Monday, December 26, 2011

Time to Hold US Congress Accountable

When I was starting out in my career, one of my bosses had a favorite saying," Your next pay increase becomes effective when you are." I think it's time we hold our Congress accountable using this logic.

One of the viral email that I received gave me the idea for this blog. According to this email, Warren Buffett, in a recent interview with CNBC, offers his solution to the debt ceiling: "I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election."

The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971...before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land...all because of public pressure. This is one idea that really should be passed around.

Let's call it the Congressional Reform Act of 2012:

1. No Tenure/No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

Whether Mr. Buffett actually voiced the ideas above doesn't matter to me. The ideas stated in this email have merit in their own right irrespective of who gets credit for originating them. I have already seen an op-ed in a major daily that essentially presented the same view (without acknowledging possible role by Buffett).

We need to hold Congress accountable and if there is enough ground swell in favor of such a movement, we may then begin to institute some real change.

Friday, December 23, 2011

Autumn in Jiuzhaogou, 九寨沟

The natural scenic beauty of Jiuzhaigou was not "discovered" until modern times. The Tibetans that reside in the nine villages of this "Y" shape valley knew about its breath taking scenery, of course, but this valley is located in such a remote northwest corner of Sichuan that it was unknown to the Chinese in ancient times. For this, today's visitors are blessed with the total absence of man-made edifices and calligraphy carved into rocks. All one sees is mountains, and strings of mirror smooth lakes connected by cascades, water falls and running stream.

To visit Jiuzhaigou during the autumn foliage colors is to take a out of the world journey. The serenity and beauty literally takes ones breath away. Most of the fall color comes from the oily pine tree, a pine tree that is not evergreen and the color change only lasts about two weeks. Thanks to the advice of Dragon Delight, our tour operator, we were in Jiuzhaigou in the last week of October and witnessed the peak of nature's display.

The Chinese authorities deserved all the kudos for taking the most ecologically friendly route in developing this valley into a tourist attraction. Some examples of their green policy: Only park operated buses are allowed inside the park. Visitors are allowed to walk only on designated walkways. Hundreds of miles of footpath were constructed out of wooden boardwalk. The wooden planks were grooved to improve slip resistance. Plenty of rest pavilions, toilets and trash receptacles dotted along the parthways. Unlike toilets in many other parts of China, these toilets were oder free and even featured water less urinals.

On our first day, our group of 12 rented our own park operated minibus and driver. It was a particularly crowded day and by renting our own vehicle, we could skip around various stops and alight where it was least crowded and avoided the jostling crowd. The next day, a few of us went into the park on our own. We got off the park bus about mid way and walked downhill, following the path along the strand of lakes. It was a magical walk to be savored especially for the time when we've become too old to tour again.
The town of Jiuzhaigou came into existence because of the park. There are now a large assorment of hotels to choose from. There are however only two 5-star hotels in the area. The Sheraton is within walking distance to the entrance of the park. The Intercontinental is more than half hour drive from the entrance. The feeling of staying in the latter is more like staying in a self-contained integrated resort because of its isolated location.

To get there: There are direct flights from many of China's major cities to JiuHuang airport. Or, fly to Chengdu and connect from there. You can also drive from Chengdu but that would be a long ride requiring a very long day.

Tuesday, December 20, 2011

Review of US China Bilateral Relations for 2012

US China bilateral relations had an up and down year and most indications point to more of same or worse for 2012, a presidential election year in the US. I have written an analysis exclusively for China-US Focus which can be read in full at their website.

One of the most contentious issues bedeviling the bilateral relations has been the proper value of the Renminbi and its alleged impact on the placement of manufacturing jobs, i.e., whether jobs have fled the US because an undervalued yuan.

My chat friends have called attention to a series of articles that would shed light and dispell much of the confusion surrounding this subject.

A professor of economics from Tokyo presented a careful deconstruction of the cost of an iPhone (3G) designed in the US and made in China. The value added in China in assemblying the iPhone was $6.50 out of a total export price of $179. The difference between China's value add and the export price represents the cost of bill of material consisted of parts and components purchased from Germany, Japan, Korea and the US. In calculating the trade deficit, the entire $179 is credited to China's account and not just 3.6% of the total.

Another analysis revealed that Apple captured 58.5% of the profit from each iPhone sold while China's share of the profit was 1.8%. In other words, for every dollar China made on the iPhone, Apple made $32.50. Both authors went on to say that with more than 60% margin, Apple could afford to make a little less and have the iPhone made in the US but choose to have it assembled in China to maximize its profit.

The same case can be made about Apple's latest "insanely great" product, the iPad. China's value added is about $8 out of $499 cost of the product. Apple's share of the cost for design and marketing is about $150. Ironically because the iPad sells for a higher price inside China, Apple makes even more money for the iPad made in China and sold in China and it doesn't even show up in trade statistics--except of course for those made in America parts and components that were imported by China to put into the iPads.

Basically iPads make in China and sold in America inflates the trade deficit while iPads sold in China reduces the actual deficit by the amount of made in America parts put into the iPad. This is not a new story. When Zhu Rongji was premier and was asked about the trade deficit, he pointed out then that a pair of Nike sneakers that retail for over $100 in the US contained only a couple of dollars of value added from China.

Maybe Congress and the watchdogs of Washington can be fooled by derivatives and home mortgage swaps, but it doesn't take advanced degrees in rocket science to understand that trade deficits are greatly exaggerated. Politicians are not stupid enough to not understand, they just don't want to.