Tag Archives: economics

China’s Wife Drought

You may be familiar with the economics of China’s artificially low currency, but how does its marriage economy fare? Did you know that the nightmare of being forever alone is closer to reality in the Middle Kingdom? Starting with an overview of Chinese market economics, I’m going to attempt to explain the current wife drought that is gripping the Asian giant.

Since adapting Deng Xiaoping’s policies of ‘socialism with Chinese characteristics’ in 1978, essentially a hybrid of free market capitalism and socialism from the Maoist years, critics of China’s integration with the global economy still have beef with the way the country goes about its international trade.

China has less of a mixed market economy than a centrally planned one with a huge public sector of state-owned enterprises claiming 40-50 percent of national GDP. And whilst state subsidies for steel and auto parts manufacturing industries guarantee lower prices of Chinese goods around the world, instilling in us cheap expectations of anything tagged Made in China; they provide an unfair advantage against relatively expensive foreign goods and services.

Even more financially uproarious is China’s heavily undervalued currency (renmenbi). Pegged to the U.S. dollar until 2005, these days the yuan (single unit renmenbi) has been allowed to float in a narrow margin of 0.3 percent above or below the previous day’s market closing price. By keeping the value of the yuan on a tight leash, China ensures that its goods and services remain internationally competitive. Exactly how undervalued the yuan is contested from all accounts, but recent studies point to a figure of about 37.5 percent below its fundamental exchange rate. The Big Mac Index, which compares the relative prices of MacDonalds Big Macs in multiple countries, indicates an even higher gap, 44 percent.

It’s common to see Congressmen and investment bankers (it’s hard to differentiate the interests of the two) griping about the undervalued renmenbi, with Republican presidential contender Mitt Romney declaring China a ‘currency manipulator’ who doesn’t play by the rules. To modern capitalists raised with the promise of free trade to wherever the invisible hand points, it’s truly a clash of civilizations.

But China’s exchange rate isn’t the only thing that’s fixed.

Citing one of the national interest objectives – and arguably the most important, stability (he xie), the Chinese Communist Party introduced the infamous One-child policy to contain soaring population growth within the same year of opening up to world trade. Official statements justify the policy by its alleviation of national economic, social and environmental problems, and authorities estimate the policy to have prevented more than 650 million births from 1980 to now.

Looking beyond the sheer monotony and near-certain pampering of single children, disturbing trends appear. Coupled with traditional Confucian values of patriarchal male dominance, including but not confined to reasons of: sons carrying on the family lineage by name, and daughters marrying out into their husbands’ families and caring for in-laws rather than their own parents, it’s no small wonder that the one-child policy has forced couples to illegally abort, abandon or leave to die their baby girls. Each year, the recorded sex ratio at birth is roughly 120 males to 100 females. Australia’s sex ratio at birth is 106 males to 100 females. The end result is that there are more than 35 million ‘missing women’ in China.

Not only is the employment system skewed to favour men over women (women contribute only 16 percent share of household income in low-income households), the entire gender demographic has damned women from day one. To add insult to injury, couples in rural provinces are permitted to have more than one child if the firstborn is a girl.

What has arisen out of this gender crisis next is alarming, and affecting millions of young Chinese men already. Bachelors of marrying-age enter the marriage market – and many exit years later, deflated. Some are doomed to spend their lives in singledom. Projections suggest that by 2030, more than 25 percent of Chinese men in their late 30s will never have married – ironically a natural prevention of the uncontrollable population growth the government so fears.

The chase is on.

In the most basic of economic terms, demand for brides is in desperate excess of supply. Like the Chinese exchange rate, females are constitutionally and culturally undervalued (and males are outrageously overvalued). We can take the fundamental ‘exchange rate’ as 105-107 males per 100 females, the natural sex ratio at birth in most other countries.

At the officially set sex ratio, the quantity of males supplied outstrips the quantity demanded by the female population, creating a male surplus (unfortunately polygamy was outlawed in China by the Kuomintang in the early 1900s, although a woman taking on several male concubines would be interesting.)

The solution?

In a flexible market, increased competition for brides means that men must increase the prices of their dowries and salaries until perfect equilibrium is reached in which distribution of brides goes only to the best ‘buyers’ in the market (feminists come at me). But for now, recent policy statements and funding to offset effects of the one-child policy notwithstanding, it’s up to China to use its capital reserves to buy up excess supply of men, by catering to their pent-up frustrations with higher salary jobs and all the material comforts that (state) capitalism can offer.

May the best man win!

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The Law of Unintended Consequences Strikes Again

Of all the laws of economics, the law of unintended consequences is probably the most self-explanatory: ‘that actions of people—and especially of government—always have effects that are unanticipated or unintended’. Whilst it is applied mostly to government regulations and legislation, the rest of the world knows this law simply as ‘when shit goes wrong for all the right reasons’.

Just a few examples:

Stranger Danger

Remember that movie ‘Kindergarten Cop’, where the primary school kiddies played an instrumental role in stopping the baddie, the ‘stranger’? Although crime rates these days can’t be any worse than they were in the previous centuries, our fears of ‘The Stranger’ are. Hence the strict childhood instructions: ‘don’t talk to strangers’.

But strangers can be helpful, and like that other saying they dish out in high school to make you more sociable: ‘Strangers are just friends you haven’t met yet.’ When an 11-year-old Utah boy scout went missing in rugged terrain, he stayed lost for four days, hiding from strangers whom he had been taught ‘not to talk to’, predictably some of whom were search volunteers or other hikers who would’ve been able to help him.

Car accidents

Regulations in the 1960s to improve safety design inside cars (internal airbags, safety belts, padded dashboards) actually resulted in higher rates of car accidents. Why? Because the costs of crashing (bodily injury) had decreased, people could therefore afford to drive more recklessly.

Carbon leakage.

Countries that want to slow down global warming by reducing carbons emissions must impose a carbon price or tax on businesses as well as invest in renewable energy. While this is a positive step forward for the environment, in the short-term it certainly increases the costs of doing business. An unintended consequence is that businesses will move their production operations overseas, to countries that don’t wish to act on climate change and hence don’t have taxes on pollution. The outcome is that the economy of the environmentally responsible country is worse off and carbons emissions is not necessarily any lesser, albeit burning through a different part of the ozone layer (still not a good reason to avoid target commitments and the carbon tax though.)

Economists argue that perhaps that these consequences can actually often be anticipated, assuming that people act rationally and events therefore unfold in a rational manner. Through the lens of economics, rational behaviour is classified as that which best maximises self-interest, by only taking actions that yield higher benefit relative to cost. Emotional benefits and costs are entirely separate.

But today I want to bring to your attention a piece of legislation called the Castle Doctrine*.

Pretend for a moment that you are a U.S. lawmaker in the state of Montana. The chances of an ordinary citizen becoming a victim of violent crime is 1 in 367. You have a grand plan to protect these citizens by empowering them to protect themselves. To do this, you vote to pass a bill that allows citizens to use deadly force against unlawful intruders to their homes, without fear of later persecution. The homeowner must of course have reasonable evidence of danger to his or her life. You go home satisfied that your work has made America a safer place (oh, and your campaign sponsorship is most likely being funded by the gun lobbying industry.)

What do you think will happen?

Well ideally, and I’m sure the U.S. lawmaker is an idealist; potential criminals would be deterred from committing violent crime as the consequences could be fatal. After all, thieves too must weigh up the costs and benefits before each robbery. Assuming they act on the greed motive and not out of personal vindictiveness, the benefit will be his/her profit gained, and the cost will be his/her chances of being caught, and the punishment if s/he is caught.

A-ha. But what if the citizen starts thinking: ‘Well, I probably only have a 50/50 chance of being killed if an intruder enters my home. But since I don’t have to worry about going to jail if I shoot, and I still have a 50 percent chance of danger, I’d best shoot anyway.’ In economic terms, here you see the costs of resorting to deadly self-defense have dropped: these being arrest, imprisonment or even the death penalty (yes, that too exists in Montana still.)

Regrettably it seems that here in Montana the law of unintended consequences is the winner of the day (and the gun companies! Don’t forget the gun companies). It isn’t that the concern of legal repercussions would stop anyone from resorting to whatever means of self-defense they possess in a truly dire life-or-death situation. The point is that because of this added guarantee, anyone who owns a gun or other deadly weapon of force will much more likely take a risk on a situation that could’ve turned out to be harmless after all, or at least non-deadly.

An increased liberalness to use force can turn easily into careless, senseless violence, justified by ‘I thought he was gunna kill me, legit I swear.’ It could turn into a licence to kill.

While writing this post gives me a chance to roll my eyes and say sardonically ‘only in America’, the following question begs attention: if this sort of behavior is so rational, then why do policy makers get it wrong time and again?

Any intervention in an umbrella system, particularly social action with a specific purpose, can often fail to take into account the complexity of the human race – and so misjudge the reactions. What is rational at any given point in time may not be too obvious until after the fact. For example, when we are offered incentives that change the balance between relative benefit and cost, (such as a guarantee against persecution) it makes sense that we might come down on a different decision. University of Melbourne lecturer Mike Pottenger writes concisely and pithily about the unintended consequences of perverse incentives.

What do I mean by the complexity of our choices? We could be swayed by our emotions and feelings (definitely not rational). Conflicts of interest (e.g. money vs. health) might drive us to choose one over the other, and depending on which one the policy aims to target, this might be considered as an unintended consequence. We could end up valuing short-term interests over long-term gains (the opposite to delayed gratification, which is what you’re meant to train your dog). Really, we’re all just animals responding to reward incentives, wagging our tails to the promise of a juicy bone.

Much of politics is trial and error – just when we think we’ve got the answer, someone with too much testosterone will fuck up abuse your Castle Doctrine, or some smartass will find a way to pervert the rules. (When the Bangkok police force made offenders wear tartan armbands they were treated as badges of honour, so they changed it a Hello Kitty armband instead.) Maybe what the law of unintended consequences really does is teach us humility: to remind us that we can’t ever have our own way with the universe. Human complexity has a way of defying rationality, and has its own rules to keep.

*Castle Doctrine: based on the saying ‘a man’s home is his castle’, the notion of inviolable rights within your own home. Even if one man’s right to self-defense might deprive another man’s right to live.

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