How are those China crash predictions working out for you?

Back in 2010, I did a blog post expressing skepticism about theories that China was in a bubble. I quoted this statement:

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

So how does that prediction look 11 years later? The Economist has a new article on China property. In the print edition, it is titled:

The Great Escape

Long seen as a bubble, China’s housing market now looks stable. Can that hold?

The online addition has a scarier sounding title:

Can China’s long property boom hold?

The country is building five times as many houses as America and Europe combined

(I prefer their print editor.)

Both editions point to past predictions that have not panned out:

As far back as 2009 Jim Chanos, a hedge-fund manager, said China was “Dubai on steroids”, predicting that its property sector would implode spectacularly. Since then prices have doubled, and enough homes have been built for 250m people. The longevity of the boom suggests that the market is more complex than its depictions as a bubble suggest.

And they provide this useful this graph:

Are you people getting tired of me pointing out, over and over again, how bubble theories are useless? How past bubble predictions for everything from China to Bitcoin to NASDAQ to US real estate are not helpful to investors?

Then stop talking about bubbles.

The beatings will continue until the bubble talk stops.

PS. In a 2016 post I made the following prediction:

If I’d had to guess, I’d estimate that China will have one Korea-1998 type disaster in the next 30 years, but I have no idea when.  It will be impossible to predict.  That’s because if it could be predicted three years ahead, then the date of the crash would immediately move up by three years!

So don’t hold your breath for a China crash.  It will probably happen at some point, but no one will be able to predict it.  Nonetheless, you can be sure that Jim Chanos and other China bears will take credit for predicting it, even though they were wrong many times before being right.

P.S. In a 30 year window, I think the second most likely number of 1998-type disasters for China is zero.  Two is third most likely.

PPS. In the same issue of The Economist, I saw this claim:

If low real rates are the main prop for share prices, then any attempt to time the stockmarket is in essence a bet on the bond market—and, in turn, on how inflation evolves, and how central banks react to it. Good luck with getting those calls right. 

OK, I’ll take the dare. I’ll predict 2% inflation during the 2020s. Wish me luck. If I’m right I’ll remind you all in 2030.

(If I’m still alive. I’m more confident about inflation averaging 1.6% to 2.4% during the 2020s than I am about living to 75.)

Milton Friedman as a market monetarist

Marcus Nunes directed me to a very interesting 1971 paper in the JPE by Milton Friedman. Here is the abstract:

Market monetarists also prefer to skip over inflation and RGDP growth, and focus directly on NGDP growth. Once you start ignoring inflation, you have to rethink concepts such as the Fisher equation, which states that the nominal interest rate is the real rate plus inflation. I’ve advocated replacing inflation with NGDP growth, and Friedman does the same in equation 14:

The variable “ko” in equation 14 is the difference between the real interest rate and the real GDP growth rate, and “r” is the nominal interest rate.

The following is my favorite sentence, which discusses how NGDP shocks are divided up between prices and output:

The two alternative approaches he refers to are the simple quantity theory (which assumes RGDP is fixed) and the simple Keynesian income/expenditure model, (which assumes P is fixed.) An NGDP model makes no assumptions about how NGDP shocks are partitioned between prices and output.

The whole paper is worth reading. Great stuff!

PS. I have a related post at Econlog.

Odd voting patterns

The NYT put together an interesting interactive map that shows very detailed vote totals for much of the US, both totals and changes from 2016. I noticed some really odd patterns.

In my own Orange County, Biden won by about 10%, a 5% gain for the Dems compared to 2016. And yet one area of Orange County swung dramatically toward Trump—Little Saigon. Areas of Westminster and Garden Grove with a large Vietnamese-American population moved 30%, 40% even 50% from the Democrats to the Republicans between 2016 and 2020.

In this map, red means trended toward Trump and blue means trended toward the Dems. They are vote changes, not absolute vote totals:

(Ignore the large precincts, they are mostly wilderness.)

Right before the election, Vox did a story discussing increasing support for Trump in the Vietnamese community, and how this was tearing families apart:

For others, it’s a breaking point in family relations, in light of the nationwide protests against racism and police brutality. I’ve heard anecdotally, online, and from my own family members that they are worried about “anarchy” and wish for “law and order” to be restored. Misinformation on social media fuels these fears, often playing into anti-Black tropes. Some children have moved out or stopped talking to their parents entirely.

“My frustration toward the older generation of Vietnamese Americans being entitled, hypocritical, racist, homophobic, transphobic, misogynistic, and every other kind of bigotry under the sun, has more or less boiled over into nothing short of pure disdain,” one user wrote in the Facebook group Asian Americans with Republican Parents Support Group. “It’s gotten to the point where I flat out don’t care about what they think of me or say to me.”

Comments responding to the post agreed, with another user writing, “I’ve given up trying to educate them on the matters. … They’re so far up Trump’s ass, it feels impossible to take them out.”

A common joke among young Viet progressives is that you’re bound to be called a communist, or cộng sản, once you openly express any left-leaning political views. And yet, I find that there is something uniquely cruel about this political divide among a war-torn generation and their children, that beyond the language and cultural barriers that already alienate older Vietnamese Americans, there is now a stark political wedge rooted in hate, misunderstanding, and trauma.

But I expected a 5% or 10% swing vs. 2016, not 40%.

I used to live in Massachusetts, and on the map for that state almost everywhere shifted Democratic between 2016 and 2020, with two exceptions. Hispanic areas in old mill towns swung sharply toward Trump, as did African-American areas in the southern portion of Boston.

Perhaps the weirdest result I noticed was in Kaser, just north of New York City in Rockland County. Consider the following facts, and tell me how you’d expect it to vote:

1. Kaser is the densest city in America, outside of New Jersey. (Dense areas trend strongly Democratic.)

2. It’s extremely poor. Wikipedia reports that 66.4% of residents are below the poverty line, and per capita income is barely over $5000. Bolivia on the Hudson. Poor people tend to vote for the Democrats.

3. It’s overwhelmingly Jewish, a group that votes strongly Democratic.

I don’t know the exact boundaries of the town, but as far as I can tell over 99% of the roughly 3000 Kaser voters opted for Trump, and less than 1% for Biden. To put that 100 to 1 figure in perspective, even supposedly “monolithic” African-American voters are only about 10 to 1 Democratic.

The region around Kaser also went for Trump in 2016, but nowhere near as overwhelmingly as in 2020. So 2020 was not normal. I pity the Kaser resident with a Biden yard sign.

(Someone should investigate! Just kidding.)

And just one mile away are deep blue areas. Rockland County has to be one of the most polarized areas in the US.

The graph below shows just one precinct in Kaser (in absolute terms), but vote totals in nearby areas are just as lopsided.

PS. Mission Viejo (where I live) went from red in 2016 to purple in 2020.

Recent articles

1. I often discuss the “clown show” aspect of Trump’s style. It turns out that these sort of antics are now pretty widespread on the right. Here’s The Economist:

Imagine the dinner party from hell and it would look a lot like the one politicians from Forum for Democracy (fvd), a Dutch far-right party, held in November. It began with a row over the backing music, with guests torn between classical music or Ava Max’s “Kings & Queens”, a trashy dance hit. Over lobster and wine, allegations of anti-Semitism among the party’s youth ranks were dismissed by its leader, Thierry Baudet. Guests were asked how many people they would let die for the sake of freedom (“three million” was Mr Baudet’s offer). Later, the fvd’s leader suggested that covid-19 was the work of George Soros. In the days that followed, as accounts of the dinner surfaced, politicians from the party lined up to quit. It was a spectacular collapse after a remarkable rise. Founded only in 2016, fvd was feted as the future of the far right in the eu, briefly topping opinion polls in 2019. Its piano-playing, Hegel-quoting leader was breathlessly profiled in the press. Now it goes into a general election in March hoping for a few seats at best.

A clown ceiling exists in eu politics, which has kept Eurosceptic parties such as fvd from gaining too much power. Such parties tend to grow quickly before collapsing, often due to their own risible ineptitude. 

The Financial Times had a similar article.

America seems to be one of the few developed countries where a major party can become a complete clown show and still hold on to almost 40% of the electorate.

2. Reason magazine points out that the Biden administration has abandoned cost/benefit analysis when deciding on new regulations:

President Joe Biden has moved swiftly to rev up the regulatory state by weakening oversight and effectively ending a reality-based assessment of the costs and benefits of federal regulation.

Even Obama used the cost/benefit criterion to decide on new regulations, so this is a major step back toward the Dark Ages for the Democrats. Although I’m disappointed, I can’t say I am surprised. The entire economics profession has been going steadily downhill since at least 2008, and this sort of intellectual regression eventually has policy consequences.

3. This article discusses a December 2020 debate within the White House about nutty election conspiracy theories. It’s a sort of real life Dr. Strangelove. Very funny.

4. Lots of conservatives are leaving Fox News because it’s too left wing, and going over to ultra-right wing Newsmax. But now even Newsmax has been taken over the the left. Check out this hilarious video. Where will the Trumpistas go next?

5. China’s January 22 decision to lockdown Wuhan was a major turning point in the pandemic, but a less well remembered event occurred just two days later when China announced asymptomatic transmission.

Zeynep Tufekci has an excellent essay discussing how this should have profoundly changed our understanding of the pandemic, and yet many of us were reluctant to accept the implications. (I’d include myself in that list of people to blame.)

Before the lockdown, there was great reason to suspect their official statements. Afterward, however, they had finally unleashed their actual scientists to warn us, because as explained above, now their incentives were aligned with preventing the pandemic, and warn us they did. 

Further, the Criterion of Embarrassment, something historians use all the time, greatly increased my confidence in this paper—and everything the Chinese CDC would publish in the next month or so. This is the idea that something that embarrasses or puts the speaker in a difficult position is more likely to be true. From this paper, we learned that most of the cases had never been to the seafood market and that human-to-human transmission had been occurring since December. This was clearly supremely embarrassing for Chinese authorities and also very dangerous. This confirmed the cover-up, and now both China and the world were risking a pandemic. So everything in this paper and all their warnings now had a great deal of paper.

From this paper, we learned that the mean incubation period was about five days (still true). We learned that the elderly were at much greater risk (still true). 

But we learned something else very important: The paper explained that some cases either had very mild or atypical presentations. They did not reliably come with the high-fever of SARS, which, very, very luckily for the world, coincided with the infectious period of SARS. 

In addition, Chinese officials were already telling us that the disease was spreading from patients without symptoms. 

Read the entire essay; it’s excellent. Here’s her conclusion:

Now, this was round two. The Chinese officials were telling us the truth, because it was now in their interest to do so. Their scientists were doing their best to warn us, because as scientists that is what  they want to do, and they had finally been allowed to share this with us. Everything we needed to know to act was right there in front of us, but it required not just knowledge, but a theory of knowledge to turn it into actionable, timely information.

So here we are.

Jim Jones was a piker

When I was young, a big news story was the mass suicide/murder at Jim Jones’s religious cult in Guyana, where 918 people died, mostly Americans. One congressman investigating the cult also died.

If Alex Tabarrok is right, then the US might be about to engage in a mass suicide that would put Jim Jones to shame. We are refusing to approve the new AstraZeneca vaccine that’s already been approved in the UK and the EU, even though doing so could save many tens of thousands of lives.

And our press isn’t even discussing the issue; there are much more pressing issues to be addressed such as speculation in GameStop shares.

As Bob Dole used to say, “Where’s the outrage?”