METRO DEATHS | NY area likely to pass 10,000 deaths

Italy's lockdown.

April 3, 2020—On a Zoom chat this morning, someone asked about the future for the U.S. and New York City economy. I suggested that  it depends on how we manage the pandemic at the NY City, State and Federal level.

The number to watch, I said, is the death rate, because by now everyone is aware that the "confirmed cases" number is dependent on how many tests are done. Shortages of testing kits reduce the number of confirmed cases but also, by delaying proper care and isolation, contribute to higher death rates. The number of cases is not a good measure of the outcome of the disease.

Chart 1. Virus Cases by Country, David
Leonhardt, NY Times, March 31, 2020.

Whichever measure we use, the  prognosis for the United States is for the disease to worsen before it gets better.

Let's look first at the number of cases. Did the United States get ahead of the curve between the time that the disease started in China and then spread to Italy? The chart at right, by David Leonhardt in the NY Times on March 31, suggests not.

In fact, by this point in the progress of the virus, China and Italy and even Spain were both doing better based on cases. But this chart is subject to testing bias. If the United States is "not flattening," the reason may simply be that the United States has stepped up the rate of testing.

Deaths in a democratic country are hard to fake or hide. People are paid to track them. A death from the coronavirus follows a gruesome pattern that should now be not hard to diagnose. Population numbers are closely watched. So, horrible though they are, the death rates are "good"  measures of the spread of COVID-19.

Table 2. Top lines, NY Times Upshot 
table, March 27, 2020.

The table at right shows the top seven lines of a table published as an Upshot in the New York Times. As the accompanying text in the story points out, the death rates lag cases, so they are not the best measure of the challenges being faced at the moment in the hospitals.

Because China was ahead of Europe, and Europe has been ahead of the United States, in facing the coronavirus, the Lombardy and Wuhan death rates are worth looking at as a guide to what might happen in the New York City area.

If there is a bias in the death rates in Lombardy and Wuhan, it is probably on the low side:

• Yes, Italy has an unusually elderly population, second in the world after Japan. This would tend to raise the death rates relative to New York — the median age in Lombardy is about 45, whereas it is 38 in New York. But Lombardy numbers may be considerably understated because many deaths that did not occur in hospitals were not counted by the health care reporting system — i.e., they might not have been counted if they occurred where people live, even if they were in nursing homes. 
• The Wuhan numbers may also be undercounted. A classified U.S. report suggests that C.I.A. insiders believe that Chinese cases and deaths from the virus may have been systematically underreported.

What do the death-rate numbers tell us? It is not in the Upshot story, but if the progress of the disease in the New York area matches that of Lombardy, we can expect a death rate of approximately 0.5 per thousand applied to a New York City metro area population of 20 million, or 10,000 deaths.

Chart 2. New York deaths higher than
Lombardy at same point. Upshot,
NY Times, April 3, 2020.

The math is not hard to follow. Lombardy suffered 5,000 deaths, in round numbers. It has half the 20 million population of the New York City Metro Statistical Area.* So one would expect, all else equal, that the New York metro area would end up with double the Lombardy deaths, or 10,000.

Today, April 3, the New York Times published another Upshot chart showing how we are doing on death rates relative to the Lombardy region. It should not make us complacent.

Upshot shows on the chart that the NY City death rate until the last observation has been doubling every two and a half days. It has been on a trajectory well above Lombardy's for a week, until the latest day. Governor Cuomo has noted in his 11 a.m. daily updates a marked improvement in the State trajectory in the last few days. If he is right, it is a breakthrough and he should get credit for it. The Governor's recent moves have improved the odds that the State's hospital system will be able to handle the coming peak load of patients. Meanwhile, we should watch the numbers carefully. It still seems likely that the New York metro area will exceed Lombardy's death rate.

* The NY metro is the statistical area (MSA), not the Combined Statistical Area (CSA), which would add another 3 million people. The NY MSA is composed of four Metropolitan Divisions; one of them is Nassau-Suffolk, two counties that together constitute Long Island as a Metropolitan Division.

HEIDI FISKE | Mexico Ready to Embrace China?

Lopéz Obrador, Mexico's Newly 
Elected President

The following story originated from our Mexico tracker, Heidi Fiske:

Trump's plan to alienate the neighbors and friends of the United States is bearing fruit.

This blogpost, written by Heidi Fiske, expressed our alarm about the case of Mexico. Our concerns were justified. The country is reacting as one might expect, turning to other nations to seek help.

Until now, Mexican leaders have been wary of involving China in their country’s affairs for fear of angering the United States. 

Not any more. Its just-elected socialist president Andrés Manuel López Obrador plans a range of infrastructure projects in the poverty-stricken south of Mexico in which he grew up.

Many of these projects are expected to be financed with Chinese loans. We are watching this evolving story.

HEIDI FISKE | China in Mexico

Xi Jinping Casts a Ballot

Over the weekend, the final step in Xi Jinping’s grab for life-long power in China was completed when the National People’s Congress voted 2,959 to 2 (there were three abstentions) to abolish term limits for his job as president.

Xi also heads the military and the Communist Party.

As China ramps up its presence in Latin America, this authoritarian spirit could become a problem for Mexico, especially if it opts to depend on Chinese infrastructure projects.


Does this sound unlikely? Well, consider this: http://bit.ly/2Dm48Cf.

HEIDI FISKE | Mexico – A Vector for Chinese Aggression? (Post 2 of 2)

President Enrique Peña Nieto of Mexico (L) and
President Xi Jinping of China, September 2017.

This is Part 2 of a two-part guest post by Heidi S. Fiske. The first post is here. 

Aggression by a foreign power, using a Latin American base, brought America to the verge of nuclear war in 1962.

The Cuban Missile Crisis

Seared into the memory of all who lived through it, 56 years ago the United States came within a hair’s breadth of nuclear war with Russia. It was so close, in fact, that, on October 27, 1962, then Secretary of Defense Robert McNamara declared: “This may be the last Saturday I ever see.”

It began on October 14, 1962, when a US plane spotted a Soviet missile being assembled on the island of Cuba. President Kennedy convened a very small team to consider what to do. Invade? Bomb? 

He decided on an embargo, hoping to keep Russian warheads from reaching the island (fruitlessly, we later learned – the Russians already had 162 tactical and strategic nuclear warheads there). On October 22, a tense American public listened as Kennedy announced the blockade on television, and said that the United States was prepared to use military force to protect its security. After another fevered week of negotiations, the Soviets backed down and removed the missiles.

But let’s consider what our position would be today if a hostile power had major bases in Mexico.

A Weakened United States and a Strong Mexico

Cuba is a small island 90 miles to our south. It was and is poor. We had robust international alliances all over the world. Our national debt was $298 billion, less than 10 percent of our GDP. While the Cold War was expensive, we were not engaged in any hot war. President Kennedy was schooled in history, hard-working and a very bright man with an outstanding cabinet.

By contrast, Mexico is the 15th largest economy in the world. It is smack up against us for 2,000 miles, and has territorial waters that abut ours in the Gulf of Mexico and the Pacific. And we have a different sort of President now, presiding over a cabinet whose divisions and shortcomings are legendary. Our national debt is $20 trillion, 106 percent of GDP – before the new tax reductions and budget take effect.

Thus if we found ourselves facing Chinese aggression via Mexico, we would be weaker than we were in 1962. And China would have far more territory, much closer to us, from which to launch a cyber or military attack.

How likely is it that China might gain a military foothold in Mexico? The camel’s nose is its Belt and Road Initiative (BRI).

Belt and Road

China’s BRI may be the largest international investment project in history. Xi Jinping announced its two parts in the fall of 2013 – the land-based Silk Road Economic Belt (SREB), and the sea-based Maritime Silk Road (MSR). 

The BRI goal is to create infrastructure that connects developing countries. Less than five years old, it already covers more than 68 countries, equivalent to 65 percent of the world's population and 40 percent of global GDP.

This may be a peculiarly Chinese way to seek influence. In On China, Henry Kissinger points to the stunning fact that, for 18 of the past 20 centuries, China had the highest GDP in the world. Its  superb communications and roads linked markets among its vast population and territory. BRI is just such an initiative, this time on the world stage.

Today, add China’s growing pre-eminence in AI and other key technologies to the mix, and its increasing use of authoritarian power to curtail what its citizens can see. “Technology in the service of an authoritarian regime is a very very dangerous thing,” says Robert Kaplan, author of the just-released The Return of Marco Polo’s World, which looks, among other things, at BRI.

While BRI was originally designed to foster economic cooperation with developing countries in Eurasia and Africa, last May it was extended to Latin America. In January 2018, China’s Foreign Minister Wang Yi traveled to the Community of Latin American and Caribbean States (CELAC) Forum in Santiago and formally invited the 33 nations represented there to join forces. CELAC, formed in 2011, does not include the United States or Canada. Pointedly, Chile’s Foreign Minister Heraldo Muñoz used the occasion to say that “This meeting represents a categoric repudiation of protectionism and unilateralism.”

China had already become the most significant new force in Latin America and the Caribbean. At the World Economic Forum in 2017, Angel Melguizo, Chief Economist in the Latin American Unit, OECD Development Centre, noted:

“China has become one of Latin America’s key trading partners. In fact, it is the most important partner for Brazil, Chile and Peru. Trade between China and Latin America has multiplied 22 times since 2000, a stark contrast to Latin American trade with the United States and Europe, which merely doubled in the same time period.” 

The scale of potential BRI projects is indicated by a proposed 19,000-kilometer trans-Pacific fiber-optic internet cable from China to Chile.

Though wary of China’s growing role in this hemisphere, the United States seems strangely insouciant about it, with Trump now exercising what Council on Foreign Relations President Richard Haass wryly dubs “the Withdrawal Doctrine.”

To be sure, US-Mexican ties run deep and broad. There is a long history of friendship, cross-border businesses, and alliances. Many families on both sides of the border, at all socio-economic levels, are bi-national. And we share some important history and cultural roots, especially in the southwest.

But will this be enough to counter a Chinese juggernaut patiently building in Latin America? “Washington,” says Antonio Hsiang, Professor and Director of the Center for Latin American Economy and Trade Studies at Chihlee University of Technology, Taiwan. “is now in danger of damaging its core interests through neglect.”

Looking Down the New Silk Road

BRI is supposedly peaceful in intent. At his talk to the CELAC Forum, Foreign Minister Wang said:

“China will always stay committed to the path of peaceful development and the win-win strategy of opening up, and stands ready to share development dividends with all countries.”

But this is spoken by a top official of the country that is building military bases in territory it does not own, in the South China Sea. How difficult would it be to convert major infrastructure installations in Mexico into bases for spying, cyber attacks or even a hot war against us?

This is the real menace from Mexico. And it means that Trump’s attacks on Mexico are 180 degrees away from what strategic considerations would dictate.

HEIDI FISKE | Risks Created by Trump's Trashing Mexico (Post 1 of 2)

Mexico's President Enrique Peña Nieto with China's President
Xi Jinping, September 2017.

The following guest post was written for CityEconomist by Heidi S. Fiske.

There is a looming menace from Mexico, but it is none of the ones identified by Trump. The threat is not one of drug dealers, rapists, and murderers flooding across our borders. It is not MS 13. It is not jobs lost to Mexican workers or Mexican factories or Mexican steel.

They are flyspecks compared with the real danger that Trump is creating by his relentless insults, as well as his threats to NAFTA, his proposed tariffs, his cancelling of DACA, and his insistence that Mexico pay for a border wall. And to add insult to injury, he has just announced his plan to send Jared Kushner (who just lost his White House security clearance) to Mexico tomorrow to meet with President Enrique Peña Nieto.

The real menace is the strategic threat to our security that an emboldened China may pose, using an alienated Mexico as its base.

China has recently, sweepingly, broadened its Latin American ties. And just as it has gotten stronger on the world stage and filled some of the vacuum created by Trump’s unilateralism, it has not, as the US hoped, gotten more democratic. On the contrary, it has tightened authoritarian control, flexing new muscle against foreign enterprises on its soil, and forcing western news outlets to limit what Chinese citizens can see. Most strikingly, on February 25, China's Premier Xi Jinping arrogated the power to rule for life by abolishing the two-term limit that had been the law. The National People’s Congress is expected to rubber stamp his decision this week.

Does China as a major force in Mexico sound unlikely? To be sure, it will not happen fast. But a look at the history of aggression from the south, and of China’s recent moves, shows that it is a geopolitical threat of such potential magnitude that we should be vigorously working to counter it now.

“Bad Uncle Sam”

But Trump is doing the opposite, and thereby encouraging Mexico to turn away from the United States, however reluctantly. His insistence that Mexico pay for the wall, for instance, has caused Peña Nieto to cancel two trips to the United States, most recently last month.

And on March 1, career diplomat Roberta Jacobson, our highly respected ambassador to Mexico, announced she would quit in May. As Trump has not even proposed a candidate for Assistant Secretary of State for Western Hemisphere Affairs, her departure leaves us particularly depleted in Latin American diplomacy on the highest levels.

To be sure, Secretary of State Rex Tillerson has recently made a five-country tour of Latin America to try to placate leaders there, but with limited success. “This is a way for Tillerson to say, ‘We’re elevating our voice,’” said Rafael Fernández de Castro, the director of the Center for US-Mexican Studies at the University of California San Diego. But, “this is the ‘bad Uncle Sam’ of the past,” he added. “The horrendous insults to Mexicans, to every single Latin American immigrant, are there. They cannot have it both ways.”

The Trump Shock and Mexican Response

Reportedly much of retiring Ambassador Jacobson’s time has had to be spent smoothing ruffled feathers rather than accomplishing substantive gains in Mexico.

“With his tweets Trump has torn up 20 years of good relations,” said a Mexican friend as we drank afternoon tea in her kitchen a year ago. “It is as if your gentle father suddenly slapped you across the face for no reason. You don’t leave the family but you are certainly wary, and waiting to see what happens next.”

What has happened since is, if anything, worse. Last week I checked in with Warren Hardy, an American who became a Mexican citizen in 1990. Beginners at his Spanish language school in San Miguel de Allende are treated to an hour-long history lesson designed to impress on them that Mexicans are inordinately sensitive to being insulted. Mexicans, he explains, have great pride in their indigenous cultures on the one hand, but have been brutally treated successively by the Aztecs, Spanish and most recently the US on the other. The result is that “the core value of the Mexican people is respect. Mexicans demand respect from each other and particularly from foreigners.  What Mr. Trump has done is strike a blow at the heart of our relationship by calling Mexicans rapists and criminals."

Small wonder that Mexico’s leaders are looking for new partners. When Trump renewed his threat to scrap NAFTA late last August, slamming Mexico in the process, the very next week Mexican President Enrique Peña Nieto travelled to China to discuss increased trade. While there, he participated with 800 business leaders  in a summit of the BRICS nations (Brazil, Russia, India, China and South Africa), which Mexico might join to cooperate on investment, trade, finance, and the sea.  And the day after that Peña Nieto visited the Alibaba Group, hoping to get more Mexican products onto this China-based leading e-commerce platform.

Could increased trade with China morph into Mexicans being receptive to becoming a base for aggression against the United States? Consider events a century ago.

The Zimmermann Telegram

In January 1917, Germany’s Foreign Office proposed to the Mexican government that, if the US entered World War I against Germany, the Mexicans should fight on the German side, thus making it a two-front war for the US. In return, Germany would recover Arizona, Texas, and New Mexico for Mexico.

The famous Zimmermann Telegram that conveyed this offer was intercepted and decoded by British intelligence, which shared it with America in March of 1917. It backfired mightily on the Germans. So enraged was the American public that President Wilson went before Congress and swiftly won a declaration of war against Germany on April 6, 1917.

As it happened, Mexico turned Germany down, not believing that it could deliver either financially or militarily on its promise, or that Mexico could control the large English-speaking territories it might have re-acquired. But there was fertile ground among Mexicans to accept an offer that promised revenge on the United States, just as there is today. It was not just because the United States had seized almost half of Mexico in the Nineteenth Century. The United States had invaded Mexico in 1914 to protect US business interests during the Mexican revolution, and again in 1916-17 in a vain attempt to punish Pancho Villa for killing Americans in New Mexico.

While this German effort fizzled, 45 years later, a military threat from the south, from Cuba, became very real indeed.

In my next post, following shortly, we examine that threat, how much worse it would be if it were repeated today, and just how China is moving into Latin America.

This is Post 1 of 2. The second post is here:
https://cityeconomist.blogspot.com/2018/03/heidi-fiske-mexico-vector-for-chinese.html

IMMIGRATION | Centennial of Immigration Act

In practice, the literacy test kept out
fewer than 1,500 

Vero Beach, Fla., Feb. 5, 2017–This day 100 years ago, Congress mustered more than the two-thirds majority in both houses required to override President Woodrow Wilson’s veto of the previous week.

It passed the Immigration Act, one of the rare times that Congress has overridden a Presidential veto. Congress has prevailed over fewer than one-tenth of vetoes.

The law required a literacy test for immigrants and barred Asian laborers, except those from countries like the Philippines with special U.S. ties. The law went into effect May 1, 1917.

Immigration Largely Unrestricted before 1917

Through the first century of American independence, immigration into the United States was largely unrestricted. This open-door policy changed during the 1870s and 1880s. In 1882 the Chinese Exclusion Act barred the immigration of Chinese workers and a general immigration act barred entry to persons judged likely to become "public charges.”

During the late 19th and early 20th centuries, the United States received a majority of the world’s immigrants. Most seeking entrance continued to be accepted. Between 1892 and 1924, some 16 million people entered and settled in the United States to seek a better life, increasing the nation's population by 25 percent.

In 1894, the Immigration Restriction League in Boston petitioned the U.S. government to legislate that immigrants be required to demonstrate literacy in some language. Congress passed such a literacy bill in 1897, but President Grover Cleveland vetoed it. The Immigration Act of 1917 was the first federal law to impose a general restriction on immigration in the form of a literacy test. It also broadened restrictions on the immigration of Asians and persons deemed "undesirable” and provided tough enforcement provisions.

The Immigration Acts of 1903, 1907, and 1910 added rules to exclude persons with mental and physical defects, persons with tuberculosis, and anarchists. However, literacy riders to the immigration laws were vetoed by Presidents Grover Cleveland (1896), William Howard Taft (1913) and Woodrow Wilson two years earlier (1915).

The Immigration Act of 1917 updated and codified much of previous immigration legislation, repealing the Immigration Acts of 1903, 1907, and 1910.  It contained 38 subsections and took up 25 pages in the Congressional Session Laws. Congress overrode Wilson's second veto of the proposed Act.

Literacy Test, Higher Head Tax, More "Undesirables"

Reflecting public hostility to southern and eastern European immigrants, the act required all adult immigrants to demonstrate an ability to read; any language would do. This provision was promoted by isolationist Rep. John Lawson Burnett of Alabama, who is also remembered as one of the few who voted against going to war against Germany. Literacy testing had also been promoted by some woman suffragists as a way of speeding up passage of a Federal Amendment recognizing the right of women to vote. (Fewer than 1,500 foreigners seeking to be admitted to the United States are said to have been excluded by the literacy test.)

Besides adding this literacy test, the law increased the head tax to $8 (equivalent to $150 today), which was a significant  barrier for impoverished refugees. The act expanded categories of "undesirable aliens” to include: "idiots, imbeciles, and feeble-minded persons;” persons of "constitutional psychopathic inferiority;” "mentally or physically defective” persons; the insane; alcoholics; persons with epilepsy, tuberculosis or contagious diseases; paupers and vagrants; criminals; prostitutes; anarchists; polygamists; political radicals; and contract laborers.

The Immigration Act barred most immigration from Asia. Chinese immigrants were already barred by the Chinese Exclusion Acts and the Japanese by the Gentlemen’s Agreement. In addition, the act created the "Asiatic Barred Zone,” which encompassed India, Afghanistan, Persia (now Iran), Arabia, parts of the Ottoman Empire and Russia, Southeast Asia, and the Asian-Pacific islands.

The act contained extensive provisions for enforcement. Penalties were imposed on any persons or corporations who encouraged or assisted the immigration of persons barred by the act or contract laborers.

The law can be explained, in part, by:

1. Disruptions caused by prior immigration in the first decade of the 20th century – nearly 8.8 million people in 1901-1910, adding one new American for every eight residents in the United States in 1900. In 1907 alone, 1.3 million immigrants passed through Ellis Island. 
2. Eugenics theories then popular that categorized individuals and races as superior and inferior. Adolf Hitler didn't write Mein Kampf in a vacuum.
3. Nativist sentiments exacerbated by America's entry into World War I.

The 1917 law slowed down the rate of immigration. But another 5.7 million immigrants were added in 1911-1920, and in 1920-21 the rate was back up to that of the first decade. In 1924 a more restrictive law was passed requiring immigrant inspection in countries of origin, leading to the closure of Ellis Island and other major immigrant processing centers. The immigration quotas begun in 1924 turned out to be more effective at controlling the numbers of new Americans.

JAPAN | Video History

History of Japan – definitely entertaining and seems to cover the ground I am familiar with. Early emperors and shogunates, samurai code, European and American (Commodore Perry) visits, Korea-Chinese conflicts, two world wars, rapid economic growth.

Video starts slowly, ends fast, a good formula. The history has been viewed 5 million times, but not so much yet in Japan.

https://globalvoices.org/2016/02/11/hilarious-animated-history-of-japan-gets-rave-reviews-including-from-japanese/

CHINA | Its Move Today vs. FDR's in 1933-34

FDR's moves to stabilize financial markets and devalue the
dollar paid off.

China's devaluing the renminbi (aka the yuan) appears to be based on the idea that by devaluing in stages, the rest of the world is less likely to care.

Actually, no.

It seems that the Chinese government had in mind loosening the effective peg of the renminbi to the dollar, allowing the currency to fluctuate within a wider band against the dollar.

But markets react fast. Once people in the marketplace think they understand what is happening, they worry about losing money every minute they delay in acting on the knowledge.

FDR and his first Treasury Secretary, Will Woodin, had the brains first to stabilize the financial markets in March-April 1933, and then to buy all private gold in May 1933. They were preparing quietly for a devaluation in order to:

• reduce the foreign (gold) equivalent of U.S. public and private debts
• encourage exports and
• discourage imports.

Gold played a role vis-a-vis the dollar then that the dollar today plays vis-a-vis the renminbi.

FDR in 1933 forced the sale to the government of private gold (other than gold coins in the hands of collectors). Then, at the beginning of 1934, FDR devalued the dollar against gold in one fell swoop, from $20.67 for an ounce of gold, where it had been for a century (except for the Civil War), to $35 an ounce.

His action was meant to be a one-time event, and so it turned out to be.

An example of what appears to be the Chinese program is conveyed by an old Irish joke. A Kerry man in the Dail urges his colleagues to change all the road signs so that vehicles drive on the right, as they do in Continental Europe. He figured that the cost could be spread out over several years. The first year they would move the trucks over to the right lane. Then they would move the buses, and the third year they would move over the private cars.

As Lady Macbeth says in Act 1, Scene 7: "If it were done when 'tis done, then 'twere well / It were done quickly." FDR understood that. The Chinese government, if we understand their moves aright,  does not.

CHINA | You Called the Crash–Thanks, Mase Gaffney!! (Updated Jan 8, 2016)

Note How Fear Is 3X More Powerful than Greed

Mason ("Mase") Gaffney has sent around the following note to his mailing lists, noting that he correctly forecast the China crash several months before it happened.

He was in print predicting the crash would happen in 2015, and the article was published in March 2015, which was pretty brave for an academic economist.

Generally you try to predict so far in the future that no one is likely to remember your prediction.

This rule is violated by the people (like Reuters) who publish a forecast of the job numbers on the first Friday of every month, up to an hour before the job numbers are released, leaving themselves open to contradiction within minutes.

Another rule is:

• If you give a date, don't give a number.
• If you give a number, don't give a date.

I believed Gaffney when I first read his article in April 2015. I sold out all my stake in the China fund at Fidelity on April 21, 2015. Not quite at the top of the market, but as Bernard Baruch once said, "the only people who buy at the bottom and sell at the top are liars."

Gaffney is eager to let people know about his successful forecast, because it is evidence of the validity of his underlying views, which give more emphasis to land values than mainstream economists.

I am writing about Gaffney's prophetic skill for two reasons:

• The idea that land values should play a bigger role in economic analysis resonates with me. The history of the American Revolution, especially why the southern states joined with New England, history would be more understandable with more emphasis on land values in the territories claimed by Virginia and then made part of Quebec by George III. 

• His article saved me from heartache over the dropping Chinese stock market. (I cannot attach his full article, but I can forward it on request. Contact me at john@cityeconomist.com.)

I acted on Mase's advice and saved myself from losses on the China Fund. His risk-taking deserves some reward, which I am providing in the form of a Thanksgiving. God Bless Mase, Henry George, Everyone.

Here is his email, in bold face to set it off from the rest of this post.

In March 2015 I published a forecast (attached) that China’s economy would crash in that year. China promptly did so in July, around our Independence Day, while our press was obsessing over threats from ISIS kamikazes and the drama of Greece, a tiny nation next to China. I am indebted to Cliff Cobb, Editor of The Am. J. of Ecs. and Sociology for letting me go out on a limb in his journal. 

Cliff also let me give both the analysis and the evidence behind the forecast. You will find my essay heavy reading because analysis usually is, so I don’t expect all or even most of you to clamber up its hills and down its ravines. Please do notice, however, that: 

Prof. Mason Gaffney, UC Berkeley

1. It is largely independent of what passes for mainstream analysis by the most visible economists today.

2. It gives a central role to land markets as leading autonomous factors in the cycle, building on while varying in important details from Henry George’s pioneering observations in 1879 (call it “exegesis”). 

3. It incorporates the reverberations between land pricing and deposit expansion by commercial banks.

4. It incorporates the “Austrian School” emphasis on the role of capital turnover, but without the narrow focus on central banking found in most Austrian works, and without the philosophical anarchism.

My aim in circulating this information widely is not to play the Donald Trump, but rather in the hope that the success of its risky forecast will lead to a wider acceptance of the role of land and its pricing in economic analysis.

CHINA | Is It 1929?

China Stock Prices Down, Volume Up.

July 8, 2018–China's stock market is the second-largest in the world after that of the United States.

It is now in a free fall that extensive government intervention does not appear to be slowing.

The major Chinese market has fallen by one-third from its seven-year high last month and continued to drop today. Expectations are for a further drop despite suspension of trading in one-fourth of listed stocks.

Is it 1929 in China? The political impact of 1929 in the United States was enormous, ushering in two Democratic decades in the White House, FDR and Truman.

The end of the free fall in the U.S. economy after 1929 did not come until 1933. What turned the economy around was:

• FDR and his Treasury Secretary (William H. Woodin) declared a bank holiday, printed money for the banks and opened only the solvent banks.
• They required the sale to the government of privately held gold. Later, FDR devalued the dollar against gold (i.e., raised the price of gold).
• FDR instituted projects to create new jobs.

The program worked until budget-balancing came back in 1936, causing a brief dip again in the economy.

The political impact of the stock market collapse is likely to be great in China because 80 percent of investors in the Chinese market are reportedly individuals, many of whom borrowed money to increase their stake in the market.

LABOR | Developments in China

Mike Lee, Lead Trainer for China, and
Eliza Wright, Development Manager, SAI.

In June 2010, a nonviolent eight-day strike of 1,700 workers at the Honda factory in Zhongshan attracted international attention. Within three weeks, it was the third Honda auto parts factory in Guangdong province to suffer a work stoppage, along with plants in Shenzhen and Foshan.

In addition to the issue of inadequate wages, the workers at the Honda plants were pressing to have their own union, because they felt that the All-China Federation of Trade Unions (ACFTU) was not representing them adequately.

On August 4, I was privileged to talk about these questions with Mike Lee, Lead Trainer for Social Accountability International in China, who was in the United States for the same SAI planning sessions that Rishi Singh participated in. (See my report on workplace developments in India immediately before this one; also note my disclosure that I have been married for 41 years to the president of SAI.)

Lee has his M.Sc. degree in Chemical Engineering from Northeast China Institute of Electric Power Engineering and a B.Sc. degree in Electrical Engineering from Wuhan University. He has conducted more than 50 SA8000 audits. He is based in Shenzhen, near the site of one of the three Honda plants that had work stoppages in 2010.

Q&A

Q1. Mike, I thought the ACFTU was supposed to be the only union in China. It’s the one that Wal-Mart’s workers belong to. Why do you think the Chinese government has allowed the Honda union – and similar ad hoc worker groups in other factories - to continue?

LEE: It was a puzzle at first. The theory now is that the government is using the existence of the bottom-up worker representation to put pressure on the national union to be more responsive to worker concerns. The government knows that Honda and other big brands can establish factories anywhere they want. Another reason is that although Wal-Mart had established many ACFTU branch unions inside their companies, actually it does not work as expected. The union seems to be not functioning where there was a mass layoff in Wal-Mart last year.

Q2. A striking Honda worker who was afraid to identify himself is reported as saying: “The ACFTU is not representing our views; we want our own union that will represent us.” What might the do-it-yourself unions have that the official union does not?

LEE: Actually workers in the Honda strike asked their local government to re-organize the ACFTU local union in Honda’s factory. After a series of negotiations, finally, the members of the Honda union were elected by workers directly, but the previous union leader is still there. The new re-organized union in Honda’s factory cannot be viewed as a completely independent labor union but worker representation was enforced.  Perhaps  the Chinese government is trying to find out what works. It wants to make the national union better. Probably the most important task is to improve communication between plant managers and workers and to increase the representation of workers in ACFTU local unions.

Q3. How can a union improve representation of workers?

LEE: SAI has been thinking about this for a long time and has ideas on how to create systematic channels of effective communication between the factory manager and the workforce, and how to encourage workers and unions to become more involved.

Q4. Can you give me an example?

LEE: An example is to establish a mechanism inside factories to handle disputes. SAI’s approach in its Social Fingerprint^® Program is to establish “Internal Social Performance Teams”.

Q5. Doesn’t every factory have something like this?

LEE: Apparently not. The Chinese government may be seeking to ensure that the ACFTU is bringing workers’ representatives and  management to the table together when necessary.

Q6. It sounds like President Kennedy’s idea of a three-way negotiation, with the government bringing management and labor together. Of course, he was interested in the national unions and the major steel companies, whereas these issues are strictly local initiatives. What is the outlook for pop-up unions in China?

LEE: Yes, this is quite similar to President Kennedy’s idea of a three-way negotiation. No one knows the outlook of pop-up unions in China, but the government’s letting them continue informally at Honda and elsewhere is a good sign. Think of them as pilot projects under observation, and perhaps showing the way for the AFCTU, encouraging them to have a closer relationship with workers in every factory. The latest interesting news in China is that in May 2012, a pilot project of electing union leaders by workers directly at factory level in Shenzhen was successfully implemented. And the ACFTU branch in Shenzhen has announced they will involve more factories this year. This program of pilot elections may be considered a response by the local government and the ACFTU branches to the Honda strikes. This is a first step toward greater independence of the labor unions.

Q7. How does the Honda union operate?

LEE: Once a year, in February or March, or both, the union engages in collective bargaining with management for a wage increment and some assurances on other matters, such as  that excessive overtime will be reduced.

Q8. Is the leadership among workers at the Honda plants, and the governments allowing them to continue, having any effect nationally?

LEE: I think so, if workers’ requests are  mainly focused on increasing their wage level, reducing excessive overtime working hours, and health and safety issues. It is seen as a signal that having workers’ representation in the factories is considered healthy by the government. It is good for the worker committees and the workers because it creates confidence that management will be responsive. 

Q9. There were strikes in other cities outside Guangdong and the targets are often Japanese-owned and Taiwanese-owned factories. And in India the factory where there was violence was owned by Suzuki, a Japanese firm. Is there any significance to the fact that these factories are foreign-owned?

LEE: People are perhaps more willing to believe that there is a lack of communication when the factory is foreign-owned. Also, perhaps the British and American-owned brands became aware of the problems earlier, because of consumer sentiment. Some U.S. brands have been early users of SAI’s Social Fingerprint^® Program and the SA8000 certification program.