BIG PICTURE: US & CHINA’S INTERLOCKING GEARS ARE OVERHEATING
By Guest Columnist Nestor Gounaris:
Partner of China Solutions, Adjunct Faculty at Georgetown University Law Center and University of Virginia School of Law
Referring to the current economic friction between the People’s Republic of China and the United States of America as a “trade war” is a facile rhetorical platform from which to lob colorful bombast regarding any number of current issues (e.g., anti-Trump or pro-Trump, China’s ascension is unstoppable or must be contained). However, there may be an existential query for the US that can divined from the interaction and comparison between each nation’s starkly different political philosophies.
As a corporate attorney with twenty years’ experience in China, I closely follow Sino-US oriented discussion. The economic-related concerns from outside of China are well known and include discrimination (hard and soft) of foreign investors, investment restrictions (hard and soft), non-market acquisition of intellectual property, non-market technology transfers, and others. The concerns from within China are also publicized and include deeming China a non-market economy in antidumping analysis, excessive exports to China are subject to export control, excessive restrictions on Chinese investment, impeding sales of Chinese communications products, and others. Detail-oriented consideration of these concerns is best suited for dispassionate, subject-matter experts. However, what should engage all of us is whether these concerns (and others) result from the interaction (and competition) of the US and China.
On the one hand, the US presents a multi-plural democracy (with challenges and limitations) that has at its core a system of checks and balances between governmental stakeholders and other values that provide stakeholders with some opportunity to impact outcomes. China, on the other hand, presents an authoritarian regime (with challenges and limitations) through which the party seeks to deliver stability and growth, among other objectives. (These characterizations are over-simplified due to space limitations and do not bear any pejorative intent.)
Consider some prominent current outcomes from each respective system. China recently initiated its One Belt One Road initiative; some assert that up to US$1 trillion will be spent through this initiative. China intends to (1) provide financing to other countries, (2) to be used to hire China’s underutilized construction capacity to build infrastructure, (3) to then facilitate the sale and export of China’s goods to far-flung markets. Consider the complexity of aligning the many domestic stakeholders (e.g., ministries, banks, businesses) necessary for such an ambitious initiative.
Query whether the US could generate domestic alignment to implement such a massive public-private effort. By contrast, consider a prominent current outcome in the US. Through the Supreme Court, and after 17 months of waiting, a decision was finally reached regarding an executive order to restrict entry of people from certain gravely unstable jurisdictions, amid airport protests, two lower courts’ temporary injunctions, and various iterations of the executive order. In China, there may have been debate within the party and the relevant governmental departments, but once decided, there would have been little-to-no debate.
Admittedly, this comparison is imperfect. But, it nonetheless remains insightful. Consider two other examples: recently (a) Chinese authorities mandated caps on remuneration of movie stars to curb tax evasion and to mitigate pay gaps; and (b) reports emerged of Chinese authorities mandating that banks to release even more liquidity into China’s economy to stimulate economic activity (or else face corruption investigations); imagine under what set of circumstances such mandates would be feasible in the US.
For the US, the potential existential query is whether an authoritarian regime can more efficiently bring stakeholders towards complex action to maximize utility (and, conversely, whether the US society’s orientation towards individual rights inhibit and perhaps rejects such utility-maximizing action)? If so, is such systematic disdain for utility-maximizing action materially or existentially impactful to the US?
ON THE ECONOMY: OLD MAN
By John Dunham:
Managing Partner, John Dunham & Associates
I’ve been first and last, look at how the time goes past. But I’m all alone at last, rolling home to you. Old man take a look at my life I’m a lot like you. I need someone to love me the whole day through. Ah, one look in my eyes and you can tell that’s true. Canadian musician Neil Young wrote this song and released it in 1972 on the album Harvest. The song was written about the caretaker of Young’s California ranch.
The caretaker, if he really were an old man since Young was …. well, young at the time, would be quite characteristic of older people today in that he is still working.
In the blog post included in this Monthly Manifesto we examine the decline in the labor force participation rate. This statistic measures the ratio of people over the age of 16 who are either employed or looking for work to the total “adult” civilian non-institutionalized population. As was mentioned in the post, this ratio declined fairly steadily from the turn of the century until the end of 2016, falling from a high of about 67 percent of the population to just under 63 percent today. Based on this change, 10.3 million fewer people are working today than would be had the participation rate stayed the same as in 2000. Many pundits have stated that this decrease is entirely due to the growth in the number of retired persons. However, as we showed in the blog, the opposite is true, and most of the decline is due to fewer younger people working.
Older people (both Old Man and Old Woman) are actually working at higher rates and many “retired” persons are actually working. They might run a home business, or work a couple of days a week at Walmart. In fact, the labor force participation rate of older persons has been skyrocketing – up from just 12.1 percent in 1996 to nearly 20 percent today. Looking at the rate for those 55 and older, we find a steep decline from the end of World War 2 until 1990, after which it shoots up again. In 1990 just about 30 percent of older folks were in the labor force. Today, that number is at about 40 percent, and has been stable at that rate since the end of the last recession.
People who turned 55 in 1990 were born in 1935 and would have been just too young to have been drafted into either the Second World War or the Korean War. Members of the Greatest Generation and the Silent Generation were used to the togetherness that came of war and military service. They lived together in the same neighborhoods, they worked together, vacationed in groups, and as they began to age, they also began to retire together. It was just natural that when one turned 63 or 65 or in some cases even 55, that you retired and played golf or fished, or took motorcoach trips.
Baby boomers were different. They grew up in a time that was not dissimilar to the present. Sure boomers went to war just like their fathers, but while soldiers fighting Hitler or Togo were in the fight until they won, soldiers going to Vietnam went on one-year tours. They traveled to Asia alone and came back alone. In addition, baby boomers grew up in an age of protest movements – civil rights, anti-war, environmental, women’s rights – all of which led to a general diffusion of thoughts and attitudes. The people reaching 55 after 1990 were simply more individualistic than their fathers and grandfathers, something that led the author Tom Wolfe to dub them the “Me” generation.
Members of the Me generation have not left the labor force as they have reached retirement age and this is across the age spectrum from 55 to 85, for men and especially for women. There are a number of reasons for this, some economic and some social.
One of the key economic reasons is that many simply cannot afford to move onto a fixed income. One key to being able to retire is to have a nest egg that generates significant resources. The rise in the labor force participation rate mirrors a decline in interest rates, and therefore a decline in payments from bonds. Also, baby boomers did not save to the same extent as their elders, with personal savings rates falling by half during their lifetimes. In addition, fewer and fewer people have generous pensions that allow them a comfortable retirement. I live in Pike County, Pennsylvania, and it is chock a block full of young retired New York City police and firemen. Their comfortable pension plans are simply not available to most working Americans.
In addition to having less resources, boomers also will face higher needs. In 1970 the average American could expect to live for about 18 years after they turned 55, by 1990 this had risen to 20 years, and today its 24 years. Longer expected lifespans require more savings and interest, not less, suggesting that retirement is even less affordable.
On the social side, marriage rates began to fall dramatically after 1980, and birth rates have been falling for even longer. This means that the family support networks that make retirement easier and less lonely have been falling apart. Older single people might find working preferable to being alone thus delaying retirement.
Finally, many people who officially retire do not stop working. According to the Employee Benefit Research Institute, or EBRI, 68 percent of U.S. workers expect to supplement their retirement income by working for pay, at least part-time. Many of these people will be self-employed, and may will be taking the kind of jobs that teenagers once held.
Neil Young is now 72 years old, and is still working, having released a new album just last year. Chances are that he is older than the Old Man that he was singing about. He and a lot of other old men and old women (including this one) will continue to be like a coin that won’t get tossed, and will likely keep the labor force participation rate from falling much further.
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