Soros, Redux

In my last post I talked about George Soros and his "shock therapy" take on transforming economies. He looked at all the state-run enterprises (SOEs) in Soviet Russia and rationing systems and came up with a cutesy metaphor - something like, "you can't cross a chasm in two jumps." He advocated transforming the system overnight. It would be difficult and painful at the beginning but have good long-term results. He sent the nation of Russia into a deeper depression than the Great Depression. It was a horrible idea and the Chinese took note as confirmation of their conception of economic reform.

I think it applies to some the left-wing criticism of Obama, who came into office with financial market in a state of collapse on par with what the Russians witnessed. It made up something like half* of Wall Street profits where most of Americans were banking their retirement funds, where insurance companies of all stripes banked their premiums, and where businesses and individuals were investing in what they thought was at least marginally "safe". Obama, I think correctly, surmised that this wasn't the time for shock therapy - which is what would have happened with no TARP. These institutions were being just as "efficient" but were constructed to be just as needed by the common man as the old Soviet SOEs. There was no killing one without seriously hurting the other. It simply transcends ideas of justice that something needed to be done to at least let them die a little less violently. You don't let pillars of the economy collapse that even if they are run by idiot greedheads because they're depended upon by nearly everybody.

Health care is the same game. It's terrible and broken, but it's almost 15% of the economy. It is, right now, built around insurers in a way that you can't simply "shock therapy" rip them out and throw a NHS in without risking collapse. You have companies that provide employment to millions of people that would go out of business. Assembling the newly unemployed into the state ranks for the sake of employment would be disastrous. I think the trojan horse** of a "public plan", along with tighter regulations like price controls (which usually give me the creeps), is the way forward to gradually move to a government-run system. That said, I don't think Republicans are wrong for calling a spade a spade. If it's run with even half a brain, it will suck the lifeblood out of even "good" private (or non-profit, or co-ops) insurers trying to insure "Joe Sixpack"***. For better or worse, it would create a de facto single-payer system over time. I think the non-subsidised co-op idea is an interesting alternative that might actually do the job and get broad consensus.

The only counter-argument I have to the Republicans is that they, like the public, are perhaps not "ready" for a thoughtful debate about government-run health care and need to at least see what the system looks and feels like in America before they could support, fight, or reform the idea. There's been too much propoganda for decades lamenting the "failure" of the Euro-Canadian system that's just simply a lie. These guys have universal coverage for about half the cost as what we're paying! Despite the occasional horror stories of waiting lists for critical procedures, at least people get to wait for something they otherwise couldn't afford in America! As true as this might be, it's not terribly democratic idea to sneak "trojan horses" into policy debates to avoid the crux of the debate.

*off the top of my head

** it's a trojan horse because the Republicans are right - businesses can't compete with even a moderately competent state-run plan oiled by US treasury subsidies. The "public option", like a Soviet sprocket factory, simply can't fail no matter how much in the red it runs. In the case of health care, it would likely run into the red by doing precisely what we want it to - helping us with huge medical expenses! It just goes back to the boss, Congress, and asks for more funds that go back to "the people". AIG and other insurers fail if they run into the red for too long. Denying service is how they make a profit.

*** I promise to never use this term again. I far prefer "Laobaixing" 老百姓, or Old Hundred Names, in Chinese.

Paper Tiger Markets

I'm writing from underneath a rabbit hole I found in the Great Firewall. It's unfortunate that a barbed wire fence encircled Blogger, Twitter, and Flickr for the Anniversary That We Dare Not Mention. Two steps forward, one step back. It the same vein, a new article hit the press that there's a new regulation that all new computers sold in China must include "Green Dam", which is essentially a client-side Great Firewall. Where most spyware opens up pop-ups to sites you don't want to visit, this one prevents you from seeing what you want to see and with the advantage of keeping the bugs and gaping security vulnerabilies found in all spyware. Please, won't you try Ubuntu for your own good? Except for playing some Windows games, there's nothing you can't do with Ubuntu that you can do with Windows. Except get viruses, spyware, trojan horses, and pay for that luxury.

On to what I wanted to talk about:

A controversy is brewing in Shenzhen lately. It deals with the fact that almost half the housing in this fair city doesn't legally exist in the sense that it can be bought and sold. The back story first: China and Russia were both de facto "communist" countries in the same way that David Koresh was a "Christian." It's Marx stripped of social-justice and straight to the command-economy part that has the tendency to nations to the brink of insolvency. And it did. China started re-thinking the whole think about a decade before the Soviets got around to it. China started by replacing a few cylinders first in the crank engine by establishing some special economic zones like Shenzhen to be spiced up with higher octane fuel in the form of foreign investment, then threw off some extra baggage like the state-owned enterprises, and has just completed replacing all four tires all while never stopping. Russia followed the "shock therapy" advice of Jeffrey Sachs who had the axion, "you can't cross a chasm in two jumps." He advised replacing the engine and tires instantly and without stopping for the net effect of creating a localized depression several times worse than the Great Depression.

The point is, China has slowly been dismantling parts of it's communist legacy as it deems appropriate and expedient. Strange relics remain, like the hukou system (which I'll write about later) that works almost like an internal passport. If you don't have a local passport, you're not privileged to local services... like education for your children or subsidized healthcare. This in a country with the largest and fastest peaceful human migration in history as people leave their farms for the cities.

The relic that's haunting Shenzhen right now is that even though all of Shenzhen's official residents were declared "urban" some years ago, land reform didn't catch up and their plot of land remains "rural." One of the relics I admire as a crypto-commie myself is that the farmers are unable to undo one of the better things Mao did for them, namely sell the land their family acquired in post-liberation land reform. They're stuck to it. You can't mortgage the farm no matter how shiny the factory job offer is or how sick Uncle Luo gets. This has created an invisible social safety net that China needs as an estimated four million people loose their jobs this year. It's nice to go back and live rent-free on self-sustaining land when your Taiwanese boss decides to catch the last weekend flight to Taipei with six month back wages owed to you and your coworkers in tow.

Back to Shenzhen - so land reform never caught up with Shenzhen and now you have neighborhoods, like mine, that are more than half illegal. For a quick picture, it looks like this: we have a couple 25+ story high-rises with nice little gardens around them inside a gated community. The rest of Baishizou is a people zoo. It's likely even denser than Mong Kok, itself one of the densest places in the world. We have "handshake" buildings, usually eight stories tall with no elevator and about five or six feet apart from one another, often with restaurants or other storefronts at the bottom. They're built illegally on "rural" splotches of land where the millionaire "farmers" are just responding to market demand for affordable housing. It's not uncommon to find 3-4 people living in a 50m apartment. They pay no taxes for these illegal buildings and suffer no safety inspections. Residents lucky concrete is only combustible during nuclear blasts.

The net market effect of having only half the cities housing units legally available for sale is a massive housing bubble wherein the apartment I live in now sells for about $130000 USD (but rents for $500/m). That's insane. Truly, deeply, regrettably insane in a country where home ownership is usually a prerequisite for marriage and a good salary is about $1000 a month and the average college grad is lucky to make half that. Families are understanding, I believe, as I just witnessed a good friend marry into an exceptionally conservative family without owning a home.

The government is in the unfortunate position of having to untangle this mess. The idea has been floated to let the "farmers" pay back taxes and legitimately sell their property. The problem is that's going to burst a large bubble of wealth quickly by flooding the market with cheap housing and punish investors who played by the rules. Do nothing and the bubble just gets bigger and even more people live in unsafe housing. Razing half the city, though attractive on paper, isn't such a popular idea for the (more than) half of the city that lives in these buildings.

Here's a good review and probably the best op-ed I've read this side of the border crossing.

Have ideas? Leave them at the mayors office in a box marked, "Suggestions".