Tuesday, September 23, 2014

Even Hong Kong has too much government

You often read very thoughtful progressives explain why the government sector in the US is too small. You'd think 40% of GDP would be enough, but they insist we have "unmet needs" for a single-payer health care system (18% of GDP), universal preschool, etc. We should be spending something closer to 50% to 55%, like France or the Nordic countries.

If you ever find yourself starting to be persuaded I suggest you visit Hong Kong. I just got back from a trip to Hong Kong (previously I had visited in 1991 and 1999), and marveled at the world class infrastructure. Others seem to have been similarly impressed, as a recent study ranked Hong Kong's infrastructure number one in the world. This in an economy where government spending is 18.5% of GDP, vs. 41.6% in the US.

I don't know how good their schools and health care are, but their life expectancy is third highest in the world (trailing Japan and Singapore) despite bad air pollution. And they score very well on international education rankings.

Hong Kong does have its share of problems. I've mentioned air pollution--although in fairness a lot of that is beyond the government's control--drifting down from the heavily industrialized Pearl River Delta. They also have a lot of income inequality. I'd say that's partly offset by two factors. Many of the poor are immigrants from much poorer countries, who come to HK to do jobs like housekeeping. And all classes in Hong Kong are vastly better off than a few decades ago.

Hong Kong's per capita GDP (PPP) is now about the same as the US. The appearance of the city is a real hodgepodge, with older buildings in Kowloon looking awful, unless you have nostalgia for the HK of films like Chungking Express and In the Mood For Love. (And what movie buff doesn't?) But those old concrete tenements are rapidly being replaced by glitzy new buildings. There's a big hole in the ground where they're building a new high-speed rail station. Imagine getting on the train in tropical HK, and getting off the train in wintry Beijing, the very same day.

What impresses me the most is not so much the current position of Hong Kong, but rather it's trajectory. Unlike the US and Europe, it is still seeing rapid improvement. The fact that an economy can do so well with the government spending only 18.5% of GDP makes me even more skeptical of the progressives' call for a bigger welfare state in the US. If we are spending 41% of GDP, then the problems here are not due to any lack of resources for the government.

Now let's consider what is universally viewed as Hong Kong's greatest failing---housing. It's very expensive, and even middle class people live in very small apartments in high-rise towers. Now consider that real estate is the one sector where Hong Kong's government is heavily involved in the economy. They own most of the land, and sell only very limited amounts of land for new construction. Many people in otherwise laissez-faire Hong Kong live in public housing projects. So it appears that the biggest problem in relatively libertarian Hong Kong is too much government. More specifically, too much government involvement in housing. They should privatize both the land and the public housing projects. Here's an interesting article by Richard Wong of the University of Hong Kong:

The value of Hong Kong's housing capital last year was estimated at HK$6.8 trillion, or 320 per cent of gross domestic product. This is the net value of private residential housing at market prices, based on gross market value minus the value of outstanding mortgage loans. Total loans were a modest HK$900 billion - a mere 11.8 per cent of the gross market value.

In Hong Kong, private residential housing only accommodates about half the population. The other half is in government-provided public rental housing and subsidised ownership homes, mainly tenant purchase scheme and homeownership scheme flats.

The market value of government-provided housing is very substantial, but because there are extremely severe restrictions limiting their use either as rental property or as assets for sale on the open market, their values are highly discounted. They simply provide shelter for the original occupants. As such, they are marginal to the market economy and measured GDP.

Privatisation of public rental units and deregulation of sale restrictions for ownership units, on the other hand, would substantially enhance the market value of government housing. What would be their market value if such steps were taken?

Based on the open market transaction prices of HOS and TPS flats, the gross market value of public rental housing units is estimated at HK$2.45 trillion, TPS homes at HK$410 billion, and HOS flats at HK$1.56 trillion. The total value of government subsidised housing is therefore HK$4.42 trillion, or 208 per cent of GDP.

What will be the economic gain to society from the privatising of public rental housing and waiving or substantially lowering of unpaid land premiums on all government-subsidised housing units? The value of private and public housing stock would easily amount to HK$11.24 trillion, or 528 per cent of GDP.

To put this percentage into perspective, consider Piketty's estimates of the value of all forms of capital (and not just housing capital) as a percentage of GDP. He found this to be 617 per cent in France, 543 per cent in Britain, 418 per cent in Germany, 417 per cent in Canada, and 456 per cent in the US.

Hong Kong could be a very capital-rich city if only government housing units were privatised and deregulated, which would put an additional HK$3.36 trillion housing value in the market.

First, half the population would be happier because the gap between the rich and the poor would be sharply reduced in one fell swoop.

Second, the pressure on government to finance rising health care costs, old-age social welfare payments, education spending, and even housing investment would be indirectly alleviated, as many underutilised public housing units would become unlocked and return to market circulation.

Third, new economic activity at the grass-roots level could be spawned. Mortgaging parents' homes is often a key way to raise capital among those without credit rating.

Fourth, mortgaging parents' homes would also provide an important source of upward intergenerational mobility, both in providing human capital investments to children and making down payments for their home purchases.

Fifth, these benefits would come at no one's expense. The government would not even need to raise taxes.

PS. Whenever I do these posts people complain that Hong Kong is not a typical country. It's a single city, with only 7.3 million people. That's true, but of course there are many European economies with similar populations, and in most modern economies only about 3% of the population is farmers. You could argue that at least in terms of demographics Hong Kong and Sweden are more alike than either place is like the US, which has a much larger and more ethnically diverse population.



Has ‘The Strike’ already started?

One of the first things you notice when you go looking for “mainstream” reviews of the film “Atlas Shrugged: Who Is John Galt?” is how few there are.

In fact, it would appear the hope that “John Galt” might sink like a stone without trace actually outweighed the modest personal gratification these critics might have gotten by individually shredding its low-budget lack of slam-bang action and its “mean-spirited” theme.

One of them, however, did break ranks and weigh in last week with a very curious criticism of a scene that occurs near the beginning of the film, as Dagny Taggart suffers a sprained ankle after literally crashing her way into Galt’s Gulch.

The Dagny character (Laura Regan, in this outing) is examined by a physician, using a hand-held scanning device of his own invention that appears to operate like a miniature fluoroscope. The physician is played by a fine character actor named Steven Tobolowsky. Dagny recognizes him as someone who had been a famous neurosurgeon “on the outside.” He smilingly says he now practices “a different kind of medicine” here.

Anyway, the Tobolowsky character states “Every physician should have one of these.” Our trusty statist reviewer seems to have interpreted this to mean Tobolowsky’s character was somehow greedily withholding this invention from those in the “outside world” because they wouldn’t pay him enough, just as Galt is withholding his source of cheap electric power. (When all this time we thought it was the Greedy Oil Companies!)

So . . . a millionaire brain surgeon is willing to give up all that wealth and prestige in order to be a GP in a little mountain village -– accepting a vast reduction in standard of living -– but the meaning of this scene is that he’s “too greedy” to share his invention? Might it not be a tad more reasonable to assume the point is that in today’s heavily regulated (in fact, government controlled) medical field, no single individual could hope to win “FDA approval” of such a device in a time period measured in less than decades or for a cost measured in less than millions, even though a single inventor, working in some mountain village, has here managed to get one up and running in only a matter of months, and is obviously willing to employ it without demanding any vast fee?

Look at all the iconic breakthrough firearms invented by John Moses Browning, working at his private workbench in Utah, back before 1920. Today, any single individual seeking to invent and manufacture the Browning Automatic Rifle would be jailed, if he didn’t die in a hail of ATF gunfire in the initial government raid. (What’s that? “All you need is a license”? Write in and apply for one, then, informing the ATF that in keeping with the 2nd and 14th Amendments you plan to sell your new machine gun to any “civilian” who can come up with the cash, just as John Browning did. Let me know how you do.) And it follows as the night from day that the pace of medical innovation in America will also now slow, under the regulation and rationing imposed by ObamaMedicare.

But Tobolowsky’s character is withholding his invention because he’s “greedy”?

When Rand predicted in her 1957 masterpiece that even physicians might someday join her “strike of the productive class” -– millionaire neurosurgeons preferring to accept a much reduced standard of living rather than put up with a government regulatory takeover of the entire field of medicine — critics jeered that this was far-fetched nonsense. But today, a “government takeover of medicine” is so close to being a fait accompli that Rand gets little credit for having shown any great powers of foresight and extrapolation here -– the average younger viewer apparently just dismissing this as “The same right-wing ‘Tea Party’ whining we’ve been hearing for years — these greedy right-wingers just want all the poor people to get sick and die.”

This is not all just “theoretical.” I happen to know a few physicians who are either recently retired or in the process of retiring, years earlier than might otherwise have been expected. Why? They tell me “Medicine is no fun anymore.” Why? For the most part these guys aren’t doctrinaire Objectivists, or Libertarians, or political animals of any stripe. They tend to draw few distinctions between Medicare and private insurers and the new regulatory purveyors of Obamacare. They still enjoy diagnosing and healing. They just noticed that every year they were spending less time and money on practicing medicine, and more on a growing office staff that spends its days on the telephone or on their computer monitors, seeking “permission” from some far-away, anonymous bean-counter (who DOESN’T have a medical degree) before the doctor is allowed to proceed with each (progressively more curtailed) step of testing, diagnosis, and treatment.

These medicos are not writing long-winded political diatribes to their local newspapers. They’re just throwing up their hands, folding their tents, telling the spouse “Honey, we’ve got enough money, this is no fun anymore and it’s getting worse, let’s retire and enjoy life for however many years we’ve got left.”

They may not all be moving to the same mountain valley in Colorado. But they are going on strike. We are losing their services, and the bright kids who should have succeeded them are wisely going into management or Big Pharma.

I believe I can even tell you how it’ll end up. Washington will promise everyone the same quality of medicine, all essentially for free, and that’s what they’ll deliver: Soviet-style medicine, with really long lines and increasing mortality rates (which they’ll fudge to look better), for the “bottom 93 percent” of us.

For the 7 percent who can pay cash? The best quality medical treatment will now be available in sparkling modern clinics operated by the best and the brightest American-trained doctors . . . just not in the U.S.A.

Where was it the leaders of the Soviet Union used to go for their medical treatment? I don’t think it was Leningrad.



Secret courts have worrying implications

Did you know that if the U.S. government decides that it wants to violate, i.e. trash, provisions of our Constitution and Bill of Rights, it simply creates secret federal courts of law that will rubber stamp all that it desires?

Well, now we know a small part of the ugly truth about our federal government, and we have exiled hero Edward Snowden to thank for it. He’s revealed some of the nasty secrets and Uncle Sam is out to get him for it.

We know, for example, that Uncle Sam secretly threatened to fine Yahoo $250,000 a day in 2008 if it failed to comply with a broad warrantless demand to hand over user communications — a request the company believed was unconstitutional — successfully forcing the company to participate in the National Security Agency’s controversial PRISM program.

Yahoo resisted the government’s demands but ultimately lost the battle in a secret court -- the Foreign Intelligence Surveillance Court of Review -- which decided that the Fourth Amendment requirements for search warrants may simply be ignored when the government deems it necessary for national security purposes.

Now NSA enjoys extensive warrantless access to records of online com­munications by users of Yahoo and other U.S.-based technology firms. Eventually, most major U.S. tech companies, including Google, Facebook, Apple and AOL, also complied in secret. Microsoft had joined earlier, before the ruling.

PRISM was first revealed by former NSA contractor Edward Snowden last year. It allowed the NSA to order U.S.-based tech companies to turn over e-mails and other communications to or from foreign targets without search warrants for each of those targets. Other NSA programs gave even more wide-ranging access to ­personal information of people worldwide, by collecting data directly from fiber-optic connections. And the tech companies were bound by law to keep the governments nefarious activities secret.

Now we know that secret courts are constitutional because the secret judges say so, and using secret courts to trash the Bill of Rights is constitutional because the secret judges say so.

The implications are that our government is essentially lawless -- no provision of law in the United States of America is beyond the reach of government trashing in secret with secret courts.



For more blog postings from me, see  TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH,  POLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated) and Coral reef compendium. (Updated as news items come in).  GUN WATCH is now mainly put together by Dean Weingarten.

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