BEIJING — During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy.

Now, whether in the coal-rich regions of Shanxi Province, the steel mills of the northern industrial heartland, or the airlines flying overhead, it is often China’s state-run companies that are on the march.

As the Chinese government has grown richer — and more worried about sustaining its high-octane growth — it has pumped public money into companies that it expects to upgrade the industrial base and employ more people. The beneficiaries are state-owned interests that many analysts had assumed would gradually wither away in the face of private-sector competition.

In other words, China is engaged in “planned capitalism,” an oxymoron if ever there was one. China may achieve high growth for a while under this approach, but the inefficiencies of central planning will show themselves over time.

LAREDO, TEX. – Stashing cash in spare tires, engine transmissions and truckloads of baby diapers, couriers for Mexican drug cartels are moving tens of billions of dollars in profits south across the border each year, a river of dirty money that has overwhelmed U.S. and Mexican customs agents.

Officials said stemming the flow of this cash is essential if Mexico and the United States hope to disrupt powerful transnational criminal organizations that are using their wealth to corrupt, terrorize and kill.

Despite unprecedented efforts to thwart the traffickers, U.S. and Mexican authorities are seizing no more than 1 percent of the cash, according to an analysis by The Washington Post based on figures provided by the two governments.

Read the rest here.

ELMHURST, Ill.—Victoria Vasconcellos, the petite founder of an Internet retailer in this Chicago suburb, is in the thick of a regulatory battle that could affect millions of American cigarette smokers.

Ms. Vasconcellos imports electronic cigarettes from a Chinese manufacturer and sells them on her website, Cignot.com, to 14,000 customers. The 48-year-old is part of a growing legion of e-cigarette purveyors who are defying the Food and Drug Administration, which contends the nascent nicotine products are drug devices that require pre-market approval and may pose their own health risks. The FDA began intercepting shipments of the products from China two years ago.

E-cigarettes are battery-powered tubes that turn nicotine-laced liquid into a vapor mist. Sellers say they are potentially less harmful than cigarettes because they don’t have the toxins of burning tobacco. A growing number of people who use them say they are an effective way to quit smoking.

The FDA’s position is non-sensical from the perspective of promoting public health.  Nicotine does not cause cancer or other diseases when consumed in moderation; the tar in cigarettes is the problem. So the FDA should be delighted with a product that is not itself harmful and that allows some people to reduce their use of a different product that is.

Full Disclosure: I was a paid consultant of several tobacco firms a few years back. The relation ended because it turned out I was too politically incorrect!

LAKE BORGNE, La. — The great wall of Lake Borgne is a monster. Nearly 2 miles long and 26 feet high, it spans a corner of the lake, 12 miles east of New Orleans. On Aug. 29, 2005, that corner funneled Hurricane Katrina’s surge into New Orleans, causing some of the city’s most violent flooding. Now, the corner is being blocked.

Nearly five years after Katrina and the devastating failures of the levee system, New Orleans is well on its way to getting the protection system Congress ordered: a ring of 350 miles of linked levees, floodwalls, gates and pumps that surrounds the city and should defend it against the kind of flooding that, in any given year, has a 1 percent chance of occurring.

The project will cost about $15 billion dollars. 

This expenditure is criminally stupid. Why are we fighting mother nature by encouraging people to live below sea level in a hurricane zone? For less money, we could just give every displaced family several hundred thousand dollars to start over somewhere sensible.

Oh wait, I forgot; all this expenditure is stimulating the economy! Maybe what we need to really get the recovery going is a few more Katrina-like hurriances and a couple of earthquakes for good measure.

Perhaps:

Islamic radicals are seizing on protests against a planned Islamic community center near Manhattan’s Ground Zero and anti-Muslim rhetoric elsewhere as a propaganda opportunity and are stepping up anti-U.S. chatter and threats on their websites.

One jihadist site vowed to conduct suicide bombings in Florida to avenge a threatened Koran burning, while others predicted an increase in terrorist recruits as a result of such actions.

“By Allah, the wars are heated and you Americans are the ones who…enflamed it,” says one such posting. “By Allah you will be the first to taste its flames.”

Not much:

Arch Brown has converted his traditional retirement accounts into plans with better tax advantages. Andrew Ahrens has been buying gold and silver and selling stocks. Archie Anderson might speed up the sale of two equities himself. Mike Henry is considering selling timber.

The four are among a growing group of high-income taxpayers who assume they will see higher taxes next year, no matter what Congress does to address the expiring tax cuts from the George W. Bush administration. More than four months before the expiration date, they are making plans to mitigate any impact.

Mr. Brown, a Tucson, Ariz., businessman, said he is working on the assumption that “the tax rates for people like me who have income over $250,000 will go up.”

The maneuvering ahead of Dec. 31 has confounded traditional tax preparations and spawned feverish activity among higher earners, a trend reported by tax planners and financial advisers across the country.

Michele Knight, of Knight Accounting and Technology in Colorado, said she is fielding numerous questions from people who want to know the tax implications of starting a small business. She is advising them to create limited-liability partnerships, one way to organize a new company that might have more favorable tax rates for some. Others are interested in learning about changing their retirement accounts.

Jim Kirby, a tax partner with PMB Helin Donovan LLP in Dallas, estimates that 70% of his clients are calling about the potential tax increases.

The tax avoidance described in this article is one reason we cannot tax our way out of fiscal disaster; the other is that higher taxes discourage economic activity, further limiting tax revenue.

The story also suggests one reason for the anemic recovery; the expectation of higher taxes means consumers are saving, not spending.

A federal grand jury has indicted Roger Clemens on charges of making false statements to Congress about his use of performance-enhancing drugs.

Far be it from me to defend Roger Clemens; he did, after all, abandon the Red Sox and later play for the Yankees!

And if Clemens lied to Congress, he’s an idioti and has a terrible lawyer.  Richard, Nixon, Martha Stewart, Bill Clinton, and Rod Blagojevich can all attest that it’s not the crime that gets you; it’s the coverup.

All that aside, the prosecution of Clemens and other athletes for using performance-enhancing drugs is a waste of government resources.

Professional athletes do incredibly damaging things to their bodies every time they play or practice. If they want to use performance-enhancing substances, that should be between them and their employers.

MAASTRICHT, the Netherlands — On a recent summer night, Marc Josemans’s Easy Going Coffee Shop was packed. The lines to buy marijuana and hashish stretched to the reception area where customers waited behind glass barriers.

Most were young. Few were Dutch.

Thousands of “drug tourists” sweep into this small, picturesque city in the southeastern part of the Netherlands every day — as many as two million a year, city officials say. Their sole purpose is to visit the city’s 13 “coffee shops,” where they can buy varieties of marijuana with names like Big Bud, Amnesia and Gold Palm without fear of prosecution.

It is an attraction Maastricht and other Dutch border cities would now gladly do without. Struggling to reduce traffic jams and a high crime rate, the city is pushing to make its legalized use of recreational drugs a Dutch-only policy, banning sales to foreigners who cross the border to indulge. But whether the European Union’s free trade laws will allow that is another matter.

The congestion associated with the Dutch system is hardly suprising. The solution is to allow more coffee shops to sell marijuana; that will spread out the traffic jams.  Better yet, legalize marijuana entirely; then tourists will buy from stores all over the city and country, eliminating any congestion issues.  In fact, the story notes that the number of coffee shops has been shrinking due to increased regulation.

The claim that crime is elevated is plausible, since an increase in the effective population means more crime. But the story suggests that the increased “crime” is mainly trafficking in hard drugs. To eliminate that crime, legalize those drugs too.

 Treasury Secretary Timothy F. Geithner, kicking off a half-day conference on housing finance, said Tuesday that it was important for the federal government to continue guaranteeing mortgage loans.

He said continued government support was important “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” The absence of such support, Mr. Geithner said, would make future recessions more severe because private lenders would not provide enough money for loans.

These are the kinds of remarks that make me want to tear my hair out: why should government intervene in mortgage markets in any way, shape, or form?

These interventions are just a backdoor way of redistributing income. But even if one believes in such redistribution, distorting mortgage markets, and generating all the moral hazard caused by this approach, is insane.

Some advocates of mortgage policies will claim that homeownership generates beneficial spillovers because property owners take pride in their property and neighborhoods, leading to greater value for everyone. Existing evidence is consistent with this view.

But this evidence does not show that subsidizing homeownerhip generates positive spillovers; in particular, pride in ownership plausibly attaches to houses that people have scrimped and saved for, and in which they have substantial equity; not to houses people know they cannot really afford and in which their equity is miniscule or zero.

So, advocates of redistribution should make their case honestly, not hidden in complicated and costly mortgage policies. The reason they do not, of course, is their fear that voters might reject these subsidies if the true magnitudes were obvious.  That’s possible; but that’s democracy.

On several occassions over the past few weeks, I have expressed the view on TV/radio that unemployment insurance is one factor that keeps unemployment elevated.

The email and phone calls I have received in response have, to put it mildly, not been kind.

So I was happy to read in today’s NYTimes that I am not entirely alone in being a collassal, uncaring, entitled, never-been-unemployed, out-of touch, overeducated-yet-clueless, arrogant, stupid  jerk (those are some of the nicer terms used by my “fans”).

Turns out I have company:

Struggling to keep its budget under control after the financial crisis, the [Danish] government in June cut into its benefits system, the world’s most generous, by limiting unemployment payments to two years instead of four. Having found that recipients either get work right away or take any job as their checks run out, officials are also redoubling long-standing efforts to move Danes more quickly out of the safety net. (emphasis added)

Maybe I should move to Denmark.