The Japan Times Tuesday, February 3, 2015 9 opinion What U.s. ‘upward mobility’? China fights deflation on its own Yao Yang Berlin elites replicate themselves In his speech at the 2015 World eco- nomic Forum meeting in davos, Chi- nese Premier Li Keqiang acknowledged Stephan Richter 2007. by the time the most recent reces- rich kids stay rich and the poor kids stay that China’s economy is facing strong Washington sion arrived, median income growth poor. even the more famous (and more headwinds. annual GdP growth in 2014 The Globalist had flattened for ordinary americans so literal) form of u.s. mobility — moving was 7.4 percent, the lowest rate since much in the “good” times leading up to freely about the land in search of better 1990. but to stabilize economic growth, It is always intriguing to see an eminent it that they emerged on the other side in economic opportunities elsewhere — he pledged that China will “continue to conservative thinker get so hung up in 2012 making 10 percent less money has almost come to a standstill. pursue a proactive fiscal policy and a his own empire of thoughts that he can’t each year than they had made a full de- Many americans, unable to sell their prudent monetary policy.” see how he ends up undermining his cade earlier. homes owing to the continuing vagaries China’s current economic slowdown own case. No question, for those who have of the real estate market or fearful of was policy-induced. during the last two a recent example is George F. Will’s made it, America still looks and feels like leaving their employer-tied health plans years, the government has tightened fis- article “Welfare state rises as exception- the Promised Land. but there is a vast without another job already lined up, cal and monetary policy, in the hope of alism declines” [featured below]. at the flipside to all that glory — those who are are stuck where they are. They cannot offsetting the adverse effects of the large beginning of an all-republican majority truly struggling. supporting those in simply set out across the plains to start a stimulus package implemented in re- u.s. Congress, it is worth examining his need is certainly something that a new life. sponse to the 2008 global financial cri- argument, since it is designed to provide wealthy society like the u.s. can afford, To avoid any misunderstanding: None sis. Li’s davos speech was intended to the sheet music from which all republi- especially considering the high moral of what has been said above means that signal that the Chinese government will cans are meant to sing. self-perception the rich have of them- truly talented people, including immi- not allow the growth rate to slip further. Will starts out his reflection with the selves in this land. grants, cannot use the u.s. education China’s stimulus package was by far ominous assertion that “america’s na- Will also helpfully explains that eu- and entrepreneurship system to strike it the world’s largest and most effectively tional character will have to be changed rope’s social democracy advanced since rich as the american dream promised. implemented. It stabilized growth in if progressives are going to implement the late 19th century in large part be- but the existence of that birth advan- China and moderated the global eco- their agenda.” cause of rigid class structures blocking tage escalator for some individuals nomic contraction. but it left in its wake For a hyper-traditionalist and history upward social mobility. True. means that being wealthy is by no some serious problems for the Chinese buff like Will, this is a very quick way to but if even an arch-conservative mili- means just a question of talent and will economy. run counter to historical facts, in pursuit tarist such as Germany’s Otto von bis- power. Most important, the country’s econo- of claiming conservative thought as the marck at the time saw the need to give any highly developed society with my has become highly leveraged. Hous- one true american ideology of old. workers health care, accident insurance vast pockets of wealth has its polar op- ing prices shot up, real estate developers vestment demand and thus delayed the nundrum facing China’s authorities is Memo to columnist: The united and health insurance, one must wonder posite — really poor people. and while borrowed recklessly, and local govern- fall in world commodity prices. Now that monetary expansion would merely states previously underwent a “Progres- about one question: Why are 21st-cen- Will and Co. don’t tire of beating the old ments became heavily indebted. as a re- that the fall has arrived, domestic defla- fuel a run-up in asset prices, rather than sive” era. It lasted roughly from the tury republicans in the u.s. still trying dead “welfare state” horse yet again, sult, broad money (M2) increased tion has become a real threat, particu- resulting in higher credit flows to the 1890s to the 1920s and is associated with to prevent all americans from having they never mention that the abuses that rapidly, and now stands at more than larly given slower domestic fiscal real economy. venerable Presidents such as Teddy similar coverage? once existed — and which they may well two times China’s GdP — one of the expansion. The blockages used to be local gov- roosevelt, Woodrow Wilson and How- That’s a thought worth pondering at have been right to castigate a quarter highest levels in the world. That is why China’s government ernments and zombie real-estate devel- ard Taft. some length, especially since German century ago — were addressed. This flood of money rang alarm bells would do well to recall the asian finan- opers. but that is likely to change this Given that prior episode of a clearly health care delivery, as it happens, is That rightsizing of the welfare state, for Li and President Xi Jinping when cial crisis of 1997. In response to deng year. borrowing by local governments delineated historical period, america’s quite cost-efficient to this day — in after all, was done by none other than they took office in early 2013. The gov- Xiaoping’s famous tour to the south, will be strictly monitored, and their new national character won’t have to be sharp contrast to the u.s. case (wholly bill Clinton, a democrat, from a humble ernment has since reined in money- which provided a needed boost to the debt financing will come mainly from changed, just revert to where it once independent of Obamacare). background. supply growth and started to impose reform process, investment increased government bonds. went before. The u.s., as Will continues to believe, If there is a resurgence of the level of limits on local governments’ borrowing. rapidly in the first half of the 1990s. as a and though most observers believe Is the u.s. experiencing a rising tide of relies completely on “upward mobility transfer payments to welfare recipients Monetary expansion has decelerated. result, China’s annual inflation rate that China’s first-tier cities (beijing, welfare? based on merit.” but that is exactly the now, that is not due to any relaxation of The budget law has been revised to soared to an all-time high of 24 percent shanghai, Guangzhou and shenzhen) echoing a recent analysis by Nicolas factor that has changed; there has been the standards under which people qual- allow local governments to issue gov- in 1994. The government’s subsequent will still struggle in 2015 to digest the eberstadt, “american exceptionalism a loss of economic mobility. ify for welfare. ernment bonds, and their borrowing measures to curb inflation might have huge housing stock they built up in re- and the entitlement state,” Will also la- americans might be confused hearing Indeed, the bar to obtain and keep from commercial banks is being closely engineered a soft landing; but the finan- cent years, some second- and third-tier ments that “america today does not look this. but according to all relevant socio- benefits remains quite high. It is not a monitored. cial crisis hit China severely, leading to cities have already reached the bottom, exceptional at all.” economic indicators developed by the welfare state fantasyland. These policies have raised capital six years of deflation. and have started to recover. The proof he sees in the data pudding OeCd — where the u.s. government has Nor is it the result of some sweeping costs, with monetary tightening, in par- The main lesson of the asian financial China is the largest trading country in is the rise in needs-based transfer pay- always played a strong hand in econom- cultural degradation foisted upon the ticular, taking a large toll on local gov- crisis — or, for that matter, of any finan- the world, prompting calls for Chinese ments throughout the land. ic data management — there cannot be good and hardworking American people ernments and real estate developers. cial crisis — is that deflation is the ulti- leaders to assume greater responsibility Will’s lament brings to mind an old any doubt that u.s. excellence in terms by “progressives,” as Will ultimately in- because slower growth forces them to mate threat to recovery. because the for the overall health of the global econ- adage of John Maynard Keynes: “When of social mobility is a thing of the past. sists. There is little to suggest struggling borrow new money to pay their matur- 1997 crisis was confined to east asia, omy.