I had coffee with Michael Pettis in Beijing a few months ago–he certainly knows a lot about China. I agree with him that the current policy regime is pretty bad, but am more optimistic about China’s ability to reform. It has already dome a lot of reforms, I don’t see why it can’t do a lot more. Michael is pessimistic about the prospects for further reforms.

Mark, You said;

“Isn’t this exactly what the Democratic plan sets up?”

No!

Are the Dems proposing that we reduce government spending on health care from the current level of over 6% of GDP, to 1.2%? No, they want to increase it further.

Are the Dems proposing any sort of effective cost controls like Singapore has? No.

Are the Dems proposing HSAs plus catastrophic insurance like Singapore has? I have heard they want to ban HSAs.

Are the Dems proposing that we abolish Medicare, Medicaid and the VA system? No.

So I really don’t see much similarity between the proposals being kicked around Congress, and what these other countries do. BTW, In Switzerland the people pay an average of about $1350 out of pocket each year for health care. In the US it is $800, and the Dems want to reduce it further.

John2, I’m not sure what your comment refers to. Certainly nothing in my post contradicted anything you say here. I agree Congress isn’t good at doing health care reform, and would prefer they left it to the states.

The Dutch and Singapore systems are similar in that purchasing health insurance is compulsory. In both countries the health insurance policies for sale are heavily regulated as to what must be covered under the policies that are sold to the public. Both countries also offer subsidies for lower income people to defray the cost of insurance mandates.

Isn’t this exactly what the Democratic plan sets up? Compulory obligation to buy insurance along with regulations governing how that insurance is administered (they can’t rescind your policy or deny you a policy based on preexisting conditions).

I’m sure if the Republicans made a good faith effort to introduce a bill that would acheive universal coverage a la the Dutch or Singaporan model, the Democrats would be happy to tweak their plan. So far all the Republicans have proposed is reverse-regulation by allowing sale of insurance policies across state lines. This proposal would actually make it harder for consumers to get good quality coverage because insurance companies could locate in the State with the most favorable regulations, and use those lax regulations to more easily recind policies when policyholders get sick. The Republican plan does next to nothing to help out those who cannot afford insurance, nor for those who have preexisting conditions.

Could someone here point out to me how the democratic proposals are so different from the Dutch and Singaporan models? I just don’t see a big difference.

At this point the image of the terms conservative/liberal are too closely associated politicians running under those banners. They’ve been so defiled by them it seems one’s ideas would be better standing on their own without the labels.

Funny that you thought I was coming at China from an Austrian
perspective. My views on China are most strongly shaped by Andy Xie and Michael Pettis, neither of whom are Austrians and both of whom live in China, though I suppose the term ‘misallocated capital’ is under copy right at the Mises Inst. somewhere.

I don’t see where you come up with the 4 fold number, China is nearing the end of her demographic dividend, so housing formation is not set to take off. I am sure the destruction rate of out dated housing stock is relatively high, but 75% obsolete seems unrealisticly high.

Bryan Caplan says the adverse selection problem is overrated. In auto insurance it is precisely the higher risk drivers who are least likely to buy auto insurance, even though most states cross subsidize to some extent.

Even so, much of what you say is true, but that just means I’d like to blow up the entire system, replace US-style “health insurance” with true health insurance; catastrophic plus HSAs. My wife told me that if we have a $20,000 dental bill, the insurance company pays the first $2500 and we pay the other $17,500. I almost broke out laughing. Isn’t insurance supposed to be the exact opposite? We pay the first $2500 and they pay the rest? Just blow up the entire system and start over. (Yes, I know it won’t happen, but that’s what we need.)

rob. Thanks, another reply needed.

OGT, You are probably right about Republican politicians. I was thinking more in terms of right wing intellectuals. Obviously politicians in both parties are cowards, you don’t see either taking on the powerful health care-industrial complex.

You are completely wrong about China. Yes, I’ve seen the “ghost city” footage. That is very atypical. China’s “unsustainable” investment orgy has been going on for 30 years, and will continue for another 30 years, regardless of what the Austrian economists say. Yes, a lot of money is being wasted (it is still half communist after all) but almost all the housing being built is desperately needed. China still needs to increase its housing stock 4-fold, so it will be a long time before China needs to worry about building too much housing.

I’ve been to China many times, and traveled all over the country. Press reports on China are highly misleading. They create the image of a country spinning out of control. that’s not what I see. I see a country gradually getting its act together.

OGT#2, I have seen too many examples of the Dow responding to China (since March) to write it off. Asian markets open before the US, and often positive news out of Asia was the only plausible reason for a Dow rally, especially in the spring when the US economy was still so weak.

Jeffrey, Didn’t Bush also push HSAs? But I agree with your general point that Republicans have not been very good on this issue.

Statsguy, Devaluations have no long term impact on trade balances, short and medium term effects are the only effects.

You said;

“In arguing that the Peg is helping the US (via the income effect), you seem to be arguing that the current situation is better than one in which there was no Peg, the US devalued fully, and China devalued as needed…”

No, I am doing a ceteris paribus comparison. I am saying things would have been worse if the Chinese yuan had been revalued this year. Had that occurred, China might not have recovered. Asia then might not have recovered, and the entire world might still be mired in deflationary expectations (especially in asset markets.) I don’t want to overplay this point, because obviously it is a matter of degree. China is recovering not just because of a weak yuan, but also banking stimulus. Still, I think China’s actions had a net positive impact on the world economy. It made world monetary policy more expansionary. The easiest way to visualize the importance of world AD is to think about the policy dilemma of a small country like Sweden. They could have devalued their currency almost without limit, but their big problem was that the world collapse in investment hurt their export sector, almost regardless of the value of their currency. Germany started recovering as soon as their exports of machines to Asia revived. These effects are less strong for the US, but they are still there.

Joe, I understand that view but I think it is wrong. Both in the 1930s and today, deflationary monetary policies did not lead to needed market reforms, they led to left wing governments that produced policies that further eroded the supply-side of the economy, such as massive fiscal stimulus. I’d rather have monetary stimulus. Plus there is the problem of 10.2% unemployment that shouldn’t be held hostage to fights over what type of reforms are best.

“I showed how the steep dollar devaluation in 1933 made the US trade balance much “worse.” But it also increased inflation expectations, increased NGDP, and led to rapid growth in the US.”

You write above:

“I am arguing a weak yuan helps boost AD in the US… the income effect is far more important than the substitution effect.”

I am more confused than ever, and suddenly feeling very dumb.

The weak Yuan comes directly at the expense of a strong dollar. Certainly the 1933 devaluation in the _US_ would have resulted in short (perhaps even medium) term increases in the trade deficit in the _US_, because of the J-curve effect, but in the long term there was an expectation of surpluses and even more importantly nominal price revaluation.

But above, you are arguing that a devaluation in _China_ increases AD in the _US_ by itself (without the US responding with further devaluation). Which would be fine except the way China is devaluing is by allowing the Yuan to be forced down by the dollar. In short to medium term equillibrium, this means the dollar will be above the natural rate and the yuan below.

In arguing that the Peg is helping the US (via the income effect), you seem to be arguing that the current situation is better than one in which there was no Peg, the US devalued fully, and China devalued as needed…

OR, are you merely arguing that the current situation is better than one without the Peg in which the US devalued but China kept the Yuan overvalued? If so, sure, but no one on the other side is arguing that…

@Doc: A counter-plan that shifts the health insurance tax deduction from employers to individuals, without providing an additional subsidy to individuals, doesn’t increase the number of people with minimal coverage. Even if republicans are negotiating in good faith (which, from their shenanigans over the summer it appears they aren’t) their proposal is only likely to make things worse in the short term, even if components of it are a good idea in the long term.

So China builds an unsustainable investment bubble based on misallocated capital for investment in the production of goods with no final end demand, ghost cities and infrastructure that can never pay backs its investment in increased production, and the US stock market rallies. And this proves? I don’t think even Eugene Fama believes in EMH that strongly anymore.