantage we have always enjoyed

  1. The government push for home ownership has turned out to be a trap.  Not only did it help create the bubble, whose bursting destroyed a lot of real and paper wealth, but it has greatly reduced labor mobility.  Home ownership makes labor mobility much harder even in a good housing market when one can sell his or her home easily.  In a bad market like today, very few feel they can pick up and move.  I might want to give up on the construction industry in Michigan and move to the oil patch of North Dakota, but how can I do that if I own a home that I can't sell?  A number of other actions, most notably the repeated extension of unemployment benefits, contributes to the lack of mobility.
  2. The government seems hell bent on doing everything it can to prevent, even reverse the tide, of capital mobility.  The government shifted tends of billions of capital into auto industry hands that had destroyed value for decades.  It continues to put the brakes on what should be an oil and gas exploration and production boom.  It kills health industries like light bulbs and shifts billions into useless politically powerful hands making ethanol.  The NLRB is preventing major American manufacturers from making factory investments in southern states.

In the late 1970's, the auto industry was in trouble but the oil patch was booming.  The Houston newspapers sold well in Michigan, popular for their help wanted ads.  From space, the Interstate highways between the Detroit and Texas probably looked orange from all the U-haul trailers.

The exact same dynamics could and should be occurring today.  Capital and labor should be shifting from, for example, the failing auto industry to the growing energy sector.  But the government today stands to block this reallocation. It is raising taxes on oil companies and placing barriers to their growth, while giving tax money to the auto industry and using every bit of power it can to sustain it.  Combine this type of barrier to capital flows (and auto/energy is but a couple of examples) with rising barriers to entrepreneurship, and it should be no surprise that growth is abysmal.

This is what happens in a corporate state.  Past winners retain huge amounts of power in the government long after their companies have become senescent in the marketplace.  Politicians argue for the power to pick winners and losers in the economy but generally use it only to protect current competitors and stand in the way of progress.

To Which I Would Add One More Concern

Don Boudreaux had these two rejoinders to the notion that the GM bailout is a success simply because GM is making a profit.

Economically literate opponents of the Detroit bailout never denied that pumping hundreds of millions of taxpayer dollars into Detroit automakers would restore those companies to health.  Instead, they argued, first, that bailing out Detroit takes resources from other valuable uses.  Because he doesn’t even recognize that other valuable uses were sacrificed by this bailout, Mr. Dionne offers no reason to think that the value of saving Detroit automakers exceeds the value of what was sacrificed to do so.  No legitimate declaration that the bailout is successful is possible, however, without evidence that the value of what was saved exceeds the value of what was sacrificed.

Economically literate bailout opponents argued also that it sets a bad precedent.  By signaling to big corporations that government stands ready to pay the tab for the consequences of their poor decisions, big corporations will more likely make poor decisions in the future.  It’s far too early for Mr. Dionne to conclude that this prediction is mistaken.

I would offer a third concern -- that the government has kept hundreds of thousands of skilled workers and billions of dollars of physical assets under the management of the same group that have decidedly underutilized these assets in the past.  A bankruptcy without Federal intervention would likely have shifted assets and skilled workers into new companies with different management teams and cultures pursuing different strategies with different information.

I always have trouble explaining this issue to people.   Think of a sports team with great players but a lousy coach and management team.  Having the government ensure that the lousy management stays in control of the great players is a waste for everyone.  I explained it more in depth in this post, where I concluded

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case – Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA...

So what if GM dies?  Letting the GM’s of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM’s DNA has a less than one multiplier, then releasing GM’s assets from GM’s control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe’s productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe’s most productive human and physical assets into organizations with DNA multipliers less than one.

Shifting Capital from the Productive to the Sexy

My Forbes column this week focuses on the US rail system, and argues that despite all the angst that we are somehow missing the boat in emulating Europe, Japan and China in building expensive bullet trains, we actually have the best rail system in the world.

These writers worry that the US is somehow being left behind by China because its government builds more stuff.  We are “asleep.”  Well, here is my retort: Most of the great progress in this country occured when the government was asleep.  The railroads, the steel industry, the auto industry, the computer industry  -  all were built by individuals when the government was at best uninvolved and at worst fighting their progress at every step.

In particular, both Friedman and Epstein think we need to build more high speed passenger trains.  This is exactly the kind of gauzy non-fact-based wishful thinking that makes me extremely pleased that these folks do not have the dictatorial powers they long for.   High speed rail is a terrible investment, a black hole for pouring away money, that has little net impact on efficiency or pollution.   But rail is a powerful example because it demonstrates exactly how this bias for high-profile triumphal projects causes people to miss the obvious.

Which is this:  The US rail system, unlike nearly every other system in the world, was built (mostly) by private individuals with private capital.  It is operated privately, and runs without taxpayer subsidies.    And, it is by far the greatest rail system in the world.  It has by far the cheapest rates in the world (1/2 of China’s, 1/8 of Germany’s).  But here is the real key:  it is almost all freight.

As a percentage, far more freight moves in the US by rail (vs. truck) than almost any other country in the world.  Europe and Japan are not even close.  Specifically, about 40% of US freight moves by rail, vs. just 10% or so in Europe and less than 5% in Japan.   As a result, far more of European and Japanese freight jams up the highways in trucks than in the United States.  For example, the percentage of freight that hits the roads in Japan is nearly double that of the US.

You see, passenger rail is sexy and pretty and visible.  You can build grand stations and entertain visiting dignitaries on your high-speed trains.  This is why statist governments have invested so much in passenger rail — not to be more efficient, but to awe their citizens and foreign observers.

Taking Local News Too Far

Perhaps this is just a pet peeve of mine, but I really hate it when local news organizations try to find a local angle to a huge international story.  This headline from the Arizona Republic today is a good example:

No injuries reported to workers in Japan employed by Arizona companies

When You Have A Hammer, Everything Looks Like A Nail

Via Tom Nelson, here is an article today at Grist about today's Tsunami's called "This is what climate change looks like"

So far, today's tsunami has mainly affected Japan -- there are reports of up to 300 dead in the coastal city of Sendai -- but future tsunamis could strike the U.S. and virtually any other coastal area of the world with equal or greater force, say scientists. In a little-heeded warning issued at a 2009 conference on the subject, experts outlined a range of mechanisms by which climate change could already be causing more earthquakes, tsunamis, and volcanic activity.

"When the ice is lost, the earth's crust bounces back up again and that triggers earthquakes, which trigger submarine landslides, which cause tsunamis," Bill McGuire, professor at University College London, told Reuters.

When I look at events today, I think not of "climate change" but of "development".  Compare the casualties from today in Japan and Hawaii and the US west coast to those in, say, Indonesia.  Development saves lives through better construction, better communication, better early warning systems, and better transportation networks.   If one really wants to think about today's events in the context of climate change, think about the alarmists' proposed tradeoff between small and uncertain changes in the climate vs. almost certain reduction in development through climate-change programs.

Green Jobs? Or Green Hole in the Ground We Pour Money Into?

From the Japan Times"

None of the government's 214 biomass promotion projects — with public funding coming to ¥6.55 trillion — over the past six years has produced effective results in the struggle against global warming, according to an official report released Tuesday.

The Internal Affairs and Communications Ministry, which evaluates public works projects, urged the agriculture and five other ministries conducting biomass projects using sewage sludge, garbage and wood, to take corrective action.

The Seen and Unseen: Passenger Rail Edition

We have all heard environmentalists and other American intellectual snobs lamenting that we just are not as smart as Europeans because we have so much less passenger rail.  But because freight and high-speed passenger rail service does not coexist well on the same tracks, urging more passenger rail on the US rail net is effectively asking for more freight to be dumped onto the highways.

Megan McArdle writes:

Moving freight by rail rather than by truck is an enormous carbon saving; one locomotive can haul as much as hundreds of trucks.  It also reduces highway congestion.  Unfortunately, it's hard for passengers and freight to share tracks.  In part, it's difficult simply because it's expensive to upgrade track to handle passenger speeds, but also because freight moves much more slowly, and on an irregular schedule.
I might well argue that if we were simply trying to maximize environmental benefit, we'd ignore passenger rail, and focus on upgrading our freight systems, which sorely need it.  Moreover, these upgrades could largely be made without the massive procedural obstacles that block new high speed rail lines.

But freight rail is not sexy.  It does not excite donors, and it does not excite most of the voters who are motivated by high speed rail.  Politicians win votes by delivering (or at least promising) highly visible improvements; not by silently enhancing the movement of goods from port to Wal-Mart.

I am not sure politicians really have to do anything other stay out of the way (we already have among the cheapest rail rates in the world, 1/2 of China's and 1/8 of Germany's).  The numbers on freight movement are pretty dramatic:

See the percentage of goods moved by freight, which is dramatically higher for the US.  The end result is we have a LOT less freight on our roads than the EU or Japan, and might have even less if US maritime laws had not done so much to kill coastal shipping.
This is the great unseen in all these "sophisticated" conversations about Europe.  These Euro-philes are so much smarter than the rest of us that they manage to ignore the most important part of the equation  (largely because it is unseen and not sexy).  In fact, the US has the best rail system in the world, and in fact the governments of Europe and Japan have likely sub-optimized their rail systems by forcing their focus towards passengers rather than freight.
I will leave the last word to the Anti-Planner:

Europe has decided to run its rail system primarily for passengers, while America's system is run mainly for freight. Europe's rail system has about 6 percent of the passenger travel market, while autos have about 78 percent. Meanwhile, 75 percent of European freight goes by highway. Here in the U.S., highway's share of freight travel is only 29 percent, while the auto's share of passenger travel is about 82 percent. So trains get 4 percent of potential auto users in Europe out of their cars, but leave almost three times as much freight on the highway.

True Cost of the GM Bankruptcy

As can be expected, the media really did a poor job of covering the GM IPO, consistently underestimating the total public cost of the bailout (e.g. no one is mentioning the $45 billion in tax-loss carryforwards GM was allowed to keep, against all precedent).

But the real cost of the handling of the GM bankruptcy is in 1) the terrible precedents it set in hammering secured creditors to the benefit of favored political allies of the Administration and 2) the loss of the opportunity to get billions of dollars in production assets out of the hands of the people who have be sub-optimizing them.

It was this latter issue I have focused the most on, particularly in this post where I argued for letting GM die.  I said in part:

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA.  ...

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one"¦ for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one.

Japanese Life Expectancy May Be Overstated due to Zombies

Via Watts Up With That:

In another example of vital statistics being grossly distorted by a combination of poor record keeping and possibly people with a selfish agenda, it is being reported in the Guardian and elsewhere that possibly hundreds of thousands of people over age 100 in Japan are actually dead, but unreported. Investigations are now underway to determine how much of this problem is due to record keeping problems and how much to family members failing to report the deaths of their elderly relatives in order to continue to collect their pension benefits by fraudulent means.

There are more than 77,000 Japanese citizens reported to be over age 120, and even 884 persons AGED OVER 150 YEARS OF AGE, who are still alive according to government rolls.

While we in the US wouldn't bat an eye if we heard this story coming out of the Chicago area of Cook County, Illinois, given the number of dead people still actively voting in elections there, there are at least 230,000 people in Japan over age 100 who simply cannot be located by any means. This large centenarian population is largely responsible for the very high average life expectancy in Japan (currently listed by the World Bank as 82.6 years, more than four years greater than the US average of 78.4 years (this is including dead voters in Chicago)), as well as any senior citizens under 100 who are actually dead but have not been reported as such on government records.

EPA Silliness

Over the last several years, we have been replacing many of the full-sized pickups we use in our campground business with mini-trucks from Japan.  They are cheaper to insure, cheaper to buy, easy to repair, and get about 60 miles to the gallon.  We typically buy them used in container-loads of six or seven, and we used to get them for less than $10,000 a container -- now they cost almost this much individually.

This year the prices have sky-rocketed, and they have been hard to find.  I finally discovered the reason.  It seems the EPA has halted their importation.  These are trucks that are from an emissions regime (in Japan) harsher than ours and that have three times the gas mileage of the trucks they are replacing.  But apparently the EPA doesn't have rules for them and doesn't know how to categorize them, and anything a bureaucrat doesn't have rules for must be illegal, right?  So now we are forced to go back to full-size pickup truck purchases until the EPA can catch up with the market.

Update: Apparently the EPA is going to review these trucks model by model.  This is so stupid.  They need some kind of class waiver.

So Much For The Tax Pledge

"I can make a firm pledge"¦.no family making less than $250,000 will see any form of tax increase"¦..not any of your taxes"-Barack Obama, September 12, 2008

Oops, well, so much for that, as Obama imposes a 35% tax on Chinese tires, requiring higher prices be paid by the majority of Americans.  This is a broad-based tax aimed at supporting one narrow American industry, as a payoff to the United Steel Workers who have been sad that the UAW has been getting all the political gravy of late.

Suppose the Chinese government is massively subsidizing tire exports -- that they are taking Chinese taxpayer money and directly applying it to tire exports to reduce prices in the US.  What should our response be?  Mine would be:  Thanks, suckers.  If the Chinese really want to tax their people to subsidize lower US consumer prices, why in the world would we want to stop them?

Oh, and remember that Obama pledge to be all lovey-dovey with the rest of the world instead of that nasty confrontational Bush administration?  Well, forget that too:

HONG KONG -- Just two days after the United States slapped Chinese tire imports with hefty tariffs, Beijing has hit back by saying it would launch an anti-dumping investigation into automobile and chicken products from the U.S.

[...]

The "protectionist" policy that seems to have triggered the Chinese tit-for-tat investigation was an order signed on Friday by President Barack Obama that imposes a 35% tariff on tires imported from China on top of the existing import duty of 4%.

Can anyone say, "Smoot-Hawley."  I am sure happy we all learned from the one unequivocal lesson that every economist, left-right-Keynsian-monetarist, took away from the Great Depression -- that starting an international trade war is the best way to exacerbate a recession.  Obama has  done just about the only thing everyone agrees shouldn't be done in response to a major economic downturn.

Update: More good analysis here

Postscript: I wrote this hypothetical post from the Chinese perspective a couple of years ago:  From "Panda Blog:"

Our Chinese government continues to pursue a policy of export promotion, patting itself on the back for its trade surplus in manufactured goods with the United States.  The Chinese government does so through a number of avenues, including:

  • Limiting yuan convertibility, and keeping the yuan's value artificially low
  • Imposing strict capital controls that limit dollar reinvestment to low-yield securities like US government T-bills
  • Selling exports below cost and well below domestic prices (what the Americans call "dumping") and subsidizing products for export

It is important to note that each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers.  A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese.  So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts.  And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange.   Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.

This policy of raping the domestic market in pursuit of exports and trade surpluses was one that Japan followed in the seventies and eighties.  It sacrificed its own consumers, protecting local producers in the domestic market while subsidizing exports.  Japanese consumers had to live with some of the highest prices in the world, so that Americans could get some of the lowest prices on those same goods.  Japanese customers endured limited product choices and a horrendously outdated retail sector that were all protected by government regulation, all in the name of creating trade surpluses.  And surpluses they did create.  Japan achieved massive trade surpluses with the US, and built the largest accumulation of foreign exchange (mostly dollars) in the world.  And what did this get them?  Fifteen years of recession, from which the country is only now emerging, while the US economy happily continued to grow and create wealth in astonishing proportions, seemingly unaware that is was supposed to have been "defeated" by Japan.

We at Panda Blog believe it is insane for our Chinese government to continue to chase the chimera of ever-growing foreign exchange and trade surpluses.  These achieved nothing lasting for Japan and they will achieve nothing for China.  In fact, the only thing that amazes us more than China's subsidize-Americans strategy is that the Americans seem to complain about it so much.  They complain about their trade deficits, which are nothing more than a reflection of their incredible wealth.  They complain about the yuan exchange rate, which is set today to give discounts to Americans and price premiums to Chinese.  They complain about China buying their government bonds, which does nothing more than reduce the costs of their Congress's insane deficit spending.  They even complain about dumping, which is nothing more than a direct subsidy by China of lower prices for American consumers.

And, incredibly, the Americans complain that it is they that run a security risk with their current trade deficit with China!  This claim is so crazy, we at Panda Blog have come to the conclusion that it must be the result of a misdirection campaign by CIA-controlled American media.  After all, the fact that China exports more to the US than the US does to China means that by definition, more of China's economic production is dependent on the well-being of the American economy than vice-versa.  And, with nearly a trillion dollars in foreign exchange invested heavily in US government bonds, it is China that has the most riding on the continued stability of the American government, rather than the reverse.  American commentators invent scenarios where the Chinese could hurt the American economy, which we could, but only at the cost of hurting ourselves worse.  Mutual Assured Destruction is alive and well, but today it is not just a feature of nuclear strategy but a fact of the global economy.

So Why Are We Benchmarking Health Care v. France?

This is awesome, from Carpe Diem:

gdpworld

On a purchasing power parity basis, France, Japan, and Germany would all be the poorest states in the United States, based on per capita GDP.  People on the coasts don't benchmark their education or health care spending against Mississippi, except perhaps to make the case that Mississippi is spending too little.  So why do they benchmark their spending against Germany or France.  Of course we spend more on health care per capita - we spend more than these countries per capita on everything from TV's to cars to movie tickets.

State Science Institute

A number of folks, including myself but more prominently Megan McArdle, have argued that a big problem with nationalized health care schemes is that these plans threaten drug innovation in the US  (which is really the last remaining source of drug innovation in the whole world).

The argument is that nationalization schemes will likely hammer drug prices through price controls down to marginal cost, eliminating any profit motive for expensive drug development.  Further, new drugs will be hampered by having to convince government health care czars that the drug should be allowed under proposed proscriptive, top-down systems of allowed medical procedures.  Risk-adverse beauracrats faced with inevitable budget overruns are unlikely to take the chances with new procedures that the private world takes every day.  (And if you don't believe that budgets will be immediately overrun, look at cash-for clunkers, where 5 months of funds were used up in 5 days -- people may not like the government, but they will take free money and services in near infinite amounts).

Well, I had thought that the response to this argument from health care "reform" supporters would have been something like "private incentives to develop drugs will still exist because of X or Y."   But apparently, they have given up on that argument and jumped all the way to the argument that even without any private drug companies, Dr. Robert Stadler and the State Science Institute will do all the drug development we need.

Megan McArdle responds in depth here.  I think there is a simpler argument.  Look at something like computers or machine tools.  Innovation in these free markets occurs all over the world, and new inventions and products are as likely to come from Korea or Japan or Germany than from the US.  But in the world of pharmaceuticals and new medical devices, a wildly disproportionate share come in the US, the last semi-free health care market in the world.  And even those new products developped in other countries are funded and capitalized based on their profit potential in the US.