Breaking the Iron Rice Bowl (19 Jan 2011)

I've read several interesting articles about China and not one of them has to do with tiger moms. Many people have noted this Francis Fukuyama op-ed in the FT about China: "Americans have long hoped China might undergo a democratic transition as it got wealthier, and before it became powerful enough to become a strategic and political threat. This seems unlikely, however. The government knows how to cater to the interests of Chinese elites and the emerging middle classes, and builds on their fear of populism. This is why there is little support for genuine multi-party democracy." He argues that China's authoritarianism will thrive as long as it can continue to provide economic growth from the commanding heights, regardless of the inequality its governance seems to be generating. Protests remain local and marginalized, and those who aren't reduced to apathy by their immiseration likely focus on improving their personal lot rather than figuring out how to forge solidarity. A useful by product of the state's having "broken the iron rice bowl" and done away with most of the social safety net.

Ads Without Products offers some thoughts on Chinese workers, inspired by Ai Weiwei's installation featuring 100 million handmade porcelain seeds.

When the visual titanicness of the display meets your recognition that each of the 100,000,000 seeds was painstakingly handpainted by human beings working for a wage, one comes as close as one can – as I ever have – to a painfully concrete yet at the same time marvellously abstract sense of the absurd scales, absurdly tipped scales, that orchestrate our world today.

It is very hard to fathom the scope of the labor whose availability in the global economy we have come to take for granted. What does it mean? For the workers, it means stultifying alienation: AWP cites a BusinessWeek article about Foxconn, the megamanufacturing firm that makes Apple's goods, among many other things.

“Life is meaningless,” said Ah Wei, his fingernails stained black with the dust from the hundreds of mobile phones he has burnished over the course of a 12-hour overnight shift. “Everyday, I repeat the same thing I did yesterday. We get yelled at all the time. It’s very tough around here.”

For us, it means a life more thoroughly saturated with consumerism

Nouriel Roubini has an item in Newsweek about the "Confucian conusmer" that explores those "tipped scales" in macro terms. Roubini covers the longstanding problem of global imbalances: the "Chinese model of economic growth required the U.S. and a few other countries to be consumers of first and last resort, spending more than their income and running ever-larger trade deficits—so that China could be the producer of first and last resort, spending less than its income and building ever-larger trade surpluses." He then speculates as to why the Chinese don't consume more. I always find this question fascinating, because I wonder whether China is hatching an alternative to the consumerism with which we've been inculcated in the West, and if so, whether it is more or less corrosive to personal identity. Roubini lists seven "structural reasons" why the Chinese savings rate is so high, including some of the usual suspects -- the broken iron rice bowl, the demographic troubles brought on by the one-child policy (one grandchild must support four elderly grandparents). This recent VoxEU paper makes the case that much of the savings rate can be explained by "increased income uncertainty" and unfavorable pension reforms.

Neither Roubini nor the VoxEU paper mention the alleged "Confucian character" of the Chinese people that is sometimes presumed to make them less interested in material prosperity and invidious distinction. Presumably the "iron rice bowl" would have facilitated that attitude as well any traditional tenets about social stability. Roubini stresses corporate oversaving, which stems from underdeveloped financial markets: "a whopping 25 percent of savings in China is in the form of the retained earnings of the corporate sector, mostly state-owned enterprises (SOEs). In most private economies, those firms’ profits would become dividends that would increase household income and thus consumption. In China, they become retained profits that go into more capital accumulation and excess capacity." In other words, the profits from all those manufacturing firms making our iPods and the like don't go into wages and they don't go into dividends -- they go into building even more factories, which has the effect of making the global imbalances worse.

That eventually trickles down to the level of ordinary American consumers, who face an even cheaper and more tempting flood of consumer goods, making it that much more difficult to transition out of a wasteful lifestyle and into one that's more austere, self-sufficient, and environmentally responsible. Or into one that revolves less around the consumerist values of novelty and convenience and disposability and isolation and so forth. Thus Chinese economic policy exerts material pressure on the ideology governing our behavior in the West. Even if they were Confucian consumers there, they could not export that approach to consumerism to us -- they actually export our own attitude about consumerism to us, anchoring it, supplying its base. And breaking the iron rice bowl hasn't acclimated Chinese to increased personal choice and consumption in a market society as might be expected; instead it has fomented insecurity and rational miserliness. I wonder if this is what conservatives hope to bring to the U.S. when they fantasize about undoing health care reform -- more insecurity and less consumer spending seems like a great recipe to stop the "job killing."

Chinese consumers (14 Oct 2010)

I have an essay going up on Monday at the newly revamped Generation Bubble about Chinese consumers. Western business pundits and analysts never tire of complaining that Chinese consumerism is not keeping up with the nation's economic growth, and that this is why global imbalances have gotten so large and the world teeters on the edge of "currency war." The impression this can give is that consumers in China are still all dirt-poor, skulking about in Mao uniforms and surviving on subsistence rations, but that isn't so. The Chinese consumer class is steadily growing, and it's apparently ultra brand-conscious. Shopping malls and department stores are growing and spreading too, along with the means to market them.

Still, I argue in the essay that there is an ideological lag; China's consumers are still early on the learning curve of becoming narcissistic and identity-oriented -- they still fuss about things like "usefulness". Obviously they all need to read Baudrillard and realize that the whole concept is a fiction (a "useful" one?). I wonder also to what degree forced individualism can serve as a mode of social control there as it does here in the U.S. China's Communist Party seems to prefer the wage suppression and Confucian homilies approach.

But on that note, I enjoyed this question from this Council on Foreign Relations interview with J.C. de Swaan of Princeton:

What are the implications for U.S. companies operating in China of the recent uptick in riots by Chinese workers?

I love the use of the word uptick in that context, as if a certain amount of rioting is to be generally expected, and it merely fluctuates like the Baltic Dry Index or something and should be dealt with like any other economic indicator. The answer to the question is interesting too -- de Swaan explains that the government has started to take a hands off approach when workers riot at foreign-owned factories. He also suggests it indicates the "end of surplus labor in China" and that factories will begin shifting to Bangladesh and other places where you can still drive a hard bargain with desperate laborers. It may be that China is in a revolutionary sweet spot of sorts, with workers having moved beyond a resignation to ruthless exploitation but not yet fully adapted to consumerism to be anesthetized by it. You can see why the government is worried.

Consumerism: By-product of international finance? (21 Sept 2009)

It's easy to moralize about consumerism, assume it has grown up somehow out of the malfeasance of marketers and the laziness and gullibility of consumers, who are eager to replace other fulfilling ways to occupy themselves with shopping, a seemingly derivative activity that replaces the joy of developing our capabilities with the pleasures of passive ownership. This wish to moralize stems from a desire to individualize things far beyond our control and make it seem as though we are ultimately responsible for the sort of world we live in and that ultimately it suits us; it is the product of the sorts of choices we can imagine people making. Nobody, for instance, might have seemed to want that condo building that went up on the corner, or that brand new shopping center down the street from a nearly identical one, but it doesn't seem so crazy once you see the people living or shopping there. And you can think to yourself, if we can only stop that guy, the guy walking into that new Dick's Sporting Goods, or the guy who just leased that new condo, or who took out the mortgage on that townhouse in the new development where the horse farm used to be, we can restore some sanity and balance to our lives and the rate at which the familiar is changing all around us.

But what if the choices for them (and for us) are stacked, are pre-decided to a far greater degree than we are willing to recognize? What if the matrix in which we are making our decisions is shaped by things that our puny politics can't touch, that our individual choices are grains of sand in a vast socioeconomic combine -- we might have chosen to stick to some contiguous grain to form a minute little cluster, yet some much larger force has decided to shape up into a sand castle built too close to the incoming tide. (That was a little fanciful, but you see what I am getting at.)

The point is, it may be that international capital flows have driven our consumerist microbehaviors much more than we know; that it wasn't just personal ignorance, irresponsibility, cupidity, greed and covetousness that drove the housing bubble and the boom in consumer debt; but instead those moral motives came after the fact, after our fate was sealed by the wash of investment coming in from overseas. We didn't want consumerism, but someone had to sop up all those Chinese exports. We didn't want to be in debt, but there were so many foreigners buying dollars, that the banks basically had to give money away to anybody, and who will turn down money when it seems to be offered to them for free? And if they think it sounds too good to be true, well, that's precisely what marketing is for.

Liaquat Ahamed suggests took something like this took place in the past decade in an essay in the New York Times Book Review, of all places. He taps into a sort of historical reasoning that is far removed from finger-pointing and shaming people for wanting stuff and behaving irresponsibly:

In the wake of the 1997 financial crisis there, countries in East Asia set out to build up war chests of dollars as insurance against domestic banking runs or downturns in the global economy. At about the same time, China embarked on a program of export-led growth, engineered by keeping its currency artificially low.
Interpretations of what happened next differ. Some argue that to absorb these goods from abroad while avoiding unemployment at home, the United States very consciously stimulated consumer demand. The country, in effect, was forced to live beyond its means. Others believe that the Fed misread the fall in prices as a symptom of inadequate demand rather than for what it was — an astounding, once-in-a-generation expansion in the supply of low-cost goods — and kept interest rates low for an unusually long time, which provoked the real estate bubble.

The flood of money was coming in and it had to go somewhere. If you accept this logic, the question becomes, how does a nation "very consciously stimulate consumer demand"? Is it simply a matter of sending out checks -- metaphorically dropping cash from helicopters, Bernanke style? Is it the president telling everyone to return to business as usual and start shopping, as Bush did after 9/11? Is it working ideological visions of what the good life is supposed to consist of in speeches and political campaigns? Or is it something that plays out more indirectly: Banks increase their marketing, which contributes to the promulgation of a certain view of a successful life, one that hinges on consumption rather than savings. Luxury goods makers begin trying to reach aspirational consumers, i.e. turn us into aspirational consumers. People begin to evaluate their wealth not in dollar figures but in belongings, in house size, in car size, in the extent of their credit line. I don't know what the answer is, but it seems that if there is such a throttle that can be controlled for consumer demand, we would want to seize control of it for ourselves. I never got the memo from the "Untied States" that I was now expected to consume more and like it. Instead, I ended up consuming more and felt out of control about it; I found myself spending more time in stores without knowing why and without a clue about how to reverse the trend. (This was before the government started sending out tax rebate checks to "stimulate" us all.)

Ahamed argues that the U.S. "found itself literally operating as a gigantic bank, taking short-term liquid deposits from countries with surpluses and investing the money in long-term, risky assets at home and abroad." -- I don't know if that "literally" belongs there, but the upshot is that the U.S. basically imported risk from abroad and distributed it among its citizens -- with a little creativity one could probably reconstitute this process as what Jacob Hacker has dubbed the Great Risk Shift -- the way in which middle-class people in America now have less of a social safety net. If we wouldn't take on debt and risk voluntarily, we could be forced to by the slow and steady withdrawal of social services. Goodbye Social Security, hello 401K loaded with all sorts of investments that turn out to be surprisingly dicey, like those money market accounts that teetered on the edge of buck-breaking last fall. Ahamed cites FT columnist Martin Wolf:

As Wolf traces out so well in his 2008 book “Fixing Global Finance,” the United States was able to absorb all the goods coming out of Asia only by letting its consumers go progressively deeper into debt — a process that had its own limits. Moreover, the flood of money simply overwhelmed the capacity of financial institutions to handle it. A lot, for example, ended up in the most unregulated segments of the global banking system, like off-shore deposits on the books of non-American banks. These banks, now awash with cash and desperate for places to put the money, became easy marks for American investment banks seeking to peddle securitized mortgages. When a large percentage of these loans went bad, instead of a dollar panic we had a global banking crisis.

It's hard to grasp the idea that a "flood of money" can be a problem, but that is what happens when we confuse money with prosperity -- money has to be moving to ahve value, and there can be too much of it around to keep it moving. Too much money means that the economy has become too imbalanced, that we have exceeded inherent limits, that socially useful labor has become detached from the society it was supposed to be useful for (i.e. impoverished Chinese making junk for underemployed America).

It's not clear what causes these global financial imbalances -- governmental trade policies are part of it. But individual citizen choice doesn't seem to factor in. Still, there must be reliable mechanisms by which the requisite consumer behavior is extracted from given populations. Is it some inborn greed in human nature that gets tapped into or sublimated as the situation requires? Or is it the existing class structures around the world, and the endless struggle for mobility within them (and over the signals that represent belonging) that plays the integral role? Is this the essence of the class struggle, a means of balancing international capital flows?

Anyway, if global money flows have reversed, American consumers will find the field in which they make choices suddenly changed. Suddenly they will seem thrifty and moral again, especially in the aggregate, and we can begin to generalize about what the consumption data means morally, what it tells us about how people really are. This is where a recent post by Anton Steinpilz at Generation Bubble picks up the story:Taking off from one of the dime-a-dozen "recessionista" stories about the New Thrift, Steinpilz claims that the middle classes are now "worried that their children and their children’s children will have snatched from them the exorbitant privilege of indulging their ephemeral pleasures with made-to-break trifles of sweated and immiserated workers throughout the developing world." To replace that lost privilege, they will start to loot the lifestyles of the local poor, raid their T.J. Maxxes and Aldis, and co-opt what constraints the poor have always found inescapable and make them into accoutrements and gestures, apparent trends in the hands of those classes that still might have chosen differently. When the middle class could afford to, because of international financial trends, it emulates the rich; trends have reversed, they emulate the poor; either way they remain class-signifier parasites. The rich could always contrive more positional goods to keep themselves differentiated; the poor instead (if I am reading Steinpilz correctly) find the meaning of their lives seized from them and injected into an alien lifestyle.

So, a theory: Destabilization along the boundaries of social class allows for the calibration of individual behavior with the larger demands of international capital flows, without ever allowing individuals to recognize the connection or opt out of the game without giving up the principles of personal identity altogether.

Chinese saving (8 May 2009)

Via Barry Ritholtz comes this chart, depicting trends in consumption in China:

As Ritholtz notes, a similar chart for the U.S. would be somewhat different. Economists who are concerned about global trade imbalances have long wonder when the Chinese consumer will emerge and begin to soak up its share of the world's output, instead of the Chinese Central Bank stockpiling foreign currencies. This chart seems to suggest that it won't happen anytime soon. What data like this makes me wonder is how the Chinese experience their own relative prosperity, how the consequences of rampant economic growth are experienced if not in terms of increasing purchasing power and more goods and more choices.

Sometimes the argument is made that the Chinese must save more because the social safety net there is extremely tenuous -- they don't even have the comfort of titles to property and social services are spotty and the bureaucracy presumably needs to be greased with many bribes and that sort of thing. This sort of logic would then be flipped to argue that a low savings rate is proof of a just, confident, and well-functioning society -- it's not a matter of impulsive consumers as the wrongheaded moralists and anachronistic puritans would have you believe. It strikes me as a conundrum of consumerism that the failure to save could be read blithely and myopically as the accomplishment a successful economic equilibrium, as though the fund for future investment to sustain those consumption levels were entirely irrelevant. Consumerism -- an economic order based on maximizing consumer spending -- must encourage the idea that savings are a kind of "glut," a residual that proves an inefficient sort of budgeting has taken place somewhere. Personal savings can then feel like a personal failure to find enough stuff to spend one's earnings on, to be sufficiently full of desires, to make having worked worth it. In a culture in which we are basically compelled to spend to keep the world as we know it going, accruing savings can leave us feeling guilty for not wanting enough. It's possible that at this point, we would feel too guilty to ever believe that we are satisfied with what we have.

Consuming and the safety net (8 Dec 200)

As part of my ongoing preoccupation with Chinese consumer demand, I felt obliged to link to this editorial from today's FT. The editors raise a claim frequently asserted in evaluating China's consumer behavior, that "China's citizens save because they fear nobody will look after them in bad times -- and bad times are coming." You'd think that the People's Republic would have a more robust safety net in place for the people. It may be that one needs cash on hand to distribute the bribes and make the black-market purchases to get something of a standard that we can find straightforwardly on the market (though affording it is becoming more and more of a problem).

Anyway, the rationale implied here is that in Western countries the state supplies extends much-greater security to its citizens; in effect, it saves for them and covers their emergency needs. This the populace can go out and spend as much as it would like on luxuries much more comfortably. So a good way to stimulate the economy would be to strengthen the social safety net -- more unemployment benefits, affordable health insurance, more generous social security benefits, and so on. Under such a regime, we would work to earn the money for the frivolous stuff that we use to define ourselves and shape our identity -- the markers of distinction that have preoccupied us throughout the consumerist boom. But the state would assure that our subsistence needs are met.

This seems the implicit promise of consumer capitalism -- that society is so prosperous that we can concentrate all our efforts on self-fashioning (even if these ultimately make us insecure and existentially angsty). But of course "we" means "middle class and up"; there remains the strata of lower class workers who have little margin for error with money, for whom identity creation in the hipster mode remains unthinkably. These are the people our society chooses to motivate with blunter incentives -- starvation, homelessness, etc. And safety-net improvements will most likely not be made for lower-income people in practice (except incidentally), since in helping them, no extra cash is freed up to buy baubles and prop up demand. Some might even argue that allowing the lower-income people to play at homeownership through subprime mortgages caused the crisis in the first place -- a distortion that puts the cart before the horse. Financial engineers needed loans to work with to manufacture more exciting securities; unthinkable loans were then extended to meet this need (not the "need" of poor people to own McMansions).

I wonder whether the degree to which the middle class must rely on the state safety net is the degree to which it must be withdrawn from the lower classes from whom the middle class must remain distinct. They can't be standing in the same welfare line -- that would be a scandal. Better not to extend welfare to the lower classes at all.

The opposite of Americans (4 Dec 2008)

In an effort to maintain its share of the export market, China has decided to depreciate its currency. (In the past, its loose peg to the dollar kept it artificially low as the dollar dropped against the other currencies. Now the dollar is appreciating, making the Chinese currency -- the yuan, or renminbi if you prefer -- stronger against the rest. That dampens demand for Chinese goods, which become more expensive.) Brad Setser explains the ramifications:

The absence of real appreciation in the past undermines China’s case for reacting to the recent renminbi move by allowing the renminbi to depreciate rather than by doubling down on efforts to stimulate domestic demand. China has by far the world’s largest current account surplus. The latest World Bank report argues, I think correctly, that this surplus should persist next year even as exports slow. China will benefit more than most from the recent large fall in commodity prices. If China is unwilling to accept that its exports will slow as the global economy slows, and instead tries to offset dollar strength by weakening the renminbi against the dollar – or it tries to offset renminbi appreciation with export subsidies – everyone else will face additional competitive pressures.

If I've understood this correctly (and I had to read it several times), China would rather intensify its competition for foreign market share than let global economic adjustments enhance domestic demand. The state is futzing with the yuan so its people won't shop more.

A few weeks ago, I wondered about the future of Chinese consumerism before, figuring that the state had its reasons for impeding it and the ideological forces consumerism would unleash. This NYT story explores the current ideological dispensation for the Chinese -- "tenacious thrift" -- and takes at face value the government's efforts to stimulate demand. From this perspective, the challenge is to overcome the paradox of thrift.

Government analysts are looking to consumers, especially the country’s hundreds of millions of high-saving peasants, to pick up much of the slack. “If we can boost people’s confidence and they spend more money, it will not only be beneficial to China but it will help stabilize the world’s economy,” Zhu Guangyao, the assistant finance minister, said last week.

But getting people to spend more, especially in the face of an economic slowdown, may be a tall order. Consumer spending makes up 35 percent of China’s G.D.P., and that number has been dropping since the 1980s, when it stood at 50 percent; consumer activity in the United States, by contrast, is responsible for more than two-thirds of the economy.

As an American, I find this hard to believe, since the desirability of spending and owning are second nature to me. They seem instinctively preferable. But of course, those instincts are my inheritance; it took a century of hard marketing work and a culture that gives pride of place to persuasion. Capitalism seems by necessity to nurture this consumer psychology; it requires that needs expand to foster perpetual growth. It requires us to regard the expansion of needs as a spiritual enrichment of our lives. But needs can only expand when they must suck up higher wages, which aren't taking off in China yet. And judging by these anecdotes, the Chineses have yet to shift their moral outlook toward spending:

Mr. Dang and his wife, Zhang Fengxia, 52, are the apotheosis of Chinese thrift. They do not use banks — “better to keep money at home,” Ms. Zhang said — and the couple’s biggest expenditure was a used tractor they bought for $1,200 a few years ago. Everything else is set aside for their retirement and for potential medical costs.
Asked if she would use a credit card if one were given to her, Ms. Zhang looked confounded. “What’s a credit card?” she asked, adding, “We have everything we need.”

...

Xing Xiuqin, 60, bragged that she managed to stash away 80 percent of her income before retiring. “Old people just need one outfit,” she said. “You should save everything for your kids.”

Contrast that with the baby-boomer philosophy, as discussed in yesterday's post. To reiterate, boomers "have raised overscheduled spoiled children, moved up the corporate ladder by pushing paper rather than making things, lived above their means in order to keep up with their neighbors, bought whatever they wanted using debt, and never worried about the future. Over optimism, unrealistic assumptions, selfishness and conspicuous consumption have been their defining characteristics."

Consumer demand in China (14 Nov 2008)

I still remember being taught in high school during the 1980s that the U.S. was superior to the Soviet Union because we could shop at the mall and choose from a cornucopia of goods while the Soviets had stand in line at gray, dreary state-owned dispensaries and basically take what they were given. The Soviet citizens envied our freedom, which is why they were always defecting and why they faced a repressive police state and fences to keep them in rather than enemies out. When the U.S.S.R. fell, many assumed that the former Soviet bloc would smoothly integrate into the global capitalist economy, greased by surging consumer demand. That hasn't worked out so well, though we still hear of the over-the-top consumer decadence of Russian oligarchs -- for example inadvertently killing their mistresses by letting them bathe in tubfuls of expensive perfume. But considering how Russia remains a bloc unto itself, it seems true that Soviet citizen weren't simply Western-style consumers in waiting, that in fact Western-style consumption is not some universal mind-set that sits dormant in all humans and is merely waiting for the opportunity to flourish as it should. It may be that the Western consumerist mentality is itself as anomalous as the Iron Curtain mind-set. What's more, those not to the consumerist manner born might actively resist adopting it.

This FT editorial about stoking consumer demand in China (also noted by Brad Setser here) got me thinking about the desirability of consumer mind-set. The FT and Setser rightly argue that from an economic standpoint, the world needs more demand from Chinese consumers. From the FT:

China’s growth to date has been phenomenal, but it was based on exports and investment, at the expense of consumption. China almost aimed to be a supersized South Korea: in 2005, capital investment made up more than half of China’s gross domestic product. The capital-intensity of its growth also meant profits grew strongly as a share of GDP. But employment growth has slowed since the 1980s, so workers have gained small benefit.
With an undervalued renminbi also making imports dear, the Chinese public has proved loath to spend. China has far too little dom­estic consumer demand. Where­as household consumption made up more than half of China’s GDP in the 1980s, it now contributes little more than a third.

Whether China wants to become more like South Korea culturally seems questionable; it's curtailment of political freedoms seems to suggest otherwise, and if the Milton Friedmans of the world are right, the procedure of fulfilling increased consumer demand habituates people to freedom of choice and leads to citizens insisting on liberty across the board. Already, no one trusts China's economic data; part of the obfuscation seems to be to conceal its efforts to manage consumer demand and suppress it. It seems probable that China, on the give-an-inch-take--a-mile principle, would want to intentionally restrict consumer demand to forestall unrest. So it keeps wages (and consumer demand) low, produces goods and sells them to the West, and then uses the proceeds to buy Treasurys and keep its currency weak (making foreign goods expensive and also pre-empting consumer demand). It pooh-poohs the West with talks of rebalancing its economy and reducing its current-accounts surplus, but takes no action. Its recent stimulus plan, as the FT argues, does little to address this. Setser adds that Chinese tax rebates on exports will only exacerbate the imbalances that are creating problems for the Chinese economy in the first place -- namely that world demand for cheap Chinese goods is falling yet the Chinese economy has little incentive to shift to manufacturing for the domestic market. (Though the Chinese government might want to consider some palliatives if this sort of thing keeps up.)

This seems to add up to Chinese government officials being reluctant to unleash consumerism in China. Perhaps they fear moral corrosion. Perhaps the ghost of Mao is admonishing them. Perhaps the Chinese people haven't effectively been taught how to demand -- maybe there is a marketing deficit there. But some attention should be paid to the political and social factors (as opposed to only the economic factors) that retard the growth of consumer demand. It may be that consumer demand can't automatically be called into being simply because economic models require it.

Chinese arithmetic (26 May 2007)

I have a naive faith in the transparency of numbers, trusting that they have no significance in themselves but allow us to see directly through to the importance of the amount they have measured. Numbers are truly floating signifiers, with no meaning until they are given a context, something to count. I naively believe that everyone else fundamentally feels the same way, in the abstract. This seems a cornerstone principle of what it means to be rational, and it draws the boundaries that mark off the territory of superstition. The incantations of economic data or earnings reports, with their endless litany of percentage gains and year-over-year comparisons and moving averages, seem in part an elaborate ritual to testify to the neutrality and clarity of numbers, so solemnly are they invoked to give meaning not to themselves but to large intractable phenomena in the economy. Few reading these stories about economic indicators or market performance reports care about the specific numbers, only the justification and the argument that the numbers allows to be built around them. They anchor the ongoing narrative of capitalist practice without usurping it. The efficient transparency of numbers facilitates the smooth series of exchanges and calibrations capitalism requires -- the price system works because no one presumably fetishizes the price itself but rather allows it to shift freely according to conditions.

That's why a story like this one from the Wall Street Journal a few days ago is so disturbing: it relates how numerology contributes to driving the Chinese stock markets.

Part superstition and part self-fulfilling prophecy, numerology is a basic trading strategy in China. The philosophy reflects the widespread belief in Chinese society that numbers contain clues to good fortune.
It is a little noticed force adding fuel to a roaring market in the world's fourth-biggest economy. The benchmark Shanghai Composite Index is up 56% this year and quadruple its level at mid-2005, a spike that is raising concerns about an investment bubble.
Investors' zeal to base decisions in numerology also helps explain why Beijing has been unable to temper enthusiasm in the stock market through conventional measures, like credit tightening last week.
To professional observers, the Chinese investing public's trust in the predictive power of numbers -- rather than fundamentals like business prospects or profit -- is one of many reminders of how buying on the Shanghai and Shenzhen stock exchanges looks like gambling.
Brokerages are set up like casinos. Investors drink tea, smoke and chat as they make trades on computers lined up like slot machines. Instead of dropping in coins, they swipe bank cards to pay for shares.

What makes this so flabbergasting, I think, is the enormous effort made in business discourse to make stock markets not seem like gambling. a great deal of emphasis is placed on providing information that justifies stock prices, connecting them to earnings in elaborate ways. But if the stock prices have more to do with the numbers themselves, then it's just roulette. Then it's predictable only in the sense of self-fulfilling prophecy mentioned above, which scuttles the idea that economic growth and the stock market are connected, that stock market bubbles are producing real progress or change in the society at large.

And then an article like this one, from last week's Economist seems scarier.

For the government the situation poses quite a challenge, particularly as anecdotal reports indicate that the stock buying craze is rampant both among the urban middle class and less well off sections of society like taxi drivers, pensioners and students. Should the market suffer a downturn these people could vent their fury, as investors did in the late 1990s when stock price crashes occurred, threatening political stability. The government will want to avoid such scenes in 2007 and 2008, as the Chinese Communist Party holds its five-yearly congress and the Olympics kick off in Beijing.

Inducing novice investors with possibly numerologically based investing strategies into an overheated market seems like a recipe for catastrophe.

Hence, from this week's Economist:

The Chinese consider four to be a very unlucky number (because in Mandarin it sounds like the word death). The number 4444 is thus presumably as bad as it gets. So suppose the Shanghai A-share index closes during the next week at 4,444 (it stood at 4,375 on May 23rd), which is quite possible given its 258% gain since the beginning of 2006; might that frighten investors enough to cause the share-price bubble to burst?

It just seems terrifying to me that stock markets can aggregate people's superstition and give it agency in the nonbelieving world at large.