The blessings of Thanksgiving

"Thus was achieved another, and still more glorious, triumph, in the case of liberty, even than that, by which we were separated from the parent country. It was not achieved, however, without great difficulties and sacrifices of opinion. It required all the wisdom, the patriotism, and the genius of our best statesmen, to overcome the objections, which, from various causes, were arrayed against it. The history of those times is full of melancholy instruction, at once to admonish us of the dangers, through which we have passed, and of the necessity of incessant vigilance, to guard and preserve, what has been thus hardly earned. … What a humiliating lesson is this, after all our sufferings and sacrifices, and after our long and sad experience of the evils of disunited councils, and of the pernicious influence of State jealousies, and local interests! It teaches us, how slowly even adversity brings the mind to a due sense of what political wisdom requires. It teaches us, how liberty itself may be lost, when men are found ready to hazard its permanent blessings, rather than submit to the wholesome restraints, which its permanent security demands.

To those great men, who thus framed the Constitution, and secured the adoption of it, we owe a debt of gratitude, which can scarcely be repaid. It was not then, as it is now, looked upon, from the blessings, which, under the guidance of Divine Providence, it has bestowed, with general favor and affection. On the contrary, many of those pure and disinterested patriots, who stood forth, the firm advocates of its principles, did so at the expense of their existing popularity. They felt that they had a higher duty to perform than to flatter the prejudices of the people, or to subserve selfish, or sectional, or local interests. Many of them went to their graves, without the soothing consolation, that their service and their sacrifices were duly appreciated. They scorned every attempt to rise to power and influence by the common arts of demagogues; and the were content to trust their characters, and their conduct, to the deliberate judgment of posterity."

Joseph Story, "Origin of the Constitution", Familiar Exposition of the Constitution (1840).

Joseph Story (1779-1845) was a Justice of the United States Supreme Court from 1811 to 1845. He was nominated by President James Monroe to the Court in November 1811, at the age of thirty-two. Story remains the youngest Supreme Court Justice at appointment. In the Court, he found a congenial home for the brilliance of his scholarship and the development and expression of his political philosophy.

As we approach Thanksgiving 2009 we have much for which to be thankful. Thanks be to God for Who He is and all He has done, for family, friends and all our material blessings.

Let us note we too often forget our history and those who've gone before us in making our nation great. We have been blessed with Founding Fathers who were men of principle and understanding of the true nature of man and the God-ordained role of government in the lives of people.

Thanksgiving is a time when we should look back on the American Revolution, the founding of this country, and the creation of the Constitution with gratitude for the Founders' wisdom and willingness to sacrifice for a cause greater than themselves.

A Tdj by Cheryl Walker, with thanks.

The Road to Fiscal Ruin

Both the New York Times and the Wall Street Journal have recently published articles about the burgeoning level of government debt and the escalating deficit that adds to its weight.

The Federal government ran a deficit of $1.4 trillion in fiscal year 2009 and spending continues to far outpace revenues this fiscal year, adding greatly to a mounting national debt that now stands at more than $12 trillion.

Worse, rather than dealing with the recession that now grips the nation or the looming explosion in Social Security and Medicare benefits now on the horizon, the Administration and Congress have chosen to aggravate the country's problems by pushing for an expensive new health care entitlement which will add greatly to the country's fiscal woes. They seem completely obvious to the fiscal nightmare they are creating.

As noted in the Times, one reason for their blindness may be that much of the recently acquired debt was financed at abnormally low interest rates brought about by the recession. These low rates made the acquisition of new debt and refinancing of old seem tolerable, at least for the moment.

However, as is always inevitable, this will soon change. The Treasury now faces what could be a significant rise in interest rates at a time when it has an immediate need for new borrowing as well as re-financing the huge debt it previously issued. According to the Times article, the Treasury estimates $1.6 trillion of the government's marketable debt is coming due in the next few months.

Add to this, as stressed in the Journal, is the need to fund higher costs associated with rising Social Security, Medicare and Medicaid expenses.

The credit demand of the Federal government seems insatiable. It raises questions about whether its huge deficits can be financed without markedly worsening the prospects for a recovery.

China and Germany as well as other countries are increasingly worried about this country's financial position and have been warning about the deteriorating state of U.S. finances. I for one am glad they are expressing their concern.

But given the way the Administration and Congress are conducting U.S. economic policy, I wonder if anyone in the U.S. government is equally concerned.

Some quotes from De Tocqueville on Democracy

“The American Republic will endure, until politicians realize they can bribe the people with their own money.”

“Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”

"Liberty has never come from the government. Liberty has always come from the subjects of government. The history of liberty is the history of resistance. The history of liberty is a history of the limitation of governmental power, not the increase of it."

“The will of men is not shattered (by the welfare state), but softened, bent, and guided. Men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence. It does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, until each nation is reduced to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd.”

-Alexis de Tocqueville (1805-1859).

From a post on Virginia News Source, http://www.virginianewssource.com/.


Alexis-Charles-Henri Clérel de Tocqueville (1805–1859) was the French political thinker and historian who wrote, among other works, Democracy in America (1935), a book based on his travels through America in the early 19th Century.


The book provided reflections on American policy society and attempted to explain why America was different from Europe. For de Tocqueville, this country was an open society where the work ethic prevailed and the average man was independent and self-reliant. Although his book does focus on democracy, its central focus was on liberty. He once said that “the only passions I have are love of liberty and human dignity”.

Liberty and democracy are not the same thing. Democracy strives to gain the consent of all the governed in the determination of the affairs of men and women and spreads that aspiration far and wide. It focuses on the work we need to do together for the common good. As de Tocqueville emphasized, it is a wonderful way to organize the polity and consistent with liberty for it promotes the self-organizing of the state by a free and independent people.

Liberty, on the other hand, is much more personal and requires that the passion for democracy be kept in check if one is to remain the master of one’s own fate. As de Tocqueville noted, “everyone is the best and sole judge of his own private interest . . . society has no right to control a man's actions unless they are prejudicial to the common weal or unless the common weal demands his help. This doctrine is universally admitted in the United States.”

Liberty is also much more difficult than democracy to achieve. As the historian Henry Steele Commager commented, "Liberty must be worked at, must be achieved, and it has rarely been achieved anywhere in the whole of history. It requires a most extraordinary self-control, self-denial, wisdom, sagacity, vision to protect liberty in the face of all the forces that mitigate and militate against it. And Tocqueville regarded centralization as the most dangerous of all the threats to liberty."

Liberty is at risk. We live in an age of increasing centralization and concern for the shallow equality found in applying rules and regulations to achieve uniformity rather than the freedom that celebrates the right of each man to act for himself and rise and fall on his own. Nowhere is this clearer than in the rush to “health care reform” where a huge segment of the economy is being effectively nationalized in the name of providing equal access by all to what by its very nature is a diverse set of services that can neither be provided equally to all nor be applied uniformly to all.

Health care is not a standardized widget to be distributed in equal amount or kind to each member of the population. Saying the government is going to provide equal access to a product or service that may or may not be needed by any person and in any event must be highly personalized before it is used is utterly meaningless. Health care is not and cannot be a valid objective in a democracy because it cannot be delivered democratically. At the same time, it is a threat to liberty for it soften, bends, and guides the will of men, as Tocqueville put it, and makes them sheep as it centralizes the decisions that belong to each individual.

Let us remember that de Tocqueville believed that of the two true liberty is far more important than the superficial equality. This country has been blessed by liberty. The question is whether we can retain it at a time when we insist on centralizing everything and asking government to do what it clearly cannot do.

Rent-seeking

A Tdj by Larry Willmore.

I am a great fan of John Kay, so I am sad to report that his column in last week's Financial Times is a disaster. Perhaps even a gifted writer is entitled to an off-day.

The column begins with an inaccurate and unhelpful definition of the economic term 'rent-seeking':

“You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.”

John Kay, "Powerful interests are trying to control the market", Financial Times (11 November 2009).

http://www.johnkay.com/politics/648

This statement by Kay is totally wrong. Rent-seeking can be legal or illegal. And it involves not appropriation of wealth created by others, but rather the appropriation of value ('rents') that result from government restrictions on economic activity.

The term 'rent-seeking' was coined by Anne Krueger in a classic 1974 paper. In the very first paragraph of her paper, Ms Krueger explains that government restrictions give rise to rents, and people often compete for a share of these rents. "Sometimes, such competition is perfectly legal. In other instances, rent seeking takes other forms, such as bribery, corruption, smuggling, and black markets."

Ms Krueger is a trade economist and was Chief Economist for the World Bank from 1982 to 1986. It is not by accident that she chose import licenses - rather than tariffs - as an example of rent-seeking. Tariffs do not generally give rise to rent-seeking, since the scarcity value ('rent') of import restrictions is captured as taxes on imports. Rent-seeking takes place only when producers lobby for new tariffs or for retention of old ones. The scarcity value of import quotas can also be captured by government if the import licenses are sold by auction to the highest bidder. This is not the case with Ms Krueger's example.

John Kay's concern in this column is with concentration of economic power. This is an important subject, but one that has nothing to do with rent-seeking. Rent-seeking can and does take place in a competitive environment.

Anne Krueger's 1974 paper can be downloaded at http://bbs.cenet.org.cn/uploadimages/2004132356266152.pdf


DOW: The notion of “rent-seeking” is different from but related to the concept of “economic rent”. Economic rent is defined as an excess distribution to any factor in a production process above the amount required to draw the factor into the process or to sustain the current use of the factor. It arises, for example, as David Ricardo first explained, in the form of differential land rents which represent the difference in the productivity of one plot of land compared to the productivity of the poorest land similarly situated and used for the same purpose.

In contrast to opportunity costs involved in using factors of production, economic rent does not determine price but the other way around: Price determines economic rent. Example: All farmers receive the same price for their corn but some farmers have more productive land and a greater crop and hence earn a higher income, some of which is economic rent. If the price of corn fell, the farmers with the better land would continue farming while those with inferior land would have their income fall below the acceptable and stop farming. Because the farmers with the better land continue to farm, even when their income is reduced, part of the earlier and higher income they received was “an excess distribution … above the amount required to … sustain the current use of the factor”, to quote the definition above. That is, any income above the minimum required to keep the farmer farming, is economic rent.

Government restrictions artificially raise prices and in doing so generate the potential for economic rents, which attract rent-seekers. Rent-seeking would not exist without restrictions imposed by government policy.

Although I know of no empirical estimates of the magnitude of rents created by government restrictions, they must be huge. Otherwise, why would all those rent-seekers (better known as lobbyists) be crawling all over Capitol Hill and the White House?

I, too, am a great fan of John Kay. We all have our bad days.

Thanks again to Larry for the Tdj.

The tragedy of means tests

A Tdj by Larry Willmore.

Greg Mankiw is one of a handful of economists who worry about the effect of means tests on the welfare of the poor. Some time ago, he posted a quote of "Kennedy School economist Jeff Liebman (via Jeff Frankel's new blog) [who] tells a sad story about the incentive effects of government programs aimed at helping the poor":

“the poverty trap is still very much a reality in the U.S. A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn't make ends meet any more. I told her I didn't know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000.”

Greg Mankiw, "The Poverty Trap", Greg Mankiw’s Blog (10 February 2008).

http://gregmankiw.blogspot.com/2008/02/poverty-trap.html

Greg Mankiw is professor of economics at Harvard University. Jeffrey Liebman is now Executive Associate Director of Obama's Office of Management and Budget (OMB).

More recently, Mankiw linked to work by Boston University economists Kotlikoff and Rapson, who give the tax-transfer system of the U.S. very low marks:

“America's tax-transfer system confronts the vast majority of American households with either high, very high, or astronomically high total effective marginal tax rates on labor supply and saving. It also provides very substantial tax arbitrage opportunities to a subset of households, particularly those with high incomes or advanced ages.

The pattern of net marginal tax rates and arbitrage opportunities with respect to age, marital status, and earnings is quite simply all over the map. But this is what one would expect given the amazing complexity of the fiscal system, the fact that the various components of the system are being developed with little or no thought to their interaction, and that the various governmental bodies responsible for the different elements of our tax-transfer system appear to make little or no attempt to understand the overall work and saving disincentives as well as arbitrage opportunities they are producing.”

Laurence J. Kotlikoff and David Rapson, "Does It Pay, at the Margin, to Work and Save? -- Measuring Effective Marginal Taxes on Americans' Labor Supply and Saving", Boston University (October 2006).

http://www.econ.ucdavis.edu/faculty/dsrapson/DIPW_METR_1006.pdf

Laurence J. Kotlikoff is a professor of economics at Boston University and David Rapson is an assistant professor of economics at the University of California at Davis.


LW: For reasons that I do not fully understand, political conservatives like Mankiw frequently fail to draw the obvious conclusion that universal benefits trump targeted transfers. The unwritten implication is the poor would be better off without transfers, but with their work incentives intact. Where are the 'compassionate conservatives"?

DOW: As one political conservative, let me quickly respond to Larry with the following comment: Universal benefits are certainly better than means tested benefits for all the reasons that Mankiw and others have given about the negative effects of means tests. The problem with universal benefits is that they are universal, and because they are universal they are subject to “benefit bloating” and “benefit creep”, that is, there are strong incentives to overuse them and immense pressures to expand them. This is especially true when the universal benefits are given at the national level where the distance between the people who pay and the people who use benefits is wide. Giving the benefits to everyone simply means that everyone will overuse the available benefits and demand that they be expanded, making the approach fiscally unsound.

Tightly circumscribed and specifically tailored universal benefits, such as those for major medical problems where no one would want to make a claim and which can be closely monitored by financing authorities, are a great idea. If government benefits are to be extended to all, it would be better to provide them “universally” at the local level, which is better situated to judge what is needed and whether the resources being distributed are being wasted.

I would not be surprised if research on the negative incentives associated means tests is likely to have a significant effect on policy development in the future.

Basic economics and the health care plan

“Here are some basic principles of supply and demand: If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure. Consumers who can somehow pay more than the government-mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier.

Those principles lie behind this story from the Washington Post:

A plan to slash more than $500 billion from future Medicare spending -- one of the biggest sources of funding for President Obama's proposed overhaul of the nation's health-care system -- would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

Congress could intervene to avoid such an outcome, but "so doing would likely result in significantly smaller actual savings" than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid. That would wipe out a big chunk of the financing for the health-care reform package, which is projected to cost $1.05 trillion over the next decade.

More generally, the report questions whether the country's network of doctors and hospitals would be able to cope with the effects of a reform package expected to add more than 30 million people to the ranks of the insured, many of them through Medicaid, the public health program for the poor.

In the face of greatly increased demand for services, providers are likely to charge higher fees or take patients with better-paying private insurance over Medicaid recipients, "exacerbating existing access problems" in that program, according to the report from Richard S. Foster of the Centers for Medicare and Medicaid Services.

Though the report does not attempt to quantify that impact, Foster writes: "It is reasonable to expect that a significant portion of the increased demand for Medicaid would not be realized."”

N. Gregory Mankiw, “Supply, Demand, and Healthcare Reform”, Greg Mankiw’s Blog (15 November 2009).

http://gregmankiw.blogspot.com/


N. Gregory Mankiw is professor of economics at Harvard University and a former Chairman of President George W. Bush’s Council of Economic Advisors.


The health care bill now passed by the House and now being considered by the Senate is not simply bad legislation. It simply cannot work in the real world.

Among its many problems is that the focus of policy discussion has been on the terms and conditions of health care insurance when what really matters is the provision of health care services to the people who need them. The government can place any regulations and rules it wants on the insurance industry (and I for one consider those in the bills to be unhelpful) but they will not increase the supply of doctors or expand hospital facilities or add to the number of nursing homes needed to meet the existing demand for health care services, much less any new demand. Adding millions of new patients by subsidizing their demand for health care will only make the existing problems of access to health care worse. And on top of this, sharply reducing increases in Medicare funding associated with expected rise in recipients is equivalent to putting in place price controls which will further restrict supply and lead to the two-tier market mentioned by Professor Mankiw.

The problem of doctors refusing to accept new Medicare or Medicaid patients has been growing, especially in rural areas, and is likely to accelerate once the funding cuts in the present bills are implemented. Add to this, the large increase in demand for services stemming from its subsidies and the problems of the health care sector of this economy multiple. Finally, its impact on the supply of health care services stemming from its controls over pricing would be terrible.

The country needs to reform its health care sector. But the bills now in Congress are not the way to do it.

Milton Friedman on health care

“Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own. These statements apply equally to other OECD countries. They do not by themselves explain why the United States spends so much more than other countries.

No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly: the same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties? The answer for the United States begins with the fact that medical care expenditures are exempt from the income tax if, and only if, medical care is provided by the employer. If an employee pays directly for medical care, the expenditure comes out of the employee’s after-tax income. If the employer pays for the employee’s medical care, the expenditure is treated as a tax-deductible expense for the employer and is not included as part of the employee’s income subject to income tax. That strong incentive explains why most consumers get their medical care through their employers or their spouses’ or their parents’ employer. In the next place, the enactment of Medicare and Medicaid in 1965 made the government a third-party payer for persons and medical care covered by those measures.

We are headed toward completely socialized medicine—and, if we take indirect tax subsidies into account, we’re already halfway there.

We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer? Why not return to the much-reviled company store when workers were in effect paid in kind rather than in cash?

The revival of the company store for medicine has less to do with logic than pure chance. It is a wonderful example of how one bad government policy leads to another. During World War II, the government financed much wartime spending by printing money while, at the same time, imposing wage and price controls. The resulting repressed inflation produced shortages of many goods and services, including labor. Firms competing to acquire labor at government-controlled wages started to offer medical care as a fringe benefit. That benefit proved particularly attractive to workers and spread rapidly.

Initially, employers did not report the value of the fringe benefit to the Internal Revenue Service as part of their workers’ wages. It took some time before the IRS realized what was going on. When it did, it issued regulations requiring employers to include the value of medical care as part of reported employees’ wages. By this time, workers had become accustomed to the tax exemption of that particular fringe benefit and made a big fuss. Congress responded by legislating that medical care provided by employers should be tax-exempt.”

Milton Friedman, “How to Cure Health Care”, Hoover Digest (2001).

http://www.hoover.org/publications/digest/3459466.html


Milton Friedman (1912-2006) was for many years Professor of Economics at the University of Chicago. In the academic arena, Friedman was best known for his theoretical and empirical research on consumption, monetary theory and history, and the complexity of fiscal policy. He received the Nobel Memorial Prize in Economics in 1976. In the political arena, he was best known for his advocacy for minimizing the role of government in favor of the private sector.


Friedman here makes two main points: First, that third party payment for health care services separates payment for health care services from the person who receives the service, and in doing so encourages the overuse of health care services; and Second, along the same lines, employer-provided health care insurance receives a tax subsidy, and by doing so it subsidizes the cost of health care, further leading to its overuse. Given these conditions, it should not be surprising that the demand for health care in the U.S. is high and the share of the health care industry in the economy is large.

Needless to say, the health care proposals now being discussed in Congress further extend the third party payment system far beyond its present scope and subsidize health care for many more millions of Americans. For this reason, one cannot expect these plans will limit either the share of health care in the economy or the continued rise in health care costs.

Who should go to college?

A Tdj by Larry Willmore:

There is growing sentiment in the United States that college may not be worth its cost for everyone. At the same time, President Obama has called on every American to receive at least one year of post-secondary education or vocational training. The Chronicle Review asked 11 experts for short responses to a number of questions, beginning with "Who should and shouldn't go to college?"

The 11 experts include W. Norton Grubb, author of Honored but invisible: An inside look at teaching in community colleges (1999); Charles Murray, co-author of The bell curve: Intelligence and class structure in American life (1994); and Alison Wolf, author of Does education matter? (2002).

My favourite response was that of George Mason University economist Bryan Caplan, author of The myth of the rational voter: Why democracies choose bad policies (2007):

“There are two ways to read this question. One is: "Who gets a good financial and/or personal return from college?" My answer: people in the top 25 percent of academic ability who also have the work ethic to actually finish college. The other way to read this is: "For whom is college attendance socially beneficial?" My answer: no more than 5 percent of high-school graduates, because college is mostly what economists call a "signaling game". Most college courses teach few useful job skills; their main function is to signal to employers that students are smart, hard-working, and conformist. The upshot: Going to college is a lot like standing up at a concert to see better. Selfishly speaking, it works, but from a social point of view, we shouldn't encourage it.
…
College attendance, in my view, is usually a drain on our economy and society. Encouraging talented people to spend many years in wasteful status contests deprives the economy of millions of man-years of output. If this were really an "investment", of course, it might be worth it. But I see little connection between the skills that students acquire in college and the skills they'll need later in life.”

Bryan Caplan, in "Are Too Many Students Going to College?", The Chronicle Review (8 November 2009).

http://chronicle.com/article/Are-Too-Many-Students-Going-to/49039/

An interesting bit of trivia: John Stuart Mill (1806-1873), author of Principles of Political Economy (1848), refused to study at Oxford or Cambridge, and went to work for the East India Company instead. He was home-schooled from an early age and never attended formal classes.

Thanks to Alex Tabarrok at MR for the link.

DOW: I mention that the Chronicle article given at the link above has many points of view on the question of who should go to college, who benefits, and who should pay the bill.

This article reflects increased attention to the benefits and costs associated with education at all levels and the fact that many decades of rising real expenditures per student have yielded nothing in the way of better educational outcomes.

I also mention that in an ageing society, such as the United States, the opportunity cost to society of having young people in school rather than the workplace rises. Every person working helps lower the dependency ratio and the burden on the working age population in supporting children and the retired population. Social pressures for the young to enter the labor force and for the elderly to working longer or re-entering the labor force are likely to rise in the years ahead as the dependency ratio rises. These trends will impact on the education industry at all levels and over the longer term result in its relative downsizing in relation to the rest of the economy.

The Chinese hukou system

“The hukou (household registration) system is often considered as unique to China. Although China's system of controlling and regulating internal movements of its citizens is indeed far more elaborate than that in almost all other countries in the world, a broader survey reveals that a similar system existed or still exists in other (former) communist countries, such as the ho khau system in Vietnam and the hoju system in present-day North Korea. In fact, these migration control systems, the Chinese one included, owe much of their common origin to the propiska (internal passport) system utilized in the former USSR ....

What is unique about migration in China is that the two aspects of internal migration (movement and citizenship) can be totally disparate; i.e., one can move to a new place (for example, because of a job change) but can be permanently barred access to community membership-based services and welfare. People who have moved to a new place but do not possess local citizenship (hukou) are referred to as the non-hukou population, meaning that they are not de jure residents even though they are de facto residents. Conceptually, this is the group that has moved away from the location where their hukou is registered. The situation of Chinese migrants without citizenship, of course, is not unique in the international context of migration. Many so-called "guest laborers" working in foreign countries, sometimes for years, without local citizenship, fall into this category. But few countries have applied such a system to their own citizens in modern times. In China, this group is commonly called the "floating population" or "mobile population" (liudong renkou). Its size has grown rapidly from a few million in the early 1980s to the present level of about 150 million. ....

As I finish this retrospective on the Chinese hukou system at its semicentenary, it is my earnest wish that no one will have occasion to write on its centennial. The present version of the system is not deserving of such longevity.”

Kam Wing Chan, "The Chinese Hukou System at 50", Eurasian Geography and Economics 50:2 (March 2009), pp. 197-221.

http://courses.washington.edu/chinageo/Chan-Hukou50-EGE2009.pdf


University of Washington geographer Kam Wing Chan has written a superb overview of China's hukou (household registration) system that was promulgated in January 1958 and is still in effect. The system took away a basic right of Chinese citizens, the freedom to choose one's place of residence. It discriminates against 800 million rural residents and allows the State to treat 150 million internal migrants as 'guest workers' in their own country. Professor Chan is also author of Cities with Invisible Walls: Reinterpreting Urbanization in Post-1949 China (Oxford University Press, New York, 1994).


A registration record includes such information as the name of the person, date of birth, names of parents and spouse, if married, and identifies the person as a resident of an area. Family registers have existed in China for millennia and have developed over time into a means to support taxation, conscription and social control. In modern times they have been used by the state for purposes of population management control of emigration and immigration from urban and rural area within China. In modern times such movements have been tightly controlled.

Consistent with a socialist economy, the system has been used to regulate labor so as to ensure an adequate supply of low-cost labor to state-owned businesses. It has also been used to monitor and control people who are regarded as politically unreliable.

While the system has weakened in recent decades with the introduction of market reforms, it still exists and remains as an oppression on the Chinese people and a warning to the American people of the potential loss of liberty caused by too much personal information and authority in the hands of the state.


Thanks to Larry Willmore for the Tdj.

Remembering Trotsky’s fight with Stalin

“In their persecution of revolutionists, the Thermidorians [those who react against the excesses a revolution, in this case, the Russian revolution] pour out all their hatred upon those who remind them of the past, and make them dread the future. The prisons, the remote corners of Siberia and Central Asia, the fast multiplying concentration camps, contain the flower of the Bolshevik Party, the most sturdy and true. Even in the solitary confinement prisons of Siberia the Oppositionists [that is, Trotskyists and others opposed to Stalin] are still persecuted with searches, postal blockades and hunger. In exile wives are forcibly separated from their husbands, with one sole purpose: to break their resistance and extract a recantation. But even those who recant are not saved. At the first suspicion or hint from some informer against them, they are subjected to redoubled punishment. Help given to exiles even by their relatives is prosecuted as a crime. Mutual aid is punished as a conspiracy.

… During these years [i.e., the years of the Great Purge 1934-1938] hundreds of Oppositionists, both Russian and foreign, have been shot, or have died of hunger strikes, or have resorted to suicide. Within the last twelve years, the authorities have scores of times announced to the world the final rooting out of the opposition. But during the “purgations” in the last month of 1935 and the first half of 1936, hundreds of thousands of members of the party were again expelled, among them several tens of thousands of “Trotskyists.” The most active were immediately arrested and thrown into prisons and concentration camps.

As to the rest, Stalin, through Pravda, openly advised the local organs not to give them work. In a country where the sole employer is the state, this means death by slow starvation. The old principle: who does not work shall not eat, has been replaced with a new one: who does not obey shall not eat. Exactly how many Bolsheviks have been expelled, arrested, exiled, exterminated, since 1923, when the era of Bonapartism opened, we shall find out when we go through the archives of Stalin’s political police. How many of them remain in the underground will become known when the shipwreck of the bureaucracy begins.”

Leon Trotsky, The Revolution Betrayed, Chapter 11: Whither the Soviet Union (1936).

http://www.marxists.org/archive/trotsky/1936/revbet/ch11.htm


Leon Trotsky (née Lev Davidovich Bronstein, 1879-1940), Bolshevik revolutionary, Marxist theorist and a close friend of Lenin, was a key figure in the Russian revolution and the early years of what became the Soviet Union, holding many important posts in the new socialist state including commander of the Red Army and People's Commissar of War. He was also among the first members of the Politburo. An opponent of Stalin, he was exiled from the Soviet Union but remained a major Marxist thinker until his death in 1940 in Mexico at the hands of an NKVD agent, who buried an ice axe into his skull. In his death throes Trotsky’s last words were “I will not survive this attack. Stalin has finally accomplished the task he attempted unsuccessfully before." The world did not lament the passing of this evil man.


Neither Trotsky and Trostskyism are important today except to a few “Trots” and as a reminder of the fanaticism to which the “ideals” of socialism can be pursued by those committed to the complete destruction of the liberal Capitalist order. What is interesting about these particular passages is that when conducted by socialists the fight over the political order is one where no quarter is given, not even to fellow socialists. When one political faction gains complete control over the economy it always uses that control to destroy everyone who opposes it, both its avowed enemies and its former allies. In the case of the Russian revolution it would not have mattered if the Trotskyites has won over those allied with Stalin. For whoever loses, in socialism the treatment is the same: Banishment from participation in the economy and loss of all benefits it can provide.

This is why granting the government influence over a large and important part of the economy such as health care is so unwise. While not direct socialism, it is a step toward it because it weakens consumers in their relationship with producers. Power is disbursed in the private markets of the Capitalist order and because it is spread over many firms private power is challengeable by conducting business with a different supplier. Once vested with the authority of the state, however, those with political power inevitably become more determined and more difficult to deal with because they face no competition. Moreover, because the stakes in keeping power are so high for them, they will fight to keep their monopoly position, even within the group sharing that power, and the difficulties of creating countervailing power to dislodge them multiply.

The U.S. is blessed with a history very different from that of Russia. Let us pray that its history of decentralized economic institutions and coordination through markets can prevail over the growing tendency toward centralization of economic power at all levels of government we have seen in recent years. Russian history shows that this latter tendency is even more prone to disputes and disagreements than the competitive pressures of free markets.