Leading the future of social sciences (and tripping)

 

                                         Meet KIMEP's new dean.  Credit: Getty Images

A few months ago, in one of his periodic blowups, as predictable as thunderstorms in summer, the President of KIMEP University, Chang Young Bang, fired the longtime dean of the College of Social Studies, Gerald Pech. Since then, the university has scrambled for Pech’s successor. It seems to have found him, and I must say that Dr. Bang richly deserves him.

KIMEP flew in Jason Gainous, last seen at Duke Kunshan University (search me), to present a Powerpoint seminar entitled, “Interconnectedness and impact: Leading the future of social sciences.” It went downhill from there.  Dr. Gainous is passionately concerned with “the web of interconnectedness,” in which “social sciences are increasingly interconnected,” “human behaviors and societal structures are interwoven, influencing global phenomena (hey, they’re interconnected, too!), and “digital technologies are reshaping disciplinary interconnectedness.” And that was just the first slide. But listen, we’ve got to get our priorities straight, because “interconnectedness fuels impactful changes beyond social sciences.” Dr. Gainous’s inspiring vision embraces “Unified Impact: Merging Liberal Arts with Social Sciences.” This breathtaking dream focuses on “philosophical interconnectedness” with “holistic insights” that “deepens [sic] understanding of human and societal dynamics.” I don’t know about you, but my pulse is already racing, especially since Dr. Gainous is dedicated to “Building Interconnectedness Through a New Political Science Department.”

But enough of the noble nightmare, er, dream. Let’s get down to brass tacks! Dr. Gainous proposes the KIMEP Center for Social Science Research Methods. This would develop a “comprehensive Ph.D. program focused on advanced research methods (I guess we wouldn’t want a doctorate focused on backward methods), including applied statistics, modeling, artificial intelligence, big data, and machine coding, and qualitative methods.” Research Methods Training Seminars would “foster[] a community of learning and sharing, interconnectedness (of course!) and impact.”

Most of Dr. Gainous’s gas production can be safely dispersed.  But his new Ph.D. program is another matter, because it must be approved by the Ministry of Education and Sciences. So let’s talk about it.

Dr. Gainous is a connoisseur of ritzy-sounding terms that he doesn’t understand. “Applied statistics” is “modeling.” On the other hand, AI, big data and coding, and qualitative methods are very separate concepts.

Qualitative methods are as old as statistics themselves. We can measure data in two ways. One is in small chunks. For example, we can measure income in dollars and cents. But not all data are suitable for continuous numbers. An example is gender. It’s male or female, and it cannot be measured with a number. Another example is racial origin. Such data are “qualitative.” Data that can be measured are “quantitative.”

Nothing about qualitative data requires a new doctorate degree. It differs from quantitative data only in its units of measurement. We can gauge the impact of a one-dollar increase in income on spending. Those data are quantitative. But if we’d like to know how gender affects spending, we will have to compare spending by a male to spending by a female. The usual way to do this in a statistical model is with a variable that has the value of 1 for females and 0 for males. For example, suppose that we estimate this model: Spending = 40 + 2* Female. The typical female spends 40 + 2*1 = 42. The typical male spends 40 + 2*0 = 40. That’s all there is to it.

Well, almost all. There is a temptation to introduce two gender variables, Male and Female. Male would equal 1 for males and 0 for females. Female would equal 1 for females and 0 for males. But a moment’s thought will show that this is saying the same thing twice. If we have a Female variable, we already have a distinctive value for males; it’s Female = 0. We do not need a Male variable.

In fact, if we include both Male and Female variables, the statistical software may go berserk. This is because it assumes that all data in a dataset are useful.  The Male variable is useless, because it duplicates what we already know from the Female variable. But as long as we avoid such duplicate variables, we will have no problem with qualitative data. That part of Dr. Gainous’s “advanced” doctorate can be explained in five minutes.

“Big data” is another term for which Dr. Gainous needs to go get a clue. It just refers to a lot of data.  If you gather data on gross domestic product (the value of what an economy produces) for each year of independent Kazakhstan, you will have only about 32 observations. That’s not big data, although it is very valuable. If instead you gather survey responses by every person in Kazakhstan, you will have more than 19 million observations. That’s big data.

It requires a shift in the way that we model statistics. Our usual problem is to reach conclusions about the real world when we know only a little bit about it. For example, we may want to know whether the typical Kazakhstani approves of President Kassym Jomart Tokayev. But we have enough money only to survey 100 people. Can we extrapolate our results to the nation? Maybe, if we pick a sample so impartially that it is like a microcosm of the nation. “Inferential testing” determines when this is the case, and it usually eats up half of a course on econometrics (the economist’s term for applied statistics). But if we can survey every Kazakhstani, our usual problem disappears. Even if we can survey “only” a million Kazakhstanis, inferential testing will go the way of the dodo. If randomly sampled, a million observations can give us an accurate picture of the nation.  

But big data are not a panacea.  They cannot substitute for clear thought. For example, even if we survey every Kazakhstani, we will get nonsense from regressing the respondent's opinion of Tokayev upon the respondent's blood type. 

A more subtle problem is the failure to control for factors that relate to the explanatory variable that interests us. For example, in the Mincer equation, we may regress the (natural log of) the wage on education across workers: Wage(i) + a + b*Number_of_years_of_schooling(i)+..., where i indexes the worker. Our estimate of the coefficient b gives the rate of return to another year of education. But the model is not as perfect as it may seem. Talent also affects the wage: Talented people are highly productive. And talent correlates with education: Talented people earn advanced degrees. But there is no obvious way to measure talent: IQ is but a crude gauge. So we cannot control for talent in the Mincer equation. Since it does rise with education, part of the rate of return that we ascribe to schooling is really due to talent. That is, we will overestimate the rate of return to education. This problem will persist even if we have a zillion observations.           

Finally, big data are a headache to manage. We need a way to find particular facts quickly in a dataset of millions of observations, and to identify fake or misleading data. This may require new theories of computer science and statistics. Whether these can be developed in a doctoral program aimed at political science students still struggling with the multiplication tables is, well, food for thought.

I don’t mean to suggest that Dr. Gainous would be wholly useless.  Academic deans are often appendages anyway, and one like Dr. Gainous may have entertainment value. The problem is to determine his fair salary. May I recommend consulting the pay schedule at Barnum & Bailey? – Leon Taylor, Seymour, Indiana tayloralmaty@gmail.com

Notes

For useful comments, I thank but do not implicate Mark Kennet.

Keystone clowns

                                                 Indy Eleven stadium: Boon or boondoggle?

The Keystone Group developers are miffed that Indianapolis Mayor Joe Hogsett proposes to offer a 20-acre site near the White River, 80% of which is financed by a special taxing district, to the highest bidder. Keystone wants to use the site for a 20,000-seat stadium for the Indy Eleven, a soccer team, as well as for 600 apartments, nearly 200,000 square feet for shops and restaurants, and so forth. The total cost of developing the site would exceed $1 billion.

It is unusual for the taxpayer to foot 80% of the cost of building a sports stadium. In Nevada, the legislature last year approved $380 million for a proposed $2.2 billion stadium for the Athletics in Las Vegas, and even that relatively modest amount has the teachers up in arms. They’d rather spend the money on schools. The $2 billion Allegiant stadium, where the Las Vegas Raiders football team plays, consumed $750 million of public funding. Not pocket change, but again only a little more than a third of the total cost of building the stadium, which opened in 2020. Eighty percent is out of line. Why should the state subsidize sports fans?

Keystone accused Hogsett of “shopping state legislation championed by Indy Eleven, working behind closed doors to offer publicly-owned real estate and public financing to the highest bidder, with assurances that neither the redevelopment of his riverfront parcel [on the White River] on the continuation of the Indy Eleven would be requirements for city support.”  Keystone was founded by the owner of Indy Eleven, Ersal Ozdemir.  

Why shouldn’t Indianapolis demand the best return on its land?  That’s not likely to be a sport stadium.  For the most part, the city would want the use of the land that would provide the greatest tax revenues net of what the city spends on the site. That use is unlikely to be a stadium for a minor sport, because it won’t attract many out-of-towners, whose spending would increase the city’s income. The fans are most likely to be Indianapolis residents. In that case, there may be little net gain in spending and therefore little net gain in sales tax revenues.  The Indy family may spend $100 more on soccer games, and pay for it by spending $100 less on meals at local restaurants.

In general, there is little evidence that building stadiums benefits a city economically.  A stadium has "an extremely small" effect on the local economy, wrote Andrew Zimbalist and Roger G. Noll of the Brookings Institution in 1997. 

The reason is simple: Economic growth depends mainly on knowledge (“human capital,” if you want  the lingo). When workers know how to produce cars faster, their productivity rises. When programmers figure out how to speed up a robot, their productivity rises, too. Nothing about a sports stadium need increase labor productivity.  Perhaps by providing needed recreation, yes.  But the empirical evidence for that is weak, perhaps because today there are so many forms of recreation already to choose from.

The true cost of the stadium to Indianapolis is not the hundreds of millions of dollars spent on it but the amount of education that the money could have provided. Assume conservatively that Indiana assumes $500 million of the cost of developing the site. In Nevada, a pricey state, the total cost of providing a schoolteacher is $81,000 to $86,000 per year. At that cost, spending $500 million on education rather than the stadium could hire nearly 6,000 teachers for a year. Indeed, the number is likely to be greater than 6,000 for Indiana, because it is much cheaper than Nevada. Teachers here don’t demand such high salaries.

Keystone boasts that building the stadium would create 1,000 construction jobs. Well, building schools creates construction jobs, too.  Hogsett has his priorities straight. --Leon Taylor, Seymour, Indiana  tayloralmaty@gmail.com

Notes

For useful comments, I thank but do not implicate Forest Weld. 

 References

Alexandria Burris.  Keystone accuses Hogsett administration of trying to walk away from Eleven Park deal.  Indianapolis Star.  April 25, 2024. 

Andrew Zimbalist and Roger G. Noll.  Sports, Jobs, & Taxes: Are New Stadiums Worth the Cost?  June 1, 1997.  Sports, Jobs, & Taxes: Are New Stadiums Worth the Cost? | Brookings

Crunch time

 

                                  The Iron Dome launches a missile to intercept an invading one.

                                   Photo source: Wikipedia

                      Israel Prime Minister Benjamin Netanyahu convenes the war cabinet. 

                                               Photo source: Government of Israel. 

News reports indicate that Iran and its clients have launched more than 300 drones as well as cruise  and ballistic missiles in Tehran's first direct attack on Israel.  It retaliates for the April 1 Israeli bombing of Iran's embassy in Damascus, which killed the head of operations of the Islamic Revolutionary Guards Corps in Syria and Iraq. 

The Israel Defense Forces said Israel and allies had shot down 99% of the hostile projectiles. Of more than 30 cruise missiles, none entered Israel's air space. Israeli planes intercepted 25. No drones penetrated the air space. A few ballistics got through, despite Israel's Arrow defense system. The IDF reported minor damage to the Nevatim airbase in southern Israel. But the attack continues. The terrorist group Hezbollah in Lebanon said it had launched Katyusha rockets against a military base in the Golan Heights. In general, the Golan Heights was one of the most vulnerable areas in Israel. 

I guessed that at least a fourth of this barricade was aimed at Israel's biggest cities. These are protected by the Iron Dome defense system, which claims a success rate of 90% in destroying an incoming projectile. But a bevy of 50 missiles is serious business. Even with a 90% interception rate by the Dome, the chances that at least five will penetrate the Dome are 58%...unless projectiles are shot down before reaching the Dome by defending missiles or by jet fighters.  (Calculations are below.) Evidently, that's what happened.

Until recently, the United States had two carrier battle groups in the region that could shoot down missiles. The Eisenhower group is still in the region of the Persian Gulf, but the Ford group returned to Norfolk several days ago after an eight-month deployment. Central Command, which runs the US military in the Middle East, repositioned two destroyers in the region. One has the Aegis system for defending against guided missiles, according to The Wall Street Journal.  The Theodore Roosevelt carrier strike group is near Japan, said defense analyst Stratfor.

Iran has warned the US not to get involved, and the US has denied advance knowledge of Israel's embassy attack.  But it has also pledged to defend Israel in case of an Iranian attack. US Defense Secretary Lloyd Austin said the US had shot down dozens of drones and missiles from Iran, Iraq, Syria, and Yemen. Jordan said it shot down dozens of drones flying to Israel.  

It seems inevitable that the US will be dragged to some degree into a Middle Eastern war. Undoubtedly this worries Washington less than seven months before a Presidential election. But by launching so many missiles, Iran has made clear that it intends a regional war. The US is not responsible for it, and it has no choice but to defend the region's strongest democracy. -- Leon Taylor, Seymour, Indiana tayloralmaty@gmail.com

Notes

For helpful comments, I thank but do not implicate Mark Kennet.

I assume that the probability that the Dome will destroy an incoming missile is 90% and is independent of its interception of any other of 50 missiles. (By “independence,” I mean that the Dome’s response to one missile does not affect its response to any other.)  This scenario fits the Bernoulli probability distribution. The probability that the Dome would fail to intercept at least 5 of 50 missiles is

Sum [i = 5 to 50] ( 50! / (i! (50 – i)!))* (.1)^i *(.9)^(50 – i) .

     

References

Josef Federman and Jon Gambrell. Israel says Iran launched more than 300 drones and missiles, 99% of which were intercepted.  Associated Press.  Israel says Iran launched more than 300 drones and missiles, 99% of which were intercepted (yahoo.com) April 14, 2024.

The Jerusalem Post. US redeploy two destroyers to the Middle East over Iran threat - The Jerusalem Post (jpost.com)  April 13, 2024.

Jacob Magid and Amy Spiro. IDF: Iran fired 200 missiles and drones; most intercepted; minor damage at IDF base | The Times of Israel.  April 13, 2024.

Suleiman al-Khalidi. Jordan airforce shoots down Iranian drones flying over to Israel (yahoo.com)  Reuters. April 14, 2024.

Anat Peled.  Israel and allies intercepted 99% of Iran's drones and missiles, Israel says. The Wall Street Journal. April 14, 2024. 

Stratfor. U.S. Naval Update Map: April 11, 2024 (stratfor.com)

The Wall Street Journal. Iran Launches Over 200 Drones and Missiles in Attack on Israel: Live Updates (wsj.com) April 14, 2024

Getting even, Tehran edition

                                           Iron Dome intercepts a drone. Photo source: Defense News

Iran promises to reply to Israel’s bombing of its embassy in Damascus last week. The news media speculated that Tehran would hit the Israelis before Ramadan ended.  This is partly because Muslims are most likely to support Iran, which is Shi’a, during this religious period of sacrifice and reflection.  After all, they may be prone to consider Israel’s alleged sins in attacking in what was technically Iranian soil dedicated to diplomacy. (The embassy had sheltered the Iranian general directing operations of the Islamic Revolutionary Guards Corps in Syria and Iraq, but never mind.)

Ramadan has ended. So for Iran, retaliation may be now or never.

The consensus has been that Iran would bomb an Israeli embassy in a moral symmetry that might please the Iranian public.  Iranian officials have said that no Israeli embassy was safe from their fury. But another possibility is a direct attack on Israel, relying heavily on the 155,000 missiles of an Iranian client, the terrorist group Hezbollah in Lebanon.

This option may seem improbable, because the highly accurate Iron Dome defense system shields Israeli cities from drones and ballistic missiles. Well, let us accept the claim of its co-producer that the  Dome can intercept (that is, destroy) an incoming projectile with 90% accuracy. (The producer is Rafael Defense Systems of Israel, which produced the Dome with Raytheon of the United States.) Suppose that Hezbollah and other Iranian clients launch a flock of 30 missiles at Israel. Given the size of the Hezbollah arsenal, an expenditure of 30 missiles looks like a modest investment in violence. Then a simple calculation suggests a 16% probability, or about one chance in seven, that at least five missiles will survive the Dome. That would be enough for Iran to make its point.  The calculations are below. -- Leon Taylor, Seymour, Indiana, tayloralmaty@gmail.com

Notes

For useful comments, I thank but do not implicate Dmitriy Belyanin, Annabel Benson, and Mark Kennet.

I assume that the probability that the Dome will destroy an incoming missile is 90% and is independent of its interception of any other of 30 missiles. (By “independence,” I mean that the Dome’s response to one missile does not affect its response to any other.)  This scenario fits the Bernoulli probability distribution. The probability that the Dome would fail to intercept at least 5 of 30 missiles is

Sum [i = 5 to 30] ( 30! / (i! (30 – i)!))* (.1)^i *(.9)^(30 – i) .

I calculate that this is just under 16%.

 

References

 

Times of Israel. Iron Dome is facing its greatest test in war with Hamas.  https://www.timesofisrael.com/iron-dome-is-facing-its-greatest-test-in-war-with-hamas/#:~:text=How%20accurate%20is%20the%20Iron,%25%20effective%2C%20according%20to%20Rafael.&text=But%20it%20can%20get%20overwhelmed,allowing%20some%20to%20slip%20through.  October 14, 2022.

Cassandra Vinograd.  Iran Says Israel ‘Will Be Punished’ for Strike in Syria - The New York Times (nytimes.com)  April 10, 2024.

  

 

Avenging the embassy

 

                                       Tel Aviv leaves its calling card in Damascus.  Photo: AP
                                 

Iran vows to “answer” Israel’s destruction of its consulate in Damascus Monday in a big way.  And it has told the US that it holds it responsible for the bombing that killed three Iranian generals, including the former head of Iranian operations in Syria and Lebanon. The US denies knowing anything in advance about the attack. How might Iran retaliate?

Iran knows that it would lose a war with either Israel or the US, much less both. But neither can it ignore the attack. An attack on an embassy amounts to an attack on home soil; certainly, the Iranian public will view it that way. It also infuriates Iranians because it occurred on the holiday marking the death of the founder of Shi’a Islam, Iran’s dominant religion.

Iran’s problem is to retaliate in a way that discourages assaults on Iranian soil, without provoking a war that would shatter its economy.  It is already troubled by annual inflation running close to 40%, or 10 times higher than in the US. The demands of fighting a war would drive prices much higher, squeezing households.

Iran might attack either many sites to a moderate degree, or one site to a massive degree. Which response would best serve its purposes?

Many paths to revenge

Attacking many sites, but no one site with many missiles, has the advantage of getting the world’s attention without necessarily killing a soldier at any one site. Should a US soldier die, Congress would pressure the Pentagon to retaliate to a degree that might bring on war. Attacking one site with many missiles ensures gratifying damage but risks deaths.

What might Iran do?  Consider two cases in which it has faced this problem.

After the bombing of the al-Aqsa Hospital in Gaza City about October 17, falsely blamed on Israel, Iranian-linked militias attacked US posts in Syria and Iraq more than 170 times. They didn’t kill anybody until about January 28, when a drone killed three American soldiers at a small supply post in Jordan near Iraq and Syria. On February 2, the US responded by attacking more than 85 sites in Syria and Iraq associated with Iran’s Islamic Revolutionary Guards Corps, Tehran’s regional troublemaker.  The militia attacks stopped. This suggests that Tehran prefers to harass the US by coordinating many small attacks until one goes wrong.    

The second case was Iran’s response to the American assassination on January 3, 2020, of the charismatic commander, Qasem Suleimani, of the Quds Force, the military intelligence arm of the Revolutionary Guards.  On January 8, Iran responded by launching more than 12 ballistic missiles at the US post at Baghdad, al-Asad, which had no air defense at the time. But Iran warned of the attack in advance. As a result, no Americans died, although scores were treated for concussions. Again, Iran had stopped short of war.

My guess is that Iranian militias might launch drones simultaneously at several US posts, such as al-Tanf in eastern Syria, near the highway running between Baghdad and Damascus; posts near Deir ez-Zour in northeast Syria, a province that is close to militia supply sites; al-Asad; and two US posts near Erbil, the capital of the Kurdistan province in northern Iraq, near Turkey.  

A second possibility is a massive attack on the Kurdistan post more distant from Erbil, al-Harir; for its defenses are relatively weak, as was demonstrated by an October 18 attack on the site that nearly destroyed the barracks. For Iran, the advantage of this site over the one nearer Erbil is that fewer civilian casualties are likely. 

Mark Kennet notes a third possibility: An eye for an eye -- an attack on an Israeli ambassy.  It has happened before. On March 17, 1992, a bombing of Israel's embassy in Buenos Aires killed 29 and injured 252. The Argentina Supreme Court assigned responsibility to the Lebanese terrorist group Hezbollah, with planning and financing by Iran. A similar attack on July 18, 1994, on the building of the Argentine-Israeli Mutual Association in Buenos Aires, killed 85. For these details, I draw upon House Resolution 201 of 2017, introduced by then-Rep. Ileana Ros-Lehtinen (Fla.), who chaired the Foreign Affairs Committee.

An embassy attack might gratify the Iranian public's sense of justice.  And it is nothing new in the Middle East.  In early December, seven mortars hit near the US embassy in Baghdad. No injuries were reported, but terrorism of US embassies is not confined to the region. On August 7, 1998, nearly simultaneous bombings of the American embassies in Nairobi, Kenya, and Dar Es Salaam, Tanzania, killed 224 and injured 4,500. The FBI attributed these attacks to al-Qaeda, not to Iran. But they suggest a need for precaution now at American embassies. As far as I can tell, the US State Department has not urged caution upon the embassy and consulate in Astana and Almaty, Kazakhstan, at least.

When could an attack occur? After the Suleimani killing, Iran retaliated in five days. This might suggest a need for vigilance in the next day or two.

Of course, this post is just speculation. But when Iran warns of a response, it is not prudent to call its bluff. --Leon Taylor tayloralmaty@gmail.com Seymour, Indiana

 Notes

For helpful comments, I thank but do not implicate Annabel Benson and Mark Kennet. 

References

Steven Erlanger.  Strike in Damascus Escalates Israel’s Undeclared War With Iran - The New York Times (nytimes.com) .  April 2, 2024.

Farnaz Fassihi and Matthew Mpoke Bigg.  Iran Says the Deadly Israeli Strike in Damascus Will Not Go Unanswered - The New York Times (nytimes.com)  April 1, 2024.

Federal Bureau of Investigation. East African Embassy Bombings — FBI

Missy Ryan, Dan Lamothe, Alex Horton, and Mustafa Salim.  U.S. launches strikes in Iraq, Syria after deadly drone attack in Jordan - The Washington Post.  February 2, 2024.

Phil Stewart, Idrees Ali, Timour Azhari.  US embassy in Baghdad struck with seven mortars as attacks escalate | Reuters December 8, 2023.

US House of Representatives Resolution 201 of 2017.  https://www.govinfo.gov/.../html/BILLS-115hres201ih.htm

How to succeed in business without really trying, 2024 version

                                        Darn, forgot to cut the check again. Photo: Carolos Muza

Ne'er a dull moment online.  On Monday, March 18, I was contacted by phone text by “Mis. Emnet Mersha” who said she was from the CAE Inc. Group (that is, Canadian Aeronautics). She said she had found my resume on the Career-Builder database and wanted to interview me for a remote position for $55.60 an hour, following a week of training at $25.75 an hour. She referred me to Tom Hayden, a “hiring manager,” on Skype (live:tomhayden269) for a one-hour interview by phone text Tuesday afternoon. Happily, I passed the interview, and Hayden said he would email to me a copy of an employment letter in a day.

On Thursday, I received at my mailing address from FedEx a check for $4,928 written on First Horizon Bank. Hayden said I was to spend the check on software from a CAE vendor to use in my new job as a data entry clerk.

I deposited it Thursday afternoon in my Chase checking account. Chase put a hold on the check until April 1 “because of information we’ve received from the paying bank or due to information we have within our systems.” I reported this to Hayden.

On Friday morning, Hayden wrote: “Your working materials is [sic] currently ready as we speak and the head dept will need a little quarter from you. You’re required to make a partial payment to the vendor so they can start processing your working materials to your address.

“Note: you will be reimbursed first thing tomorrow morning along with your sign up bonus. I believe you will be able to handle this task?”

I replied: “Might it be easier for CAE to cancel the check and simply make a direct deposit into my account now? Chase is the country’s largest bank, and CAE one of its largest aeronautical firms. Surely they have a direct-deposit arrangement.

“And where is the employment letter?”

I never received a reply. I emailed CAE’s human resources department around Friday noon, asking it to verify employment of Mersha and Hayden. CAE Talent Acquisition replied: "This is a scam, this is not how we typically approach potential candidates. We will always clearly identify ourselves with contact information."

The mechanism for the scam was simple: I would pay Mersha and Hayden in exchange for a bad check. I reported the fraud to Chase.

The rise in online employment is a field day for the larcenous. Who is responsible for detecting fraud? The commercial banks say it’s the potential victim. But banks exist precisely because we trust them to ensure that our transactions, most of them with strangers, are honest. Otherwise, why not keep our money in a burglar-proof pillowcase? Banks like First Horizon, Wells Fargo, and even Chase should be more responsible for monitoring fraud than customers should be. -- Leon Taylor, Baltimore, tayloralmaty@gmail.com

For helpful comments, I thank but do not implicate Nicholas Baigent, Annabel Benson, and Mark Kennet.

The Chinese puzzle

 

                                        Chinese shoppers, look for the blue-light special. Photo: CTGN

                                          

In a few decades, China rose from the ranks of the poorest to the affluent. Its economy burgeoned ninefold from 1990 to 2022 (see Figure 1). One reason for this economic miracle is that the Chinese save like prophets.  Firms and governments borrow these abundant funds to build roads, dams, and factories. This expands China’s capacity to produce and thus its income. China adds far more value in manufacturing, as a share of its economy, than the typical country; see Figure 2.

Adjusting for inflation and changes in exchange rates, China has been the world’s largest economy since 2014.  Yes, I know that you hear from the news media that the US is still the largest economy. American reporters are economic illiterates, led astray by fluctuations in the exchange rate of renminbi per dollar.  These fluctuations have more to do with temporary rises and falls in money supply than with an economy’s long-run ability to produce.

 

Figure 1. China’s gross domestic product, 1990-2022, in 2017 international dollars.

 

Figure 2. Manufacturing value added, as a share of GDP, in China and the world, 2004-2021.

Just how much does China save? Over the long run, the typical Chinese spends just 55 cents of every international dollar earned; see Table 1. She saves the other 45 cents, either voluntarily or as tax payments, which are forced savings. In contrast, Americans spend more than four-fifths of an additional international dollar.  You would think that since Americans are richer than Chinese, they would save more of another dollar, because they have already met their essential needs. But that’s not the case. The Chinese save even more than Kazakhstanis.

(An “international dollar” is an artificial currency that expresses the cost everywhere of buying a good that would cost a dollar in the United States. By controlling for changes in the exchange rate, it expresses the same purchasing power everywhere. We thus avoid the mistake of thinking that an economy has grown in productive capacity merely because its exchange rate has strengthened for a few months.)

 

Table 1. China’s long-run consumption function, 1995-2022

R Square	1.000
Adjusted R Square	1.000
Standard Error	1E+11
Observations	28
ANOVA
	Df	SS	MS	F	Significance F
Regression	1	1.81E+26	1.81E+26	17956.18	0.00
Residual	26	2.62E+23	1.01E+22
Total	27	1.81E+26
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	-6.6E+10	3.61E+10	-1.84	0.078	-1.4E+11	7.9E+09
GDP	0.547	0.004	134.0007	1.87E-38	0.539	0.555

 

Why do the Chinese save so much? Asians in general save in spades, but that hound don’t really hunt. It explains nothing.

Maybe couples must save to raise those famously large families.  In the 1960s, a Chinese woman averaged more than seven births.  That was almost triple the number needed to keep the population from declining; see Figure 3.

But the fertility rate has been falling for decades.  This is thanks largely to China’s draconian policy in the 1970s to allow a couple to raise only one child, to defuse the then-dreaded Population Bomb. China today might like to have that Bomb back. Its population has just stabilized at 1.4 billion, and forecasts say it will even shrink; see Figure 4. In any event, Chinese families are getting smaller, so they don’t need bigger nest eggs.

 

Figure 3. The fertility rate in China, 1960-2021.

 

Figure 4. China’s population, 1960-2022.

 

Again: Why do the Chinese save? Maybe it’s to pay the taxes of a government that has been a Leviathan for centuries. People have gotten into the (forced) habit of saving for the rainy day, in a country where the government seems to rain every day. But even this explanation falls short, because China has been taxing lightly for at least two decades. The ratio of tax revenues to GDP is only about 8%; see Figure 5. The world average is almost double that. So why haven’t the Chinese loosened their belts in response to softer taxes? Maybe spending habits are hard to change. Which, of course, just begs the question.

 

Figure 5. Share of tax revenues in GDP, 2005-2021.

In the short run – up to a year – the Chinese spend slightly more of an international dollar than in the long run, probably out of necessity; see Table 2. But over time, they cut spending by 23 billion international dollars, when controlling for income. The Chinese indeed have a passion to save.

 

Table 2.  Short-run marginal propensity to consume in China, 1995-2022

R Square	1.00
Adjusted R Square	1.00
Standard Error	9.51E+10
Observations	28
ANOVA
	df	SS	MS	F	Significance F
Regression	2	1.81E+26	9.03E+25	9985.716	0.00
Residual	25	2.26E+23	9.05E+21
Total	27	1.81E+26
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	-2.8E+10	3.93E+10	-0.716	0.481	-1.1E+11	5.28E+10
GDP	0.586	0.020	28.982	0.00	0.545	0.628
Time	-2.3E+10	1.16E+10	-1.978	0.059	-4.7E+10	9.48E+08

 

This is not always fortuitous. Central Asia would certainly prefer that the Chinese buy more imports. And the Chinese themselves may suffer from their frugality. For when the world economy slows, the Chinese must provide their own fuel to crank up their GDP engine. If they balk at spending, recovery may slow. In fact, at a hypothetical income of zero, there is no evidence that the Chinese would spend anything (see Table 2), even though they could probably borrow from future taxpayers by selling bonds to be paid off by hiking future taxes. The Chinese puzzle lives on. – Leon Taylor, Baltimore, tayloralmaty@gmail.com

 

Notes

For useful comments, I thank but do not implicate Annabel Benson and Mark Kennet. All data are from the World Development Indicators of the World Bank,  worldbank.org

The data in the tables are from the World Bank’s World Development Indicators for 1993 through 2022. GDP is gross domestic product. Time gives the number of years that have passed since 1990, where Time = 1 for 1990. Consumption is personal consumption expenditures. GDP and Consumption are expressed in 2017 and 2015 international dollars, using purchasing power parity.