By
Chris Buchheit on August 16, 2010
What alarmist economists have been predicting for years has finally come true, at least for now. According to the New York Times, China surpassed Japan’s GDP in the second quarter. China has been on top in its region many times in its multi-millennial history, but this is the first time it has been the regional economic hegemon since the Dynasties came to an end.
“This has enormous significance,” said Nicholas R. Lardy, an economist at the Peterson Institute for International Economics. “It reconfirms what’s been happening for the better part of a decade: China has been eclipsing Japan economically. For everyone in China’s region, they’re now the biggest trading partner rather than the U.S. or Japan.”
Japan’s economy has been lagging for the last decade. On the other hand, China’s has been booming. Ever since Deng Xiaoping implemented his Gaige Kaifeng policy in the post-Mao period, whose famously horrible policies such as the Great Leap Forward decimated the Chinese economy, China has been experiencing a rise of increasingly open capitalism. This situation has naturally unlocked the China’s GDP potential and given rise to a formidable economy.
Even though Japan’s economy was the second in the world, being worth 1.28 trillion dollars in the second quarter, China has a long way to go before matching America’s economy, which was worth roughly 14 trillion dollars in 2009. Based on current predictions, economists believe China can outgrow America by as early as 2030.
However, given that the potential for political instability to occur is too great in China, I personally do not subscribe to the notion that China is an unstoppable force. Be that as it may, America must figure out its own economic destiny before it can hope to stay the economic power it has been since World War One.
My own predictions aside, China is growing into a global force – it has begun driving economic dialogues in the region, and has become a prime developer of foreign nations. It has a huge economic presence in Africa and Latin America, and is currently the top exporter of raw materials.
What do you think of China? Do you think it has the ability to become an economic powerhouse like the United States?
Posted:
8/16/2010 9:22:41 PM by
Alan Greenspent | with
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By
Chris Buchheit on August 14, 2010
A huge political battle is brewing in Congress – whether or not to let the Bush tax cuts expire. According to the New York Times, the battle could set fiscal policy for years to come – as it’s expected to be a huge election topic.
The Democrats are prepared to let the tax cuts on the wealthy expire, but to keep the cuts on other income brackets at their current levels. That would mean that individuals and couples making less than $200,000 and $250,000 respectively wouldn’t see their taxes increase. All others above this level would.
As the political battle is set to wage, what would the implications of letting the tax cuts expire be?
Almost all Republicans and a few Democrats agree that simply letting the cuts expire now, while the economy is still weak and fragile, would only make matters worse – and I agree with them. Credit is still tight, money isn’t exchanging hands nearly as fast as it could be, and jobs are still hard to come by – and all three of these problems are related. The last thing this country needs right now is more taxes.
The top earners are, for the most part, those who own the companies that create jobs in this country. If taxes were lowered for them, the credit crunch would not be nearly as potent as it is in keeping jobs away from our economy. In short, if businesses have more money, they can hire more hands.
President Bush’s tax cuts are set to expire by the end of the year, and if Congress doesn’t act decisively now, the entire economy could suffer.
As a case in point, a blogger on the internet pointed to the yacht taxes of the mid-90s. In his words, once the tax was levied on yachts, the selling of yachts predictably dropped – which meant that dock hands and marines suffered too. There was a decreased demand for these services, and the shipbuilding business tanked as well. The tax was quickly repealed. This example shows how taxation on the wealthy can adversely affect all others within different tax brackets.
That’s my take on it, but what do you think? Gimme some comments!
Posted:
8/14/2010 7:10:33 PM by
Alan Greenspent | with
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By
Chris Buchheit on August 14, 2010
In an ongoing discussion of the recent financial reform bill, I will address another aspect of the new law. Today, I assess the bill’s ability to address the problems that led to the financial recession we are still in.
As a background, what did actually cause the recession?
The financial crisis was primarily caused by risky and faulty business behavior. However, as I’ve written before, part of the reason some businesses partook in these practices was because the federal government promised to reimburse banks that lent money to those who had no ability to repay. Thus, through Fannie Mae and Freddie Mac, these banks had the security to lend as they pleased.
Once lendees were unable to pay the banks back, the housing market was demolished, and so were the banks. The lesson? Banks only need to lend money to those who can afford to pay bank the loans.
So what does the new financial bill have to do with this situation? Surprisingly, nothing.
According to the website I cited in my last blog, the financial bill does nothing to address the Fannie Mae and Freddie Mac lending practices situation. I believe this is a great oversight, to say the least, and other critics of the bill hold the same opinion. “Rather than fix the endless bailout that Fannie and Freddie have become, Congress believes it is more important to expand federal regulation and litigation to lenders that had nothing to do with the crisis,” writes Mark Calabria, director of financial regulation studies at the Cato Institute, in his analysis of the bill.
Although the bill requires banks to check lendees’ income levels and assess their ability to pay back the loans (which banks were supposed to do anyway), I believe it’s too little too late. The government should have been focused on fixing the source of the problem. However, it chose to attack wall street and individual banks. In short, I believe this bill is far more political than it is functional.
On the other hand, perhaps the bill is a step in the right direction. Maybe it will set the discussion in motion to consider real solutions. What do you think? Leave me comments!
Posted:
8/14/2010 5:56:45 PM by
Alan Greenspent | with
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By
Chris Buchheit on August 4, 2010
Among the fiscal controversies that have occurred over the past few years, the newest one is the financial reform bill, recently signed into law by President Barack Obama. Over the next three blogs, I will going over a few facets of the bill I find particularly interesting. I will attempt to be as open-minded about the multiple aspects of the bill as possible.
First and foremost, under the new financial bill, the government maintains the right to manage “failing firms” that would have an impact on the United States economy. According to an article in csmonitor.com, this authority would be overseen by the Federal Deposit Insurance Corporation (FDIC). The interesting part is that taxpayers apparently would front the “initial costs,” that might be incurred by the failing of the particular firm. However, the firm would be required to coup the costs… up to $50 billion.
What I don’t understand is that under a simple, laissez-faire economic model, the taxpayer wouldn’t have to pay a dime for a failing firm – at least directly to the government in assistance to a failing business firm.
Let’s recap what led to our economic downturn. Certain banks gave questionable loans that could not be paid back. Suppose the bailouts had never occurred, what would happen? The banks who had adopted this questionable and overly-risky business model would have failed. Regardless of what government employees like to say, nothing is big enough to fail. They key to this scenario is that not every bank made these faulty loans, which means that banks that were big enough to do so, would have picked up the assets that the banks could not afford. As a result, the argument could be made that our economic downturn would have been worse, but shorter. No government intrusion required, and no taxpayer dollars go to businesses with proven faulty business practices.
The bottom line is that the taxpayers aren’t culpable with their life savings to cover the costs of faulty businesses. However, under this financial bill, the taxpayers must float the bill for failing firms.
In spite of needed financial reform, I cannot say that I agree that the government should have oversight of “failing firms”… I agree much less that the taxpayer should have to float the initial expenses. In my next blog, I will go over
other aspects of the financial reform bill.
Continued:
Financial Reform Analysis - Part 2
Posted:
8/4/2010 9:43:13 PM by
Alan Greenspent | with
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