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Comment by Robotbeat | Hacker News Reader

China’s Purchase Power Parity GDP (in other words, adjusted for exchange rate and local costs) is already higher than the US’s and is probably around 10-20 years from being equal on nominal dollars as well.

There’s no doubt China’s growth will slow due to an aging population, but they’re coming already from a MASSIVE population size advantage.

The West can counter by increasing immigration significantly (and probably pursuing pro-natalist policies as well), plus picking some of the best of what China is doing with investments in infrastructure and R&D while maintaining the freedom and vitalism that has helped the West in the past.

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One major problem is that the people directing massive capital investments in the West are simply not as smart as the people directing massive capital investments in China.

If your nation gets rich earlier, then hereditary passing on of wealth will mean that in a few generations the people making the decisions about capital allocation are no longer your best and brightest. All you need to do is look at the difference between a scatter plot of "income vs. IQ in the US" and "wealth/assets vs. IQ in the US" to see at least part of the problem.

e: I'm downvoted, but concentration of hereditary wealth is definitely something dragging Western models down.

Almost any argument attempting to invoke intrinsic intelligence (as an explanation for some geopolitical phenomenon) is horsehocky. But even if you buy that, the West (particularly the Us) can game that by accepting “High skilled” immigrants from the entire world rather than just relying on just a fraction of the human population. A distillation of ambitious people from every nation on Earth.

I personally doubt very much how genetically hereditary this is. So you have to maintain a high number of first or second generation immigrants to keep the effect going.

I think it'd be horsehockey if I were claiming that the Chinese or white people or Americans or whoever is intrinsically more intelligent or "culturally" hard-working or whatever. That's bullshit. I can understand the gut reaction to any mention of IQ since it is a common trope among racists on the internet.

But my claim is not that: it is about the pretty clear concentration of inherited wealth in the US, compared to the intensive testing system used in China.

Your immigration solution would fix the intelligence of our workforce (skeptical that's a huge problem to start with), but do nothing to resolve the distributional problems in our model.

If your argument is that we are approaching an aristocratic, low-churn society with a bunch of favored failsons at the top, then that would make more sense than trying to frame it in terms of Intrinsic intelligence. But I don’t think your comparison is accurate. The Chinese Party leadership and bureaucratic apparatus is plenty nepotistic while America’s more private-market-oriented economy is now dominated by (1st or 2nd generation) immigrant-founded or run companies like Google, Microsoft, Apple, and Tesla. Read: https://www.scmp.com/news/china/article/1236343/son-also-ris...

> we are approaching an aristocratic, low-churn society with a bunch of favored failsons at the top, then that would make more sense than trying to frame it in terms of Intrinsic intelligence.

Uh, I'm not sure exactly what you're disagreeing with. I think intelligence is a thing, I think tests can probably reflect it at least a bit, and I think the fact that wealth is not really correlated with it means that there are probably a lot of dummies making capital allocation decisions.

> immigrant-founded or run companies like Google, Microsoft, Apple, and Tesla

I'm talking about ownership and capital allocation, so the management of any particular firm is somewhat irrelevant. The immigrant founders of Google, for instance, only hold 14% stake in Alphabet. Much of the ownership is by these "favored failsons" as you put it, even if they aren't the managers. That's not even getting into the fact that the vast-majority of America's economy is not these popular-to-talk-about tech companies or that Google's have to run-the-gambit of getting green-lighted by "failsons" just to have a chance of being funded.

We could have a whole separate conversation about the effectiveness of China's bureaucracy, but all I'll say is that - even if they have the same problems, ours have had more time to solidify, and China's wealth Gini coefficient is smaller than ours, so the problems would be less magnified.

> China's wealth Gini coefficient is smaller than ours, so the problems would be less magnified.

The World Bank's data is a bit spotty, but it looks like China's Gini is roughly similar to the US's at around 40 whereas other economic powers like Japan, Germany, South Korea and France are bunched closer to 30.

https://data.worldbank.org/indicator/SI.POV.GINI?locations=C...

If your theory of is based on China having less wealth inequality than the US, you really should also look at countries with much less wealth inequality than either.

> The World Bank's data is a bit spotty, but it looks like China's Gini is roughly similar to the US's at around 40 whereas other economic powers like Japan, Germany, South Korea and France are bunched closer to 30.

This is a common sleight-of-hand - you're giving me income Gini coefficient and describing it as if it is wealth gini coefficient. Check out the wealth gini here [0] to see that Germany and the US are much higher and China is more comparable with France.

> If your theory of is based on China having less wealth inequality than the US, you really should also look at countries with much less wealth inequality than either.

Also to be clear, my "theory" is not based on China having less wealth inequality. My "theory" is that the people making large capital allocation decisions in China are typically smarter.

[0]: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq...

> My "theory" is that the people making large capital allocation decisions in China are typically smarter.

In that case the wealth Gini should be high so that the smart people get to control all the money.

In Chinese government, often the smart people get to control capital allocation without owning all of the money.

Also, that's not necessarily true - I think it is better to have investment controlled by a diversified group of smart people, which would mean not a super-duper high gini coeff.

American reliance on high-skill immigrants to build value-generating businesses is reflective of long-term weaknesses, both due to increasing hostility to immigration, and due to domestic high-skill talent being pulled into zero-sum economic sectors that extract economic rents but create no value. Unless the US is prepared to address these weaknesses, they will gradually erode US standing vs. China.

China's parliament has ~100 billionaires, and the concentration of wealth is even more extreme than that when you count those with a net worth exceeding, say, $100 million instead.

The difference between those at the top in China and those at the top in the US is not one of wealth concentration or inheritance or intelligence. The difference is access to raw power, national unity, and a massive foundational population. The Chinese government operates very differently from the US government and can move initiatives forward dramatically faster and at lower cost by essentially bulldozing through what would be vast legal and regulatory webs in the US involving dozens or hundreds of independent parties with various ownership stakes or legal claims that have to be balanced and negotiated against.

Of course, there is the (obvious) point that ~100 billionaires in government is not contradictory with capital allocations being made by smart people. How many of those billionaires inherited their wealth?

> China's parliament has ~100 billionaires, and the concentration of wealth is even more extreme than that when you count those with a net worth exceeding, say, $100 million instead.

I mean, just looking at the facts - independent observers put US wealth concentration at higher levels than China, look at the wealth gini coefficient.

> The difference is access to raw power, national unity, and a massive foundational population.

This combination has existed elsewhere. The intensive testing/promotion scheme used in the CCP has been a little less common. The difference between the US and China is that we put this "raw power" in the hands of private enterprise and management, whereas in China they sequester a lot of that talent into the party and sometimes loan it out to private industry.

It's just not clear to me what point you're trying to make. Maybe the US has more wealth concentration at the top than China, but it's clear that both countries experience this problem/symptom to an extraordinary degree. It's also clear there are tons of self-made multimillionaires and billionaires in the US, including probably a surprising number right on this very forum (well, maybe not billionaires so much). You're trying to make it seem as if the US is dramatically more unequal than China and that every wealthy or powerful person in the US inherited everything but this is far from obvious and probably false.

> The difference between the US and China is that we put this "raw power" in the hands of private enterprise and management, whereas in China they sequester a lot of that talent into the party and sometimes loan it out to private industry.

On this point I do completely agree with you.

The point I'm making is pretty clear. Obviously this analysis is entirely comparative, since we're trying to diagnose why China might diverge compared to other growth models.

China has comparatively less wealth concentration, and a comparatively much higher proportion of Chinese billionaires and multimillionaires are self-made compared to the US. Keep in mind, there weren't really any billionaires in China before 1980 for them to inherit the money from.

Your point is not at all clear to me, sorry. I think the differences you're pointing out are small at best, and while they may not have had a vast aristocratic billionaire or centimillionaire class in the past, they definitely do today.

China's system acknowledge power and classes.

Billinares have enourmous power, then putting them into the power system, is a appropriate recognition; and ensures appropriate control and management as well.

While in US, the enourmous power of billinares are masked behind an entagled web of legal and political constructs, which are so complicated that the ones involved probably dont have a clue how much power they actually have. Today they can be enoumously powerful, the next day they are suddenly under constant barrage from all sides. Like FB Google and Twitter were chanted as the beacon of free world's inevitable domination in world in the grassroot's revolutions in middle east (Arab's spring); now they were blamed for almost every instances of domestic plitical failures.

A better approach might be subject these powers into the government system, and manage and use them as tools. Instead of pretending that a free-rein systems can regulate themselves, which ends up with a swamp of complications and complexity that no one is able to remotely influence the thing with a coherent vision and strategy.

I'll step on the landmine.

> I think it'd be horsehockey if I were claiming that the Chinese or white people or Americans or whoever is intrinsically more intelligent or "culturally" hard-working or whatever. That's bullshit.

Why would that be horsehockey? Why would you expect people in different countries and cultures to be equally intelligent or hard-working? That would be surprising! So clearly there will be difference of some kind, and it might be small on the average, or it might not be. I'll follow the data where it leads.

I don't accept that the topic is forbidden from rational investigation and discussion. Or that everyone is somehow magically equal and life is fair - that's the real bullshit.

That's an interesting angle I haven't heard before.

Your thesis could be restated as hereditary wealth / rising aristocracy concentrates wealth based on lineage and not meritocracy, thus unlikely to be in the hands of those most able to put it to work effectively. This inefficiency in the market would lead to lower future growth potential. I'm going to ignore the mention of IQ because a) It's largely hereditary so I think it actually runs counter to your argument and b) It's not the best measure for ability to allocate capital effectively in the first place.

That seems plausible though. It would superficially make sense to tax that with a wealth or estate tax and put the money into programs that increase social mobility. I say superficially because whenever you tax something you change people's behaviour, like moving their assets into a trust to avoid estate taxes. I think we're seeing this in the US where the states with the highest taxes, California and New York are seeing the highest net emigration of 200K people a year to other states. I wonder if it's related.

The US in particular has the lowest social mobility compared to other major Western nations. The American dream is least alive in America in the West. That's a major drag on the future economic potential of the country.

> I say superficially because whenever you tax something you change people's behaviour, like moving their assets into a trust to avoid estate taxes.

To me, evasion is a solvable problem at the national level if we, again, hire & assess for merit w/ competitive pay in our enforcement agencies. Unfortunately, much of the government-especially the portions of government that would enforce this- is captured, so pretty unlikely chance of that.

China's capital investments tend to be more successful because they copy the ones that already work. High speed rail is more likely to bring economic value than vertical landing rockets or self-driving cars. I think the problem in the US at least is that there is much much capital that all the brightest minds flock to profitable areas. In China, these opportunities are a lot rarer, so more people will pursue research or work for the government.

There are huge opportunities happening in China all the time. They are doing new projects and creations that we do not have in the West, again - all the time.

Rare opportunities to be involved in something big are just not how I would characterize China if you've been there in the past 5 years.

This problem with this argument is that it can be flipped on its head to justify an aristocracy: the wealthy today are the ‘best’ and they will pass on their genes, successful values, and educational strategies to their children.

> it can be flipped on its head to justify an aristocracy: the wealthy today are the ‘best’ and they will pass on their genes, successful values, and educational strategies to their children.

I disagree, I don't think this argument can be flipped on its head:

The point is that it's pretty clear that the wealthy today are not the best and that meritocratic approaches are much more effective than crossing your fingers and hoping that Einstein's kid will also be an Einstein.

A large reason why affluence and intelligence are at all correlated is because wealthy people have access to better education and better early childhood environments. The fact that even with those advantages, wealth is so uncorrelated with intelligence shows that we have a pretty big problem.

Is wealth uncorrelated with intelligence though?

You write as though that is obvious, but it seems like most new billionaires we hear about on HN etc, are pretty intelligent.

It’s obvious that there are a lot of intelligent people who do not become wealthy, but that’s because becoming wealthy requires not just intelligence, but being in the right place at the right time at the right age. I.e. it requires the right kinds of opportunity.

> new billionaires we hear about on HN etc, are pretty intelligent.

New billionaires are the ones most likely to be intelligent (although again, measures of intelligence can't be detached from the opportunity you were provided), this is entirely consistent with the point I'm making.

Most billionaires are self-made, and that proportion has increased since the 1980s:

https://www.forbes.com/sites/luisakroll/2018/10/03/the-forbe...

> Looking at the numbers over time, the data lead us to an interesting insight: In 1984, less than half the people on The Forbes 400 were self-made; in 2018, 67% of the 400 created their own fortunes.

To be clear, I'm not saying that the US is entirely without mobility. Particularly for the billionaires, most of that wealth is not inherited - although much more of that mobility is from low millionaires -> billionaire than it is from poverty -> billionaire.

You deleted your other comment about income and IQ. Worried that it would reflect badly when someone in the future would trawl through your account?

Thats of course ridiculous. "Low !Q" wealthy people in the US arent managing their own money. They hire the best and brightest to do it. China has a massive advantage because they can simply copy or steal what works in the US more efficiently than we can come up with the next best thing.

> They hire the best and brightest to do it.

Oh, and how do they determine the "best and brightest"?

Just pick hedge funds who have performed in the past run by a bunch of people with top business degrees. Its a lot easier than picking a stock

> Just pick hedge funds who have performed in the past run by a bunch of people with top business degrees. Its a lot easier than picking a stock

Nope, it's actually very hard to outperform the market just by looking at hedge fund past performance. Top business degrees do not really equal top talent, having taken a few of these "top business" classes. It's all a salesmanship game to the rich, it's not about actual returns.

A related point. the US economy tries to fix this every so often by sending the people directing capital flows bankrupt (notably, circa 2007). The US government keeps stepping in to fix capitalism when it looks like there might be change.

I mean yeah, our government is totally captured which definitely hurts mobility and efficient capital allocation.

It doesn't make sense to use PPP when asking questions about a country's economic strength or power. It's designed for questions of manufacturing or cost of living.

China has a high PPP GDP simply because it has hundreds of millions of people living in some form of poverty, which drives down costs locally. Clearly if the driver of your high PPP GDP is a massive underclass living in poverty, you can't turn around and use that as an argument in support of your economic might -- it's incoherent.

In terms of geopolitical significance, such as ability to wage war (modern industrial wars being heavily dependent on manufacturing capacity) then PPP is pretty relevant. If anything, that probably under-estimates China’s industrial capacity compared to the US.

https://www.statista.com/chart/amp/20858/top-10-countries-by...

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