Sustaining China’s Economic Growth Pt. 26

So it’s the cost of producing goods is tending to go down compared to its trading partners and that means if the exchange, if you get to some exchange rate, that may be an equilibrium today, then you just keep it there, in three years, this differential productivity growth will mean that China will have a growing surplus again.  There are different estimates of how much appreciation you have to have to offset this productivity gain, but the lowest estimates are in the neighborhood of 3%-4%.  So I would say that even though the current account surplus today is relatively small compared to four years ago, that these authorities should still allow the currency to appreciate 3%-4% per year at least, in order to prevent the surplus from ballooning back up again.

Question

You mentioned that under international appreciation policy and wondering what do you think is the income distribution fit of a financial repression and when China’s government is going to reform its financial issue and how to balance the economic growth effect and distribution.

Dr. Lardy

That’s another factor that I did not mention when I talked about the rising savings rate, but probably another factor contributing to the rise in savings rate is the fact that the income distribution has gotten a lot more unequal in the last decade.  We know that people at the top of the income distribution save a much higher share of their income.  Those are the ones that are buying the third, fourth and fifth house because they think it is a good investment.  So you have a very high savings rate and so as the income distribution becomes more unequal, the people at the bottom have income so low, they cannot save anything or very little and people at the top have a lot of discretion and they tend to save a great deal.  One of the factors contributing to these rising savings rate in this period is probably the growing inequality in the distribution of income.  Most governments have found this very difficult to deal with in terms of via taxes or any kinds of redistributing programs.  I am not sure what options they have, but I do think that most important one is to get off the capital-intensive growth path and to concentrate more income in the corporate sector, less income in the household sector, more growth of employment in the modern sector because growth of employment in the modern sector in the last seven or eight years has actually slowed down.  So I think the kinds of policies that I talked about earlier would contribute indirectly to some reduction in the inequality, as well.

HOST

Alright.  Before I conclude the lecture.  Let me say that we will have a reception and those of you who still have questions and would like to talk to Dr. Lardy; the reception will be just here.  Please join me.  Thank you.

Sustaining China’s Economic Growth Pt. 26
economics expert witness

Sustaining China’s Economic Growth Pt. 25

When you take into account that most of the housing being built in urban China today is high-rise buildings, the cost of the land does not represent a very large share of the total price to buyers.   I tried to calculate this using various kinds of data and I’m coming up with numbers like 10% or 15%.  It is significant but not as high as many people seem to think.  I’m not saying that is the final word.  I don’t think land prices are as big a factor in driving up prices as some people have said.

Question

My question has to do with the exchange of the RMB because one of the major factors that you stated was how the Central Bank was involving itself in the foreign exchange market and try to limit appreciation growth.  What do you think is the forecast or what is your opinion about the future of the RMB appreciation?

I would say two things.  First of all, the currency is substantially less undervalued than it was back in 2005 when they began to change policy.  The currency has appreciated by about 30% on the real trade-rated basis since July of 2005, when policy changed.  That’s certainly a factor contributing to the reduction of Chinese external surplus.  However, another factor is the fact that economic growth in Europe is very weak and that is China’s biggest export market and that economic growth in the U.S. is not recovering to our long-term growth potential.  So that China’s export growth has been held down somewhat by the aftermath of the global financial crisis.

So if you have recovered more fully in a year or two and if the United States got back to grow to something closer to its potential rate of growth, I think that probability is that China’s surplus could go back up.  I think that the biggest thing to keep in mind is that and I think that this is a problem in China, I think when people like me talk about an equilibrium exchange rate, a lot of people think, “That’s a number once you get to the equilibrium exchange rate, you are set.”  That’s what a kind of equilibrium applies but China has a very high productivity growth compared to most of its trading partners.

Sustaining China’s Economic Growth Pt. 25

Biomedical Engineering Defined Pt 10

Why the change in infectious diseases? Why did I focus on that one?

What makes it so much better to be alive now in terms of your likelihood to die of an infectious disease than it did in London in 1665? Yes, but what specifically? Drugs like antibiotics, penicillin, erythromycin, again something else you probably all had experience with and you think well that’s not Biomedical Engineering, that’s science, that’s somebody discovering a molecule that kills microorganisms.

That’s true, it is science, but in order for that to go from being a science that works in a laboratory or in one hospital to being penicillin, which could be used all over the world, you’ve got to be able to make it in tremendously large quantities and that’s the work of biomedical engineers, making penicillin in the kinds of quantities that you need so that a dose could be available for everyone in the world if they got infected and to make it not just in abundance but make it cheaply enough that everyone could afford it. So, if you can make 100 tons of the drugs, but it costs $100,000 a gram that might not be a useful drug because nobody could afford to use it.

So, it’s the work of biomedical engineers, really, to take these innovations in science like drugs and make them useful, make them so that everybody can take advantage of it. And you also mentioned vaccines and we’re going to talk a lot in the middle part of the course about vaccines and the engineering of immunity. How do you engineer, what happens in our immune system in order to protect us from diseases? That’s another of an area where biomedical engineers have made tremendous contributions.

So, just to go a little bit further with that point, if you looked at the causes of death of London in 1665, here’s a list that I got from a source that was written at that time, and I don’t even understand what some of these things are, but the ones in green are infectious diseases, they’re infectious causes of disease.

Spotted fever in purples for example, which we call measles, was a significant cause of death as was the plague, which we don’t have any more, thank goodness. But, people died typically of either infectious diseases or they died during childbirth or they might have died at old age which would have been 50 or so at that time.

Biomedical Engineering Defined  Pt 10

Sustaining China’s Economic Growth Pt. 24

The way I put is, “Yes, the state is not giving up its monopoly control of certain key industries and they are not all in the manufacturing.”  The financial sector, for example, still tends to be very heavily state-dominated.  But if you look at the overall economy, it is being driven more and more private enterprises and this is even true with the export sector.  I think people have not appreciated this.  If you just flashed back 10-12 years, state-owned companies were the dominant exporters.

They were producing something like 60%-70% of all exports.  Then we have the rise of joint ventures and wholly foreign-owned companies that came to be the dominant source of exports in China.   But in the last four or five years, the share of exports being produced by foreign-connected companies has actually declined and the private sector has boomed.  The data now show that if you look at growth of exports, the private sector contributed more to the growth of exports in 2009 and 2010, than either state-owned companies or foreign companies.

The privates, they are not the biggest yet, they are still only about 30% and the joint venture foreign companies are about 45%, but the JVs and the foreign companies are coming down and the private companies are coming up, so that the delta, the increase in exports in 9 and 10 came predominantly from private companies.  So there are certainly some areas in which the state has tried to expand its influence, but there are some of these areas where they have either not tried or they have tried and failed.

HOST

I would take three more questions.  Raise your hands.

Question

In China, some land policies are usually criticized because of many Chinese people believe that high residential housing price is because of high land price.  So for example, no net loss for cultivated land, we have a red light for reserve of 1.8 billion cultivated land.  Some Chinese people think that this policy is stupid.  So what’s your opinion to this?

Dr. Lardy

Well, I think the land factor in housing prices has been exaggerated.  As I mentioned before, certainly, local governments have made lots of money selling land, but only a part of these is going to residential housing.  A lot of these are going for commercial and office space and manufacturing and so forth.

Biomedical Engineering Defined Pt 9

Things like electricity, having electricity delivered to your home, so you had to have ways to generate electricity and to carry it from point to point and it was engineers that did that, built bridges and roads and automobiles, so we can get from one place to another relatively quickly because of that, because there are airplanes that were also developed by engineers in that century.

We designed a lot of new materials that could be used to build things that couldn’t have been done otherwise. Things like steel and polymers, or plastic and ceramics and, of course, computers which has progressed remarkably due to the work of engineers in your lifetime, until now you can carry around a cell phone, which would have been unthinkable even 30 years ago. Engineers in the twentieth century have transformed our society.

One of the other things that happened during the twentieth century is that human life expectancy increased dramatically, people started living a lot longer. So, what I plot on this graph here is as a function of time, years, dates, life expectancy as a function of time. What you’ll see here is that about for the period before sort of 1700 or so, human life expectancy was less than 40 years of age, so that means a person that was born in that year could expect to live on average about 40 years. That was the expected life span. And the expected life spans increased dramatically in the last couple of hundred years until now, or people that were born when you were born you can expect to live to be 80 years old, a doubling in life span, fairly dramatic.

So, what’s responsible for that? Why are people living longer than they did just a few hundred years ago? Well, there’s a clue here on the slide. I indicated a couple of points here where if we looked in the 1665 in London, you could ask the question, another way to ask the question why are people living so long is to ask the question, why do people die? In 1665, 93% of the people that died in that year died of infectious diseases. In contrast, if you look at a U.S. city, ten years ago in 1997 for example, then people still died but they didn’t die predominantly from infectious diseases. They died from other things, only four percent died from infectious diseases. So, one of the reasons there is a huge increase in life span is because people aren’t dying of things that they would have in prior years.

Biomedical Engineering Defined  Pt 9

Biomedical Engineering Defined Pt 8

Many of the things I showed you were things that were built from parts, that’s a good description. What makes it different from science? Science can be hands-on, you might be down at the lake picking up algae and studying them or something that would be hands-on. But what’s different, what would make you an engineer? Yeah? You design. Scientists observe and try to describe and engineers try to design.

They take those descriptions and the scientist that is known and they try to design new things, and so if you look at a dictionary, it has words like this that you’re doing designing things or another way to say that is that you’re trying to apply science, you’re looking at applications. We’re trying to take scientific information and make something new. The other thing about it is that you could make lots of things that are new but generally you think of engineers as making things that are not just new but they’re useful, that they do something that needs to be done and they do something that improves life, the quality of life of people.

So, here is a brief and very biased history of engineering. It’s short. Engineering became a discipline in about the middle of the 1800s. Lots of universities started teaching engineering as a discipline including Yale. In 1852, around that time, this might have been the first course that was offered in engineering in the country. It was taught at Yale in civil engineering in 1852 and even Yale students don’t know this. What a long distinguished history of engineering that their own institution has. In fact, the first PhD degree in engineering was awarded to a fellow named J. Willard Gibbs at Yale in 1863 for a thesis he did on how gears work or something, I forgot exactly what the details are, but have you heard of Gibbs? Is it a name that rings a bell? Where did you hear about Gibbs from? Yeah, G, Gibbs free energy, that annoying concept that you had to try to master in chemistry at some point, but Gibbs is really the father of modern physical chemistry and was one of the most famous scientists of the nineteenth century and got the first PhD in engineering here at Yale.

Then from these beginnings, engineers transformed life in the twentieth century. So, a lot of things started in the twentieth century and became common place.

Biomedical Engineering Defined  Pt 8

Biomedical Engineering Defined Pt 7

Because you trust biomedical engineers to have done a good job in designing these things and we’ll talk about how biomaterials are designed and tested and what makes a material, the properties of a material that you could use as a contact lens, what are the properties that it needs to have.

This is an example of an artificial hip. We’ve learned a lot about the mechanics of how humans work as organisms over the last 100 years or so, how we work as a sort of physical objects that have to obey the laws of physics that you know about. We live in a gravitational field and that it affects our day to day life, and if you have hip pain or a hip that’s diseased in some way, and you can’t stand up against that gravitational field in the same way, that severely limits what you can do in the world.

So, biomedical engineers have been working for many years on how to design replacement parts for joints like the hip. The artificial hip is the most well developed of those. We’ll talk about this in some detail. You can imagine that there are many requirements that a device like this has to meet in order for it to be a good artificial hip and we’ll talk about those and how the design of these has changed over the years and what we can expect in the future.

Lastly, up here, is a picture of a much smaller device. This is actually an artificial heart valve that is made of plastics and metal and can replace the valve inside your heart. Valvular disease is not uncommon in the world. We’ll talk about that a little bit. We’ll talk about how your normal valves function inside your heart and how your heart couldn’t work in the way that it did if it didn’t have valves that were doing a very complex operation many, many times a day. And then we’ll talk about how you can build something to replace a complicated small part in the body like that.

 

Well, let’s take a step back for a minute, that’s one way of looking at Biomedical Engineering by looking at sort of the things that you now about that have been the result of the work of biomedical engineers and talk more generally. But, what is engineering? What do engineers do? What makes engineering different than other fields of study? What makes it unique so that we have a school of engineering at Yale that’s separate from science and the humanities? Any thoughts? Yeah? It’s much more hands-on. You’re actually in there doing things.

Biomedical Engineering Defined  Pt 7

Biomedical Engineering Defined Pt 6

For example, you all know that the only treatment for some diseases is to get an organ transplant: a kidney transplant or a liver transplant is the only life extending intervention that can be done for some kinds of diseases.

Transplants require donors, and the donor organ is usually not at the same physical location that the recipient is, and so jets like this one have become very important in connecting donors to recipients. A team of surgeons is working to harvest an organ at one site while another team of surgeons is working to prepare the recipient at another site, and the organ is flown there.

Now, why does that happen? Because you have to get the organ from one place to another fast, right? The organ has to get from one place to another very rapidly and this is the fastest way to do it. Well, what if we could develop ways using engineering techniques to extend the life of an organ, so it didn’t have to get it where it went so quickly? Then that would open up lots of more possibilities for organ transplantation than are known now. What if we could figure out ways to avoid organ transplantation entirely? What if we could just take a few cells from that donor organ, ship them to the site, grow a new organ at the site and then implant it there? These are examples of Biomedical Engineering of the future that expand on what we currently use, which involves to no small extent, technology like this.

I would guess that probably 30% to 50% of you do this every day. You put a piece of plastic, a synthetic piece of plastic into your eye to improve your vision. Contact lens technology has changed dramatically from the time that I was born to the time that you were born, and the contact lenses you use today are much different than the ones that would have been used 30 years ago. This is Biomedical Engineering as well. Engineers who are developing new materials, materials that can be, if you think about it, there’s not very many things that you would want to put in your eye and that you would feel comfortable putting into your eye, so this is a very safe, a very inert material. What gives it those properties? What makes it so safe that it can be put in one of the most sensitive places in your body, in contact with your eyes? Why do you have confidence putting it in contact with one of the most important organs of your body?

Biomedical Engineering Defined  Pt 6

What Are Expert Witnesses?

Expert witnesses are also known under the name of judicial experts or professional witnesses. In order to manage to achieve such a status, one must necessarily have a certain training in a specific subject. As long as a particular subject is studied up to a point where one can say that they have specialized knowledge, skills and experience, they can become expert witnesses.

The level of knowledge that people must possess has to seriously be taken into consideration, as this needs to be sufficient enough for others to legally and officially rely on the specialized training of the witness. In what concerns the subjects of expertise, these can vary a lot from technical, scientific, literary, philosophical, psychological, economical, and so on. Once one reaches the highest level of expertise in one of these subjects, they have to be able to advise those who ask for their help, basing their opinions on facts and evidence. In addition, expert witnesses can also deliver different expert evidence concerning facts in their expertise domain. Nonetheless, from time to time their testimonies can be rebutted using a learned treatise, but this might turn out to be to their reputation’s detriment.

Most of the times, these expert witnesses are relied on when it comes to giving their opinion on insanity degrees, injury severity, failure causes in devices like machines, earning losses, care costs and so on. For instance, when it comes to intellectual property cases, witness experts are used in order to determine the similarity degree of circuit boards, music scores or book texts. In what concerns the personal relation of the defendant to the expert, this is usually not considered relevant.

Professional witnesses are usually called upon by judges individually, or by courts of law. Basically, these expert witness consultants must show up at court in order to technically evaluate certain actions or facts so that judges can complete their knowledge on the cases that they are mediating. In turn, this leads to a fairest and impartial decision.

On the other hand, even if the use of expert witnesses might seem just, in the USA this is criticized at times. Mainly, this happens because professional witnesses are not only used by one side, but by both, action that leaves it to a jury’s choice to make a decision. Furthermore, these are some expert witnesses known under the name of ‘hired guns’ that regardless of the action they are expressing their opinion about, always give a favorable testimony to the side that hires them. Therefore, it seems that not all witnesses can really be trusted and used for taking an impartial and reasonable decision.

What Are Expert Witnesses?

Sustaining China’s Economic Growth Pt. 23

Directionally, it is there.  In magnitude, I don’t have a slide powerful enough to explain this big increase.

Question:

You mentioned in your book that instead of scaling back, China’s  private businesses are growing faster in the past few years, where many people have thought that actually the state has been increasing their footprint in the board economy.  Would you say that the investment boom is driven more by private sector or by state or SOEs and whether a private sector-driven investment would be more efficient going forward?

That’s a very good question.   I do take on this argument that the stimulus program China launched in the last quarter of 2008 advantaged the state-owned sector.   That is something that you read about in the financial press meet.  I can show you 50 citations from the economists that assert that banks only lend to state-owned companies.  The reality is much more complicated.

Private companies got a lot of increased access to credit in 2009 and 2010 and again 2011, for which we now have data.  Lending to household businesses grew particularly rapidly, so even a lot of the gutty-type enterprises that are not even enterprises or economics expert witness consultants, they are not organized under the company law, you know they have a handful or dozen employees, the mom and pop shops, they are getting access to credit.

So I think the credit story has been misinterpreted, misrepresented.  I think that the banking sector is lending a lot of money to private firms.  Of course, they don’t lend money to every start-up but if you try to start a firm and walk down and to Citibank, they are not going to make you a loan, so that’s kind of a universal.

The state sector continues to shrink.  In 2009 and 2010, the state sector was the slowest growing sector of the economy, just as it has been every year since 1978.  The facts are roughly that in 1978, when the reform began, when you look at manufacturing, 80% of all manufacturing was done by state companies, but by the time you get to 2008, it is down to 28% and it fell by another 1%-2% percentage points in both in 2009, 2010, and 2011.

Sustaining China’s Economic Growth Pt. 23