Bloody shovel

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The Brain Drain Trap

People who complain that European civilisation has decayed into an uncultured, soul-less, commercialised mess, should come to China. Oh yeah. Asians have this natural superiority in math ability, and it shows. It’s all about the numbers. Damn, the servants here can calculate faster than I do. And I’m pretty good.

Anyway the talk in the town for the last months has been the “middle income trap” that China is approaching. In Development Macroeconomics (no I’m not taking the cheap chalupa’s course), there’s this funny concept called the “poverty trap”, which is a magical situation where poor people don’t have money so they can’t invest money to make more of it. Because we all know that without capital you can never make money.

That situation describes a whole lot of the world, but of course not all of it. Between the trapped in poverty and the rich white fucks, there’s a mysterious group of countries which have been stagnant for decades in the middle. The middle income trap. Which describes places like South America or SEA. Which are ok, people don’t eat albino babies or kill wives for the dowry. But still pretty lousy.

Now many of those reading this might point out that the middle income countries have a lot in common besides their economies. Something pretty obvious.  Namely this. But of course that doesn’t apply to China, so it’s safe from the middle income trap. In fact it’s self-evident for most connoisseurs in the West that China is just plain awesome and will take over world leadership in about 10 years. But the Chinese themselves aren’t quite so sure.

I am a fond reader of Michael Pettis, a smart looking fellow who says that China’s growth engine is pretty much over. Double digit is gone, and even 5% is gone. High growth is going to hell because:

  • The low hanging fruit of investment has run out. Infrastructure is pretty awesome right now, and there’s little to invest on, that could give good returns. Sure they can keep on paving roads and building airports, but those are done with credit, which has to be serviced. If nobody uses the airport, the debt doesn’t get paid, so there’s no real growth there.
  • Export growth is dead because Europe and the US have lost purchasing power, political enmity is growing,  and the global trade machine is slowing down for many reasons, political and economical.
  • And China can’t rely in internal consumption because the political system is rigged against giving money to the masses. Chinese growth has been mostly on investment, which the Communist Party likes because it entails concentrating money on the state, which you can then funnel to your cronies. Giving people back to the people basically means pissing off the 80 million party members who got there to make money.

Pettis had this bet with The Economist, over whether growth was going to stall or not. I don’t pressume to know, but looking at that mangina employee of the Rothschild making such a stupid and half-assed non-argument, I guess it’s fair to think that Pettis is on to something.

Of course Pettis is not saying that China is going to collapse. He’s just saying that growth will stall to around 3% until the political system dismantles it’s anti-consumption bias. There will be pressure, so it’s going to be slow. Decades slow. The way the whole Chinese economy is structured is that almost all profitable industries are occupied by huge state-owned conglomerates. The huge rents those companies make, (plus the credit from the state banks that they monopolise) aren’t given away on wages, but stay on the company, and the directors basically live on the corporate expenses account. Small business owners have been putting their own meals on corporate expenses forever, but in China you get millions and millions on “research projects” and whatnot. So people end up buying their kids a Ferrari on Wuhan Steel’s budget (just made the name up but you get what I mean)

Still the alternative to dismantling the system is recession, so the shift to internal consumption will happen, according to Pettis. And when it does, China will grow into a high income country.

I wonder though. I understand his idea, the economy’s only solution is to raise internal consumption, and you do that by increasing the purchasing power of the people. You can do that in many ways: raising wages, lowering taxes (which are stupidly high over here), cutting corruption, etc.

Of course giving money back to the masses would be awesome, but there’s a problem. China today does have some people with money, both in the public and private sector. But they don’t spend the money on consumption. They save it to get the hell out of the country and emigrate. And this happen both with private businessmen and public officials. There’s even a word for civil servants who have already sent their kids and wife overseas (ostensibly planning to join them once they lose a political power struggle and get convicted for theft). They’re called “naked officials”, and a whole bunch of regulation has been drafted lately to address them (they can’t get promoted to boss etc.)

Everybody with money is leaving the country. And those who don’t dream of making some so they can leave too. They are leaving because China sucks. The air sucks, the food is good but probably poisoned. And the people suck.

The main problem in my opinion, it’s just plain full of proles. While Chinese proles are orders of magnitude less dumb and on-your-face than white, let alone black proles, they’re still very annoying. Dirty, crass, loud, uncouth, being around these people stresses the hell out of you. There’s just too many of them. And they’re fucking everywhere, constantly moving, working, thinking of new schemes to scam you.

Years ago, while travelling in China, I was shocked at the sheer hate that smart people had for the proles.  They are smart, hardworking fellas just trying to make a living. Why the hate? As a passer-by they seemed quite salt-of-the-earth, likable people to me. Of course part of that was not understanding well the language. But after staying here for a while I’m starting to resent them too.

Steve Sailer had a post last week explaining why rich Americans like the Mexican immigrants better than low-class whites. His point was that people are more comfortable with servants of a different race than with servants of their own. There’s many reasons for it, and he didn’t get into that, probably because he doesn’t have servants.

I don’t either, but I think I understand. In the absence of a legally enforced class system, there’s something deeply disturbing about having poor people of your same genetic stock around. They sort of remind you of where you come from, and where you might go back. When I see all those smart enterprising Chinese working their asses for 200 dollars a month, I feel uneasy, that they might some day replace me, or I’ll end up like them. Prole co-ethnics are the personification of downward mobility. And downward mobility is the most pure source of fear in the world. It’s fear itself. It’s the cause of anxiety, depression, mental disease. It’s the cause of most suicides.

High growth societies are generally very socially mobile. It’s cool at the beginning when everybody is getting wealthier, but after a while the downward pressure comes in. People get scared, and they leave. I think that a big part of the middle income trap is simply that once people reach a middle income they just get the money and beat it. Brain Drain.It’s been said that most of 100+ IQ Indians have already migrated to the US or England. Russians who make it abroad swear to never go back. SEA has a steady flow of migrants to Australia and the US, and now it’s China’s turn.

So I think that Chinese policy makers face a very hard dilemma. The economy needs consumption, it needs higher disposable income. But the people who get it first choose to use it to leave the country. And they do so for very deep psychological needs that the government can do little about. Countries who avoided the middle income trap did it because leaving wasn’t really worth it, i.e. migrating to the US in 1910 wasn’t as pleasant as today. Or they are deeply ethnocentric and would rather die in their land than flourish abroad; say, Japan.

Either way China seems to me to be in deep shit.


26 responses to “The Brain Drain Trap

  1. anonymous November 22, 2012 at 14:46

    Years ago, while travelling in China, I was shocked at the sheer hate that smart people had for the proles.

    This is the case in the US, why would it be any different in China?

  2. Hail November 22, 2012 at 19:01

    Demographics is one thing you don’t touch on in this informative essay.

    China’s lack of babies will start to pinch its economy, one of these days. Won’t it? They’re now well into their third decade of sub-replacement fertility, and have nestled into the ~1.5 TFR range, along with the EU.

    I remember reading a while ago the bold prediction that China would be home to millions of Black-African immigrants by mid-century, which seems unbelievable still today, but…

    • spandrell November 23, 2012 at 01:53

      Well pinch it. Per capita is where it is. Anyone who thinks population loss is not a good thing hasn’t been to Asia.
      The US has high NAM fertility. Is that not going to pinch it’s economy? Ceteris paribus population loss is better than replacement.

      I also remember reading that, at Peter Frost’s. I think he’s full of it. The very productive Chinese can barely feed themselves. Who would feed the Africans?

      • Hail November 23, 2012 at 03:17

        It’s not about population loss, per-se, but the shifting nature of the population pyramid. Many retirees and older workers; fewer young — it can only be bad. The narrower the base of the population pyramid, the tougher, of course — a top-heavy pyramid with a small base will be lucky just to keeper from falling apart.

        There are now 250 million Chinese between 20 and 30 years old.
        There are now 168 million Chinese between 0 and 10 years old.
        There are now 186 million over age 60 already — a number which will

        By 2020…the number of people over 60 is expected to jump from 12 percent of the population…to 17 percent.” More elderly non-workers, fewer workers (eventually), …this will continue indefinitely, unless TFR picks up. The experience up to the present of the East-Asian ‘Tigers’ (of which China must now be considered one) suggests this will not happen. “By 2050, there are expected to be 438 million elderly, or one out of four Chinese“. (Graying of China).

        A 2010 study by the Chinese Academy of Social Sciences (CASS) forecast that by 2030, the proportion of the population that is over 65 will exceed even that of Japan, which has the grayest population in Asia. “By 2050, Chinese society will enter into a phase of severe agedness,” the CASS said.

        • spandrell November 23, 2012 at 03:28

          So what´s the alternative? Infinite growth? Importing NAMS ? to do what? NAMs can barely feed themselves, let alone produce enough to feed the elderly.
          As Bad as China’s ageing might be, it’s will age later than any Western country. If there’s any collapse it will happen somewhere first. Southern Europe is a good candidate.

          • Handle November 23, 2012 at 04:58

            I’d argue that looking at population numbers and structure alone isn’t sufficient to do any kind of important analysis. What are you really trying to maximize? Aggregate or Per-Capita wealth or something else? How do you know what welfare policy, technology, and the global economic situation (e.g. which things will be scarce and in high demand and who will have control over them) are really going to look like in the future?

            Consider: the Solow model says that the population growth rate and the per-capita productivity rate are inversely related. The faster the population grows, the more the productivity-enhancing capital accumulated in the previous generation has to be spread around. Depreciation, low-savings rates (and/or malinvestment), and high population growth can overwhelm such capital accumulation. It can even overwhelm technological progress, especially in an era of real-productivity-stagnation. It can either keep countries poor or even make them poorer, especially if there is some critical local resource the supply of which is highly inelastic – like arable land and water in the Sahara.

            In fact, I seem to recall reading somewhere about counterfactual impressive growth-rates that the “trapped” countries would have experienced had they adopted more modern fertility rates instead of experiencing exploding populations over the last century. And you can ask the reverse question too – how much growth in some countries was attributable to their declining population rates?

            As a thought experiment – imagine that half the human population – proportionately in every way imaginable, were to disappear, but all the resources and capital left behind? Would the world be a better or worse place to live in for the average person after that (after all the grieving, of course)? I’d argue vastly better. Now, if you kept halving, there’s a point at which things would get worse, but what contemporary economies of scale depend on 7 billion humans instead of 3.5 billion?

            So the demographics question is really one about immigration and ethnic replacement, idiocracy-like dysgenics, the future of the welfare state – especially with regard to generational transfers from young to old, and relative aggregate economic and military power of nations in competition with each other for resources and influence. But all of those things must be balanced against what are some pretty clear and well understood advantages of a stable or declining population.

  3. asdf November 26, 2012 at 14:42

    1) Asians don’t have a hangup about parents living in their household when they are old. This even happens in Japan where they have the money to do otherwise. If finances get tight because there are too many old people they will save money by moving in togethor. This works because Asians are polite while white people hate their aging parents and want to stick them in a home.

    2) Japan is a very clean low pollution country. I think that is the difference with China. It doesn’t matter how rich China gets, if you can’t breath the air who gives a fuck. There really are externalities no amount of money can solve.

  4. john November 27, 2012 at 20:24

    Very good topic and very good discussion. Let me comment on each of the topics.

    1. The brain drain trap. For a country to get to the level of, say, Spain or Italy, all that is required is to copy the way the more affluent countries work. For China, rural population and agricultural population could be cut down to 3% from the current level of 50%. That will release more productivity as they urbanized. It does not matter that many leave for the West, so long as the replacements are nearly as good as those that left. When they get to the West, they will find out that the grass is not always greener on the other side. What is more, they will act as conduits to bring back the latest practices from the West.

    As for the capital that they take with them, I believe that it is a small fraction of the total capital flowing about in China, even though the amount seem enormous. If you compare the amount that they took out of the company and the company that is left behind, you will see what I mean. What is more, if the opportunity to make money exists, capital flow across borders like water. A country with a thick layer of talent like China will not fail because the upper layer pick up and left. I worked at U.S. company a while back. A very capable foreman who headed the electricians was about to retire. Everyone was dreading the day he leaves. After he was gone, the company did not even skip a beat, some other folks stepped up and took his place and the company still ran like clock work. What matters more is that they keep refining and improving the environment for the businesses to bloom. If you look at the country level competitive ranking, they seem to be doing well. There is more still to do, but I think it will be done.

    2. The ending of the investment driven boom. This is a real problem for China as pointed out by many China experts. However, if you compare this problem to the banking crisis that they faced in years past, or the chaos that could have followed after they join WTO, it is a smaller magnitude problem in comparison. The people in charge today (not just the top faces, but other organs such as central bankers etc.) are much better then the ones running the country thirty years ago. I have confidence that they will navigate this as they did with the other past problems.

    3. demographics. There is no doubt that the population will shrink, but counter to this trend is urbanization, which will unleash huge gains in productivity as they went from the country side to the city. The Chinese government does not have a formal retirement program, so there won’t be a social security style debacle where the system goes broke. Life at old age is not as good as it could be if there were more young people, but since standard of living is better then the past, old age in China will be as good or better than their recent memory. People will keep working longer and live with relatives. The other trend is that it move them faster from the low end manufacturing work to the more value added type of work that pays more. Per capita income goes up as the working age population shrinks. I agree that in the longer run, it is still not a good thing, but I don’t see any dire consequences for decades to come.

    4. Pollution. This is a stage that will past. All countries that industrialize went through this stage. Later, they get richer and move past it. If you look at certain measurements such as Sulfur and Co2 contents in the air, and compare this to comparable economic development stage in Japan, you will see that China already have lower pollution compared to the comparable stage in Japan. I think we in the West have forgotten how bad things were in the past. If we go back a couple of hundred years, the living condition in the U. S. at least in the cities where there was industry, was much worse then what we see in China today. Granted, the U.S. has much more natural resources such as land and water per capita compared to China today, but as you can see in country like Japan and South Korea, this is not as big a limitation and could be overcome if given enough money.

    The Chinese GDP per capita is 5 or 8 thousand depending on if you count PPP or nominal. There is a huge gap compared to the U.S., which has $50000. This acts as a voltage potential that will drive their living standard up. All they have to do to get to $25000 per capita is to copy how things are done in the West. In fact, if you think about it, it is a wonder that countries like Nigeria don’t do better than $2600 per capita. A lot of potential is wasted not only because of the lower IQ of the population, but also the environment produced by this population, which tends to be lawless and chaotic. It is true that Taiwan and South Korea failed to get to the West level, but judging from the competitiveness of the South Korean industries like Samsung, LG and kia, I believe the day will come. Diddo with Taiwan. In fact, if you look at country like Greece and Spain, which has similar level of GDP per capita, what the heck do they make anyways compared to the many products which are exported by the South Koreans? Even for a more affluent country like France, it seems the industries in South Korea are more competitive. They even took over the electronic industry from Japan.

    • spandrell November 28, 2012 at 01:47

      “It does not matter that many leave for the West, so long as the replacements are nearly as good as those that left”

      Lol. That’s a big assumption.
      I wonder about all this talk on urbanisation. Yes China has a huge population in the countryside, but it’s quite densely populated, schools function pretty much ok, and many if not most rural young people end up working in the cities. How big a pool of talent remains farming? Any young chinese will tell you that only old people remain in the farms, everybody else is working some odd job in the towns. And anyway last time I checked the government was pushing for 离土不离乡. For all I know all talent is already in the cities.

      Economics talk is good but what you haven’t addressed (and no Chinese ever do because they just don’t understand psychology) is that it’s not about the real quality of life. It’s about the sheer pressure from having to compete against so many damn people in a rigged system where you just never know when you are going down. The relative pressure for downward mobility is huge in China. And that’s extremely stressful. That’s why people want to leave, they don’t even know shit about the West, many do end up regretting it later. But when you are working here you can only think on going away, the farther the better.

      IIRC you are also an overseas Chinese. Why did your family leave in the first place?

      • John November 28, 2012 at 08:15

        I agree that in terms of jobs, many able bodied young people are already working in the big cities so the gains will not be as great. However, there are still gains to be made. In the cities, services could be provided much more efficiently. In the country side, they grow crops on small plots of land. The value added is relatively small. Even for the older folks, it is much better that they do something more productive. Even if the school works OK in the countryside, it works better in the cities. I remember reading a piece by Steve Hsu in his blog that the value added per capita is much higher for people who lives in more densely packed area in big metros.

        My dad left China because we were part of the land lord class. In the sixties, that is not a good designation to have.

        • spandrell November 28, 2012 at 09:37

          Taiwan, South Korea and Japan also grow crops on small plots of land. Not everybody is willing to go with American style agrobiz.
          It’s not that I disagree with the principle that urbanization will raise productivity. But I think there’s something about Chinese culture (the concept of family, the degree of status thriving, the lack of a sense of religiosity to compensate for lower economic status) that will prevent them from reaching European levels of prosperity. Taiwan has been pretty stagnant for 10 years.
          Anyway it’s a vague impression I have, I don’t pretend to persuade you.

          I do encourage you to come by and see for yourself though. You might as well put your money where your mouth is. I hear there’s a movement to rehabilitate 黄世仁 =)

          • john November 28, 2012 at 19:25

            The difference between Taiwan and China is in degree. I don’t think Taiwan has anywhere near the 50% rural population that China has today.
            You might be right that the Chinese will fail to reach Western level of prosperity, but for main land China today, that is irrelevant since they are so far away from even the Taiwanese/Korean level.

            Actually, your feelings on the ground supports my argument that the talents leaving China could be easily replaced. As you said so yourself, there are 300 million people waiting to take your job and they are every bit as qualified. This makes for a pretty miserable working conditions and the sense of insecurity could be unbearable. However, it does mean that the people that are running things are very capable and the replacements, should they leave, are not that much worse.

            I also think that this is a stage that will change over time. What it takes is more companies which will create more opportunities. I bet if you went to a place described by Charles Dickens, when craftsmen were decimated by the industrial revolution and the number of companies was insufficient to provide opportunities for all, the feeling for someone working might be very similar. I am sorry that the time scale for this to change will be much longer than the life span of an individual.

            As for me returning, I have no illusion that working in China is going to be cut throat tough. I really have no connections nor special skills that would get me better deal than working here in the United States. Besides, once your root is established, it is difficult to pull up and go. My work also does not allow but a superficial tourist visit. I do strife to ensure that my views on the matter are not tainted by my racial affiliation but based on solid economic theory and objective interpretation of evidence.

  5. john November 27, 2012 at 21:13

    Another thing that I don’t agree is somehow the country “gives” money to the masses to bring up their living standard. What actually happens in a country like China is that, as the country climbs the value added chain, there is more money to spread around so people are paid more. Also as the population decreases and more industries come up, the cost of hiring workers goes up due to supply and demand, the companies are now forced to invest more money to make each employee more productive. This is a virtuous cycle which a declining working age population will contribute to. These are very huge macro economic forces which will only be moved by policy and macro economic shifts and not by simply giving more to the masses.

  6. RS-prime November 28, 2012 at 10:09

    Span you told me once that life sucks in Japan – I’ve been trying to remember what the reason was. Lack of economic freedom or something.

    I can’t say I quite grasp or am on board with your thinking about downward mobility, in both East and West, though I’m intrigued. Are we talking cardinal or ordinal? The real ultimate payoff is mostly sex, right? (And once you’ve got children, the improvement of the children and of their prospects.) Accordingly, I’m thinking in terms mostly though not entirely ordinal. You propose that the vast majority of people will accept their situation whenever upward mobility prevails, however you probably know that median real wages are generally considered stagnant (at least in the US) since the 70s. Few people ever bring up the subject of those wages well under the median – my guess is that real wages at the bottom octile (shit work) have declined, yet we don’t see that much of a corresponding social movement. Instead we lately saw two vast (though cheesy) movements in the US driven by big money-related policy events: when Bush decided to transfer trillions to Goldman, mostly from older Whites, and when Bush or whoever decided to re-institute debt peonage.

    When I think of Unz, I think of a guy with some agendas, but inasmuch as he’s a good source on China, he clashes with a lot of what you have to say. For instance he says the distribution of wealth is the same in China as it is in the USA – granted it’s gotten worse in the USA in recent eras. I don’t see why China is going to have some great difficulty consuming more. Party honchos will still be much richer than the rest. Their
    1 ordinal status
    2 cardinal status
    3 /relative/ cardinal status
    are unchanged, so what’s the problem? Accordingly I think this point of view should basically be rejected. Also, while I realize PRC does stuff that artificially limits mass consumption, consumption has risen a lot nevertheless – seeing this, why can’t it continue to rise while continuing to not cause major problems.

    • spandrell November 28, 2012 at 11:00

      Life in Japan is very pleasant. Clean, safe, comfortable, high quality products affordable to everyone.
      Which is cool from the consumer perspective. But in the other side are the people making that stuff. Putting 10+ hours a day to make some pretty inconsequential stuff, stupid attention to detail in a corporate regime which eerily resembles a maniac cult. The sheer hours, the peer pressure, it’s quite exhausting. And boring as shit. If you have a fulfilling job, Japan is close to paradise. But good luck finding one.

      Unz is a shitty source on China. And anyway I’m not disputing the macroeconomic stats. I’m just reporting the feeling on the ground. The thing is that people are leaving. In droves. This is a fact. So there is a problem. In my view the problem is that business is unstable, and there’s just too many people qualified to do any job. So the iron law of wages is very present. If your business goes down because of some arbitrary new law, or because the government suddenly enforces the taxes, or you get fired because your local connection has some problem: in the blink of an eye you’re down to the average salary of USD300/month. With that you are forced to commute by subway and eat poisoned food. And no woman would give you the time of the day.

      The anxiety this provokes is terrible. There’s nothing like that in the US. As bad as it might be, the legal environment isn’t that arbitrary, and there’s simply not 300 million people perfectly qualified to do your job waiting to take it.

      Real wages may have stagnated in constant money, but the things you can buy are different. You got the internet, imported food, life seems to have improved. People now are starting to feel their lifestyle to be declining (the rent is too damn high), but until now there was no real reason to envy the 70s.

      • Baker November 29, 2012 at 04:48

        All developing countries experience brain drain to developed countries. If China keep developing this trend is certainly going to slow down or even reverse. Though from my experience not most people who can leave want to leave. I know many above-middle class people, some very rich, who are quite content with living in China. People of below-middle class leaving China for better wage and freedom oversea is not much of a drain anyway.

        The predominant reason for leaving can be aptly summed up in one word: insecurity. The government officials fear legal insecurity. The businessmen fear financial insecurity. The proles fear job insecurity. The root cause of such insecurities is corruption, no rule truely works and all rules are arbitrarily corruptible for someone’s gain. You cannot do anything great without dabbling in some corruptive, legally gray activities; and the communism party get a stranglehold on everyone. Without such corruption, even the competition is fierce people would have a much healthier outlook of their life in China.

    • asdf November 28, 2012 at 17:11

      Japan is all about eliminating the highest highs and lowest lows. The proles are pleasant but the elite are boring.

  7. RS-prime November 28, 2012 at 10:28

    > Life at old age is not as good as it could be if there were more young people, but since standard of living is better then the past, old age in China will be as good or better than their recent memory.

    It’s been pointed out before that today’s elder Chinese has witnessed some pretty serious things in his time, more serious than pop pyramid inversion and corresponding relative poverty. Not only will his life be better than it was in ’95, it will be a lot better than it was in the 60s.

    It’s not the same, but even today’s elder Japanese at least grew up poor and so is not totally accustomed to high levels of well-being.

  8. Handle December 1, 2012 at 05:50

    In re: China vs. Other East Asian Nations, Levels of Development:

    These stats on Electricity consumption per capita are old and Taiwan is not listed (I prefer BP’s but you’ve got to put in the population data yourself), but they make a point. I’ll add Taiwan and China circa 2011 from BP on the assumption that the others probably haven’t changed too much.

    Taiwan (2011): 10,890
    South Korea: 8,900
    Singapore: 7,950
    Japan: 7,820
    Hong Kong: 5,925
    China (2011): 3,450

    So, we’re looking at mainland China doubling and sustaining it’s current production levels to get to the level of it’s local peers. But BP says that they already consume half the world’s coal (their major energy source for electricity production), and that China’s Reserve-to-Production ratio is only 33 years at current levels of consumption.

    I think people underestimate exactly how much the local availability (it’s expensive to move) of ample cheap coal has driven China’s rise. But will East Asians exhaust their endowment of the stuff in just two more decades? And if so, what happens to growth then?

    • john December 3, 2012 at 19:35

      With a country the size of China rising as rapidly as it did, there is no question that there will be many bottlenecks. Energy is one of them. However, energy is fungible. This makes the problem of energy not just a problem for China but the entire world. In the short term, this problem will be solved in two ways.

      1. the discovery of new supplies. In particular, the new fracking technology has opened up so much supply that we are talking about North America becoming energy net exporter in a decade or so. This does not mention all the deposits in the entire world, which will be huge. They are also building more conventional nuclear power plants.

      2. In the short run, gas price is inelastic so we must use it no matter what. Higher prices will reduce consumption in the long run. Technology always marches in the direction of lower cost. Today, it cost a few thousand each to have a hybrid car. This is worth the cost if the oil price continue to march up. the cost of a hybrid will come down more. This will mean that someday, all the cars and trucks could be done with hybrid. In the seventies, we had the oil shock from the Middle East. By the nineties, the U.S. with more people and cars on the road, were using less oil than in the seventies because mileage of the cars are so much better. I think that hybrid could be a game changer similar to this transformation.

      In this respect, the Chinese may actually be in a position to achieve higher energy efficiency as higher population density and a blank slate allow them to take advantage of the new technologies. Bullet train is just such an example. In most U.S. cities, it makes no economic sense to add bullet trains, as air transport already took up that role. Adding bullet trains would make all the industries (airlnes, bullet train operators) unprofitable. In China, the bullet train is being pushed even though it is currently a money loser. I think it is because air transport is just coming to be and bullet train could off load a very large part of that need in the not too distant future to reduce the need for air travel. Since electricity is used, this potentially is a very cheap, clean good solution for them.

      Another point is that as the Chinese become more productive( and still cheap compared to their productivity), it is the West that should fear the higher energy cost more. If something were to be done somewhere which consumes power, it would be done in place which is the cheapest, this means higher productivity and relatively lower wages. For a country that is expensive ( high productivity, but still higher wages and other costs of doing business), firms could lose money while the ones done in China still could be profitable. So the law of economics says that energy would go to the place where things could be done cheapest.

      In the longer run, there are technologies being developed that could dramatically add to the energy supply.

      1. Space based solar power. Two gating factor have made this not feasible today. The photocells today can only absorb energy in a narrow band of wave lengths and thus are less efficient. Also we need to develop the space elevator which could allow for economical transportation of heavy objects to space. This is gated by the lack of suitable material for the tether cord. Both of these are being actively worked on.

      2. Helium3 mining and Helium3 based fusion reactors. The space elevator would also enable another technology. Heliam3 based fusion reactors. These reactors are safe and ready. The problem is that Helium3 is only found in planets without an atmosphere. Transportation cost and the need for space colonization to mine the stuff makes this a project for the future.

      3. Heavy water based fusion reactor. Work is on going here. I would not be surprised if the Chinese are the first to solve this problem and have a workable heavy water fusion reactor. They are the ones with the most pressing need, the money and the technological base to pursue this effectively. The energy made available if this works is virtually unlimited by today’s standard.

      • spandrell December 3, 2012 at 19:56

        “I would not be surprised if the Chinese are the first to solve this problem and have a workable heavy water fusion reactor.”

        Lol. Optimism anyone? I think you would be the only man on earth who isn’t surprised if that happens. They’re still getting started with fission.

        • john December 3, 2012 at 22:59

          As I said in my post, in the “long” run. I don’t expect heavy water fusion reactor to come out for decades to come. If you extrapolate how far the Chinese have come in such a short time, and who has the motivation to carry this forward in the decades to come, you will know what I am talking about. Most of this work is done in the West today under government funded projects in Universities. This is discretionary spending that could be cut if governments are elected favoring the poor. I don’t think it is that difficult to envision a day when spending on fusion reactor is much higher in China than in the West.

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