Ross Douthat Goes Nuts on China's "Population Crisis"

January 19, 2020

19 Enero 2020

I ridiculed the NYT and Washington Post yesterday for telling us that China, the world's most populous country, is in danger of running out of people. Using a tool that seems relatively scarce in Washington policy discussions, arithmetic, I showed that China's gains in productivity will dwarf the effects of a falling ratio of workers to retirees. To put it simply, with each worker being far more productive, China will be able to enjoy a society in which both workers and retirees enjoy much higher living standards 20 years out than they do today. I was hoping that we would not see another of these China population crisis stories for a while. I was wrong. Today, Ross Douthat used his NYT column to tell us how "Communist cruelty and western folly built an underpopulation bomb." Douthat tells us: "Like the United States and most developed countries, China has a birthrate that is well below replacement level. Unlike most developed countries, China is growing old without first having grown rich." This is a master statement of illogic. Yes, China is poorer than the U.S. and other wealthy countries, but there are two simple points that make Douthat complaint look incredibly silly. First, we would want to look at rates of growth, not just levels. If we look at I.M.F. projections, China's per capita income is projected to grow at rate of just under 5.5 percent annually for the next four years. If it continues this pace of growth for the next twenty years, when today's too small birth cohort is entering the workforce, its per capita GDP will have nearly tripled. That would make it $64,200 per person, about 7.0 percent higher than the U.S. is today. In other words, China would be rich. But maybe the 5.5 percent growth rate is too much to assume will be sustained for twenty years. Let's cut it in half to 2.8 percent annually. In that case, China's per capita income would grow by a bit more than 73 percent over the next two decades, making it $38,400 in twenty years. That is more than one-third less than the current per capita GDP in the U.S., but it's only slightly below where Japan and Korea are today, two countries who Douthat apparently feels comfortable in saying have grown rich. It's also roughly where the U.S. economy was in 1994, a year when most of us would have thought we were relatively rich by world standards. But this is actually the less important problem with Douthat's complaint. In 2020, China is considerably poorer than the United States. This means that its people on average have fewer cars, smaller housing units, and in other ways have lower material living standards than people in the United States.

The NYT and WaPo are Both Worried that China is Running Out of People

By CEPRCEPR

January 18, 2020

18 Enero 2020

Folks who have followed economic policy debates for the last few decades can never be surprised by the poor quality of reporting, but it still can get annoying. In a world where we are already doing irreparable damage to the environment through global warming, the idea that we will have fewer people in the future should be seen as a good thing. Nonetheless, our leading news outlets are warning us that China, the world's most heavily populated country may be seeing its population decline in the decades ahead. The story is that fewer babies will mean fewer workers twenty years out. We are warned that this would lead to a labor shortage and make it more difficult to support retirement pensions. The Post article warns that in Japan (it also talks about countries other than China), it could make it difficult to sustain economic growth. Let's deal with these one by one. What does a labor shortage mean? Presumably it will be hard to get people to do the least productive, lowest paying jobs. The obvious response is, so what? This is called "capitalism." If a particular job holds little value then it won't get done. This is the reason half of our workforce is not still in agriculture. They are doing more productive tasks elsewhere. Going forward, if we do see serious labor shortages we will probably see fewer people serving tables in restaurants, working as housekeepers in hotels or providing valet parking. And, the people who still work at these jobs will get much higher pay. Sounds like a terrible crisis! The second point is that with fewer workers per retiree, it will be harder to support retirement programs. The problem with the story is that the benefits from higher productivity growth swamp any possible increase in costs associated with changes in demographics. Here is what I wrote a few years back in reference to China.

Krugman on Child Poverty and Family Benefits in the 2020 Election

By CEPRCEPR

January 17, 2020

17 Enero 2020

(This is a guest post by Shawn Fremstad.)

In his column today, Paul Krugman rightly calls for more attention in the presidential campaign on family benefits and child poverty. As he points out, in Europe public social expenditures on family benefits (including benefits like child allowances, paid family leave, and child care) “average between 2 and 3 percent of G.D.P. The corresponding number for the United States is 0.6 percent of G.D.P.”

I’d add there are at least three notable non-European examples of countries that substantially boosted their expenditures on family benefits over the last decades. In Canada, family benefits have increased from .9 percent of GDP in 2000 to 1.6 percent in 2015 (this is the latest year for Canada in the OECD’s comparative database, but their spending is likely even higher today for reasons noted below). In Japan, family benefits have increased from .6 percent of GDP in 2000 to 1.3 percent in 2015. In Korea, family benefits have increased from .1 percent of GDP in 2000 to 1.2 percent 2017.

While Krugman highlights child care and mentions paid family leave, he doesn’t mention a third important family-benefit reform that we need to make: turning the Child Tax Credit into an inclusive child allowance. In 2015, Justin Trudeau ran on reforming Canada’s then-byzantine set of tax credits for families with children into a single, simple, and progressive benefit. I was in Quebec during the run up to that election and remember seeing regular campaign ads touting his Child Benefit proposal. Notably, Trudeau pitched his plan in a way that was designed to appeal to both low- and middle-income families:

“… with [conservative Prime Minister] Harper you need to be a certain family to get his $2 billion tax break. For our plan, all you need is to be middle class, or hoping to join it. You can be a single mom, a stay-at-home dad, a family where both parents work or are divorced. It doesn’t matter. Our plan helps you.”

Trudeau won, and today the maximum credit is $6,639 (CA$) per child under age 6 and $5,602 per child age 6 through 17. Unlike in the United States, all very low-income families get the maximum credit, and child poverty has declined substantially in Canada as a result.

Finally, I have to say that Krugman gets offtrack at the end when he argues that the Sanders campaign is to blame for the lack of attention to children because he made Medicare for All “a bright shiny object chased by the news media at the expense of other policies that could greatly improve American lives….” (My colleague Dean Baker has written about past Krugman critiques of Sanders on Medicare for All). While the media certainly needs to expand its focus to include family policy issues beyond health care, it is unfair to blame Sanders for their failings.

(This is a guest post by Shawn Fremstad.)

In his column today, Paul Krugman rightly calls for more attention in the presidential campaign on family benefits and child poverty. As he points out, in Europe public social expenditures on family benefits (including benefits like child allowances, paid family leave, and child care) “average between 2 and 3 percent of G.D.P. The corresponding number for the United States is 0.6 percent of G.D.P.”

I’d add there are at least three notable non-European examples of countries that substantially boosted their expenditures on family benefits over the last decades. In Canada, family benefits have increased from .9 percent of GDP in 2000 to 1.6 percent in 2015 (this is the latest year for Canada in the OECD’s comparative database, but their spending is likely even higher today for reasons noted below). In Japan, family benefits have increased from .6 percent of GDP in 2000 to 1.3 percent in 2015. In Korea, family benefits have increased from .1 percent of GDP in 2000 to 1.2 percent 2017.

While Krugman highlights child care and mentions paid family leave, he doesn’t mention a third important family-benefit reform that we need to make: turning the Child Tax Credit into an inclusive child allowance. In 2015, Justin Trudeau ran on reforming Canada’s then-byzantine set of tax credits for families with children into a single, simple, and progressive benefit. I was in Quebec during the run up to that election and remember seeing regular campaign ads touting his Child Benefit proposal. Notably, Trudeau pitched his plan in a way that was designed to appeal to both low- and middle-income families:

“… with [conservative Prime Minister] Harper you need to be a certain family to get his $2 billion tax break. For our plan, all you need is to be middle class, or hoping to join it. You can be a single mom, a stay-at-home dad, a family where both parents work or are divorced. It doesn’t matter. Our plan helps you.”

Trudeau won, and today the maximum credit is $6,639 (CA$) per child under age 6 and $5,602 per child age 6 through 17. Unlike in the United States, all very low-income families get the maximum credit, and child poverty has declined substantially in Canada as a result.

Finally, I have to say that Krugman gets offtrack at the end when he argues that the Sanders campaign is to blame for the lack of attention to children because he made Medicare for All “a bright shiny object chased by the news media at the expense of other policies that could greatly improve American lives….” (My colleague Dean Baker has written about past Krugman critiques of Sanders on Medicare for All). While the media certainly needs to expand its focus to include family policy issues beyond health care, it is unfair to blame Sanders for their failings.

There Was No Housing Bubble and Everyone Agrees We Have to Crack Down On China's Practices on Intellectual Property

By CEPRCEPR

January 16, 2020

16 Enero 2020

I am speaking here in my capacity as “no one,” as in “no one saw the housing bubble and the risks it posed to the economy.” The reason for my comeback is the new consensus that we have to do something about China’s “bad practices,” which generally mean its lack of respect for the intellectual property claims of U.S. corporations.

This Washington Post piece gives us a good example, telling us:

“There is now a wide consensus in the United States to challenge China on its worst actions. After this agreement, U.S. firms in China are no longer supposed to be forced to hand their technology over to Chinese companies, a long-standing problem.”

Okay, at the risk of not getting included in the happy consensus, I will make a few points here.

The first should be the obvious one, if U.S. corporations don’t have to worry about being forced to transfer technology when they set up operations in China, then they will be more likely to set up operations in China. That’s pretty much Econ 101. Boeing obviously is happier when it is not forced to transfer technology to a future competitor, Boeings’ workers have no reason to be happy about more of their jobs going to China.

The second point is that China’s economy is already 30 percent larger than the U.S. economy. By the end of the decade it will almost certainly be more than twice as large as the U.S. economy. It spends roughly the same share of its GDP on research and development as the United States.

I know that the media are dominated by America First Trumper types, but if a country is spending twice as much on R&D as the U.S. it is likely to have more technology that we will want from them, then we will have technology that they will want from us. A trade policy that actually looked to benefit the United States and the world would be looking to share innovation as quickly as possible rather than lock down the patent and copyright monopolies of U.S. corporations.

Think of how much we could gain if clean technologies developed in both countries were immediately available for the whole world to use. The same applies to breakthroughs in health care and other areas. Yeah patents might have been a great system in the 16th century, but it might be worth a bit of rethinking on whether they are the best way to promote innovation in the 21st century. (This is the topic of chapter 5 in Rigged [it’s free].)

Finally, stronger and longer patent and copyright monopolies give more money to the people in a position to benefit from the rents from patent and copyrights (think Bill Gates). One of the great pieces of idiocy in economics (there are many) is the idea that technology is responsible for the upward redistribution of the last four decades. Sorry folks, it was not technology, it was our policy on technology. In a world without patents and copyrights, Bill Gates would probably still be working for a living. (Actually he is old enough to be getting Social Security.)

It was our policies on technology which allowed some people to get hugely rich while devaluing the skills of tens of millions of others. It is possible to argue that these policies were still best for the country as a whole in that they provided incentives to develop new technologies (that seems a hard argument, given the pathetic productivity growth of the last fifteen years), but the point is that it was a policy choice that redistributed income upward, not the technology itself.

The China case is just a classic example of this story. We are being told about the wide consensus by our media, without any indication that there is actually a policy choice here. That is the simple and obvious point that no one is saying.