China’s Economy Is in Worse Shape Than You Think

The estimate of 4.3% GDP growth is below Beijing’s lowest projection—and it’s probably far too high

By Joseph C. Sternberg. Excerpts:

"Beijing’s statisticians on Wednesday said the gross domestic product grew 4.3% year-on-year in inflation-adjusted terms in the April through June quarter. China’s economic data are notoriously prone to fiddling for political purposes. And only this March, the Communist Party set a GDP growth target range of 4.5% to 5% for the year, its most pessimistic since the 1990s."

"Meanwhile there’s accumulating evidence that the country’s true GDP growth rate may be zero, or that the economy is in outright recession. Retail sales were a bright spot in the latest data, increasing 1% year-on-year in June, but looking across recent months this measure of domestic household consumption may be stuck in neutral. Measures of investment are in free fall: Fixed-asset investment has declined 5.7% year-to-date and real-estate investment is down 18%."

"Crude imports in July hit their lowest level in roughly a decade."

"refinery output also is declining"

"demand for energy within China . . . is dropping rapidly."

"it’s hard to find anyone who thinks any of this (more economic “stimulus”) would launch a durable economic recovery. One reason domestic consumption is dipping is that previous iterations of the consumption subsidy (a trade-in scheme, akin to the Obama-era “cash for clunkers” in the U.S., that rewards replacement of old items) pulled forward in time purchases that households would have made anyway, without setting in motion a Keynesian virtuous circle of new corporate investment to meet higher demand. As for public works, China has enough and Beijing’s more important fiscal priority remains bailing out heavily indebted local governments." 

"Domestic consumption is unlikely to revive until the real-estate market has found its bottom." 

Evicting Wall Street From the Housing Market Will Be Messy

Law restricting activities of big investors in residential real estate could mean less cash to build new supply

By Carol Ryan of The WSJ. Excerpts:

"Under the 21st Century ROAD to Housing Act . . . investors who already own more than 350 family homes can’t buy any more from the existing housing stock."

"Any landlords that don’t already have scale will find it hard to expand their portfolios through the exemptions."

"Big landlords are being nudged to pour cash into the build-to-rent sector instead. This means taking on development risk and constructing entire rental neighborhoods from scratch. The benefit of constructing whole rental communities in one area is that they are much cheaper to maintain than homes that are scattered across dispersed neighborhoods."

"Build-to-rent is exempt from restrictions under the new law. Like multifamily apartment buildings, it is an area of the housing market in which large investors can continue to operate freely."

"Anyone considering putting money into the housing market . . . must now weigh the risk that future administrations could tighten the rules further."

"Returns on build-to-rent investments don’t look high enough to compensate for the risk."

"Build-to-rent communities are hard—or impossible under some zoning rules—to sell off individually to consumers"

"Eight large institutional investors were net sellers of more than 3,000 homes in the second quarter of this year, a fivefold increase in net-selling activity from the same period of last year"

"some smaller investors plan to cash out permanently by selling homes to individual home buyers over time" 

Why the black market for marijuana is still flourishing in California

Letter to The WSJ. 

"It’s hardly a surprise that the black market for marijuana is still flourishing in California. The majority of the state’s crop has always been exported out of state, where sales remain illegal. So long as there remains a substantial out-of-state market where marijuana is illegal, black-market sales will persist.

Nevertheless, California Gov. Newsom was right to support legalization as a necessary first step to rolling back prohibition. Legalization has substantially reduced the scale of California’s illegal crop, which used to be measured in millions of plants eradicated per year.

Meanwhile, marijuana felonies have drastically dropped since legalization, more than 80,000 legal jobs have been created, and the state is raking in billions in tax revenue per year. It took decades to stamp out moonshining after alcohol prohibition was repealed, and the same will likely be true for marijuana.

Dale Gieringer

Director, California National Organization for Reform of Marijuana Laws" 

School Choice Succeeds in Arkansas

Education Freedom Accounts show results both academically and financially

By Tommy Schultz. He is CEO of the American Federation for Children. Excerpts:

"In the program’s second year, its students outperformed nearly 60% of students nationwide in math and English on standardized assessments."

"Education Freedom Accounts give priority to the core costs of a K-12 education—tuition, which accounts for 81% of spending, plus curriculum, supplies and testing—with sensible caps limiting transportation and extracurricular expenses to no more than 25% each of a single account. Parents know exactly what they can and can’t buy" 

The New York Times supports the use of standardized tests (like the ACT and SAT) in undergraduate admissions

See A Great University Undermines Its Mission. Excerpts:

"The committee concluded that scores on the SAT and ACT, the main standardized tests for college admissions, did a better job measuring student readiness for college than high school grades. High test scores were particularly good at finding talented students from low-income families and underrepresented minority groups. For these reasons, the committee recommended the system continue to require applicants to submit SAT or ACT scores.

The university’s leaders disregarded the report."

"the University of California began refusing to accept SAT or ACT scores, even from students who wanted to submit them"

"University leaders wrongly claimed that it would make admissions fairer and more equitable."

"The results have been terrible. At the University of California, San Diego, a faculty group last year reported “a steep decline in the academic preparation” among entering students. Last fall, for example, nearly 12 percent of first-year U.C.S.D. undergraduates were not qualified to take precalculus, a low-level class — up from only 0.5 percent in 2020." 

"Reading and writing skills have also deteriorated, and professors say they must spend time teaching elementary skills."

"the declines in preparedness among University of California students are larger than the regression elsewhere"

"[they] have essentially randomized aspects of the admissions process, admitting unprepared students while rejecting many who could thrive there."

"Even Janet Napolitano, who was the university president in 2020 and recommended a test-blind policy then, now favors its reversal."

"The critics claim that the two tests are biased and therefore a cause of inequities. The evidence indicates otherwise. Raj Chetty, a Harvard University economist, points out that other tests show similarly large economic and racial gaps. One example is the NAEP, a test of elementary and middle-school students for which almost nobody studies. This pattern suggests that SAT tutoring, which critics often blame for score gaps, plays only a limited role, perhaps because free tutoring is available from Khan Academy and elsewhere."

"The SAT and ACT . . . do appear to measure preparedness for highly selective colleges better than almost any other indicator, research shows." 

"Some other parts of applications — like student essays, extracurricular activities and teacher recommendations — are, in fact, biased toward affluent students."

"In 1970 only 7 percent of college freshmen nationwide had a high-school grade average of A or higher; today the share is roughly 40 percent."

"Any fair, reliable test would have results resembling those of the SAT and ACT."

"the test scores are especially useful at identifying strong students from low-income communities. When such a student receives even a pretty good score, it can be a sign of high potential." 

Lifting the SS payroll tax cap would close only about 30% of the long-term cash-flow deficit while raising some top marginal labor income tax rates to over 60%

Letter to The New York Times.

"Senators Bernie Moreno and Elizabeth Warren present lifting the payroll tax cap as a “common-sense” solution to Social Security’s financing challenges. But eliminating the cap would close only about 30 percent of the program’s long-term cash-flow deficit.

It would also sharply raise top marginal labor income tax rates to punitive levels, pushing top rates across many states over 60 percent (58 percent in Ohio and 62 percent in Massachusetts, the senators’ home states). Social Security was created to prevent poverty in old age, not to guarantee affluent retiree households six-figure annual benefits.

Rather than continually raising taxes to sustain ever-larger promises, policymakers should rethink the program’s purpose. A flatter benefit focused on basic retirement security, combined with greater reliance on private savings, would be more cost-effective and sustainable.

Romina Boccia
Washington
The writer is the director of budget and entitlement policy at the Cato Institute."

Fewer employers are screening job candidates for marijuana because it would make it tougher to find qualified candidates

See More U.S. Workers Are Testing Positive for Marijuana. Fewer Employers Are Concerned. As cannabis use grows, employers are rethinking pre-hire screens to avoid recruiting challenges by Celia Bernhardt of The WSJ. Excerpts:

"And fewer employers are screening job candidates for marijuana use at all, in part because it would make it tougher to find enough qualified candidates, said Todd Logsdon, a partner at employment law firm Fisher Phillips. 

“I’ve had other employers tell me, ‘If I test for that, I’m not gonna have any applicants,’” Logsdon said. “They’re being very choosy about which role they test for.”

In a 2024 survey of nearly 1,000 employers, the law firm found about half didn’t test for cannabis in the pre-hire process, often for that reason. Among those that did test, 44% said they faced recruiting challenges and nearly a quarter said they were considering loosening the policy.     

Citigroup and many of its Wall Street peers dropped the pre-hire test over the past decade. Retailers like AutoNation and Home Depot have done away with it for most positions as well. Amazon stopped testing for marijuana for most applicants in 2021." 

This article shows how competitive labor markets are. If employers had the power they could keep screening for marijuana use.