5 min read

No painless escape

There is no painless way to escape the inflation crisis; Chinese growth slips to a 22-year low; liquor is the new tech in China; and why boys and men across the world are struggling.

1—No painless escape

How will we get out of the inflation mess we, and just about every other developed country, finds ourselves in? Writing from across the ditch, Eric Crampton concedes that "from where we are, no painless paths are obvious":

"When economists point to the higher unemployment rates likely to result from getting inflation back on track, it isn't because they like unemployment. Unemployment causes misery. But failing to get inflation back on track will also result in higher unemployment than we have now, plus all the harms of higher inflation."

Monetary policy works with significant lags and "the current inflation rate can suggest that the bank made errors in the past". But not everyone receives the new money at the same time – business profits increase before wages, leading to strong demand for labour that is "not sustainable":

"In the same way that you or I might buy more of anything we like when it's on sale, and more than we would normally purchase, firms want to hire more workers than they otherwise would when inflation pushes real wages down.

It isn't sustainable in a very obvious sense: labour demand is only as high as it is because prices for firms' outputs rose more quickly than wages. But firms are competing for workers and want more of them when wages are low relative to the prices they can receive for their products. That competition pushes workers' wages up.

Once wages catch up, then labour is no longer on sale. Companies that had wanted to do lots of hiring when workers were effectively on special stop wanting to staff up and some even contract. Employment rates go down again – even if the Reserve Bank has done nothing to tighten monetary policy."

You can read Crampton's full article here, which warns that rising unemployment is inevitable unless the rate of inflation continues to increase, although "that path winds up in economic collapse".

2—Development with Chinese characteristics

Chart showing Chinese growth falling behind the rest of Asia for the first time in over two decades.
China's economy is suffering from Xi Jinping-inflicted pain.
"China's economic output will lag behind the rest of Asia for the first time since 1990, according to new World Bank forecasts that highlight the damage wrought by President Xi Jinping's zero-Covid policies and the meltdown of the world's biggest property market."

That's from the FT, which held back from making any longer term predictions – after all, China still has "immense ammunition to provide powerful stimulus" – but it did warn about "a backdrop of broader concerns that Xi... is undoing the economic dynamism that began under Deng Xiaoping's reform era":

"Xi's policy of relentlessly suppressing coronavirus outbreaks through snap lockdowns and mass testing has restricted mobility and sapped consumer activity just as China's property sector — which accounts for about 30 per cent of economic activity — suffers a historic collapse."

The good news is that the rest of Asia has largely moved past the pandemic and isn't doing too badly out of the malaise in Europe:

"In Indonesia, Thailand and Malaysia, government fuel subsidies have helped keep inflation low by global standards. Domestic consumption has risen as the region abandoned lockdowns and stricter approaches to managing the pandemic.

At the same time, higher commodity prices sparked by the global energy crisis have boosted the region's export-reliant economies. Indonesia, a big exporter of coal, last week revealed that exports brought in a record $27.9bn in August."

You can read the full FT article by Edward White and Mercedes Ruehl here (~3 minute read).

3—Get ready for the liquor crackdown

Tweet showing markets, Chinese style.
Xi Jinping doesn't want anyone to have too much of a good thing.

4—Of Boys and Men

That's the title of a new book by Richard Reeves, which dives into the reasons as to why many boys and men across the world are struggling. Reviewing the book for the NYT, David Brooks writes that:

"I learned a lot I didn't know. First, boys are much more hindered by challenging environments than girls. Girls in poor neighbourhoods and unstable families may be able to climb their way out. Boys are less likely to do so. In Canada, boys born into the poorest households are twice as likely to remain poor as their female counterparts. In American schools, boys' academic performance is more influenced by family background than girls' performance. Boys raised by single parents have lower rates of college enrolment than girls raised by single parents."

Brooks lists many other things he learnt from the book, including that "policies and programs designed to promote social mobility often work for women, but not men", and that "Pretty much all of the income gains that middle-class American families have enjoyed since 1970 are because of increases in women's earnings."

As to why, Reeves believes the problem is structural:

"I think the structural disadvantage is largely a result of two things. The big one is that the education system presumes that girls and boys mature at the same rate, when they don't. Boys mature much more slowly than girls. Chronological age is used as a proxy for development: when you should start school, when you should move on to the next grade, and so on. But there's actually a very big gap in the brain development of girls and boys, and that gap is at its widest in adolescence. A 15-16 year-old girl is between a year and two years ahead of a boy the same age, in terms of the development of the prefrontal cortex, sometimes called the CEO of the brain. That's the bit that says, 'No, you should study, not go out, and you should turn your homework in, and you should plan ahead, and have you thought about which college you're going to?' Girls are better at that than boys anyway. But most importantly, they get better at it much sooner. The boys catch up in their 20s."

Those from families at the bottom of the income distribution fare worse, and it carries through into adulthood because "the labour market has become a more hostile place for many men — especially those with less education":

"This point cannot be overstated: The boys and men struggling the most are those at the sharp end of other inequalities. The ones we need to be worried about are not those of the upper middle class, who are flourishing in almost every respect, but the ones on the bottom half of the economic and social ladders.

Most men are not part of the elite, and even fewer boys are destined to take their place. As The Economist puts it, 'the fact that the highest rungs have male feet all over them is scant comfort for the men at the bottom.' Men at the top are still flourishing, of course, but men in general are not. And many of the attempts to help them are falling short."

You can read Reeves' summary of his book in National Affairs here (~17 minute read), his interview with Yascha Mounk here (~16 minute read), or Brooks' NYT column on it here (~4 minute read).

5—Further reading...

🙊 "A consortium of four private groups worked with the departments of Homeland Security (DHS) and State to censor massive numbers of social media posts they considered misinformation during the 2020 election, and its members then got rewarded with millions of federal dollars from the Biden administration."

🎮 Walmart is entering the metaverse via the video game Roblox, creating a digital "Walmart Land... [which] will bring the best fashion, style, beauty and entertainment items directly to the global Roblox community of over 52 million daily users".

🤖 Tesla's new Optimus robot reveal was, as expected, a bit of a joke, failing to demonstrate any actual autonomy – worse, it even had to be assisted on stage by three humans.

💸 New Zealand's government wanted to reduce carbon emissions, so it rolled out a clean car rebate scheme. The scheme reduced carbon but at a cost of $126,000 per tonne, which was nearly 1,500x more expensive than simply buying local carbon credits.