[COPY] A Connecticut Yankee in Emperor Xi's Court

Part the Sixth.

I. Freedom Isn’t What You Think It Is.

From: D
Bcc: Everyone
Subj: The Relationship Between Freedom and Taxation

“Freedom’s just another word for… nothin’ left to lose…”

– Janis Joplin, “Me and Bobby McGee”

I hate to disagree with such a great lyric, but Life has provided me with some uncomfortable lessons. I would love to believe some of the things I was taught in school, but I’ve found that the truest measure of Wisdom is our ability to discard what we *want* to believe in the face of what Life is actually showing us. It’s emotionally uncomfortable (a gross understatement) and even flies in the face of our own psychological makeup. The economists Amos Tversky and Daniel Kahneman seem to have shown¹ that we have different ‘cognitive processing’ systems. Additionally, we have biases - ‘information filters’ as I prefer to think of them - and among them are (1) the tendency to discard information that contradicts what we believe (cognitive dissonance); and (2) the tendency to focus and credit information that supports what we want to believe (confirmation bias).

You might be legitimately wondering at this point, “just what the hell this has to do with Dale’s visit in China?” Hang on tight. This may get ugly and uncomfortable; it was for me.

When I came to China, I came with more than a little trepidation, some of which I joked about with friends, but I didn’t want to make too much of it. Just to recap, however: (1) I was a United States Marine, trained and raised in the shadow of the Cold War; (2) I spent a significant chunk of my life in the pay and service of the US govt, including some time doing intelligence work; (3) The US govt – those stalwarts of IT security – managed to get hacked by the Chinese; (4) all of us who have TS/SCI clearances had SSBI’s - background investigations that include a ton of private and personal information about us - received emails saying, “Uhhh, whoops” with an offer for some kind of 6 month free subscription to LifeLock or some other bullshit (Gee, thanks, Uncle Sam…).

Now, I didn’t really believe I would be grabbed by the Chinese intelligence service when I stepped off of the plane at Shanghai’s Pudong Airport, but… well, I would be lying if I said that the thought hadn’t crossed my mind once… Okay, maybe twice. At the very least, however, I had images in my head of an authoritarian presence, with soldiers on the streets in Red Communist Chinese uniforms… you know – commies, man. Like… everywhere.

I was pleasantly disappointed to find… nothing. As in, I haven’t been able to find a single commie, despite my best attempts. I’m not (really) joking.

II. Mao Tse-Who?

When I first visited for a week in December 2016, several of us were walking around the French Concession area in Shanghai and our guide pointed out (rather casually) the building where Mao Tse Tung first began lecturing and officially started the CPC – the Chinese People’s Congress. The building was rather… nondescript. In fact, it was indistinguishable as the birthplace of Chinese communism and posted a sign indicating “hours from 8-4, closed on Sundays, etc…” There was one sleepy-looking officer walking around trying to find something to do.

Not exactly what I’d expected from “communist” China. Something about the scene piqued my curiosity, so I turned to our host and guide:

“How much education do you get in school – like middle and high school – about communism?” He thought seriously about it for moment.

“Not much,” he said. “Maybe…” I could see him trying to calculate the time in his head, “…an hour?”

My colleague and friend Brian, who was walking with us, jumped in: “Come on!! An hour?!?” He laughed good-naturedly as he said it, but he was obviously calling booshit.

Our Chinese host turned to him seriously:

“Brain -” (whenever the Chinese try to say ‘Brian/Bryan’ it comes about as “brain” and I don’t know why, but I get a giggle every time I hear it. It’s never NOT funny, which tells you a lot about what a high school sophomore I still am).

“Brain -” he began patiently, “China’s history is… large -” He held his arms as far apart as they would go. “Communism takes up…” and now he held his right thumb and first finger apart about an inch, “a very small part of it.”

Whoops.

III. Time for Communism?

That was the first inkling I had that maybe all that I thought I knew about “communist” China might not be quite what I had been led to believe. We all know the jokes about the Chinese and how good they are at calculus (for example). I don’t know a lot about a lot of things, but I did manage to get all the way through four semesters of calculus in college, including differential equations, along with three semesters of calculus-based physics. It doesn’t matter how smart you are, you cannot get through that without putting in time - lots of it. It’s just that simple.

I have a friend who used to tutor college calculus and he has a great story about how he would handle his student-clients. He absolutely required new students to bring their calculus textbooks to the first tutoring session. Shortly after introductions, he would put the student’s textbook flat on a desk or table, and then look at the spine of the book and the page side. You can very quickly see if a book has been opened, used, and worn - and to exactly what page - by looking at the page side. My friend would then know if the person was chapters and chapters behind or - in many cases - the book hadn’t even been cracked; he would then tell the student to drop the class because, no matter what - no matter how smart they were or how dedicated - there simply wasn’t enough time for anyone, for Albert bleeping Einstein, to catch up.

Ergo, you can’t spend tons of hours in school on communist indoctrination AND learn calculus. There just aren’t that many hours in a week. We all get 168 and that’s it; it’s the great leveler. The Chinese government - the whole culture - is so committed to academic excellence that they’ve effectively crowded out time for communist indoctrination like the economic bullshit of Marx and Keynes that so enamors the West.

IV. Freedom’s not ‘just another word’ for anything

I’ve been traveling around China for almost two months now, observing, walking the streets, talking to Chinese people (through an interpreter, admittedly) and I have a rather depressing conclusion to share: the Chinese people are, on average, freer than Americans.

WHAT!?!? THE HELL YOU SAY!

I know what you’re all thinking:

“He’s gone to China and lost his fucking mind.”

“The COMMIES GOT TO HIM!!”

Please hear me out. I say this because – well – I suppose I say it because when it gets right down to it I care about the Truth more than just about anything else on this planet. And yes, there is such a thing as objective Truth. It’s a bit of an obsession with me. I care about it even more than I do your esteem and love, if I’m being blunt. I would rather be the loneliest man on Earth who knows the Truth than a part of any group of people committed to a lie.

But I tell this to you all because of my love for you.

A man or woman is free to exactly the extent they get to keep the efforts of their labor.

Freedom has very little to do with being able to bitch on Facebook or Twitter about your slaveowners. We have been duped into believing that “True Freedom” is the freedom to complain – loudly, but ineffectually. It also does not mean that just because we get to vote for our Masters that we’re free. Imagine for a second if instead of the Civil War, the South and North struck a deal whereby blacks were given all of their “civil rights” – they could vote, complain all they wanted, move around – but their owners would still get to keep 50% of their wages. Just think about it for a bit…

When viewed from an economic perspective, slavery is nothing more than a 100% marginal tax rate. You work and work and work, but at the end of the week, the “government” (slaveowner) gets to keep 100%. Again, let’s remove the horror of human beings owning human beings from the equation for the moment. In truth, if you’re getting room and board, I believe the govt calculates that value as something like 30%, so really, slavery was about a 70% marginal tax rate.

The greatest American ever; George comes in 2nd to this absolute stud

If you think this is just me being an insensitive jerk, you’re potentially correct, however, consider this passage from Frederick Douglass, the brilliant man whose lessons have been all but forgotten:

I was now getting, as I have said, one dollar and fifty cents per day. I contracted for it; I earned it; it was paid to me; it was rightfully my own; yet, upon each returning Saturday night, I was compelled to deliver every cent of that money to Master Hugh. And why? Not because he earned it,—not because he had any hand in earning it,—not because I owed it to him,—nor because he possessed the slightest shadow of a right to it; but solely because he had the power to compel me to give it up. The right of the grim-visaged pirate upon the high seas is exactly the same.

• Narrative of the Life of Frederick Douglass, Chapter 10.

Some of you are so used to being tax donkeys that you can’t imagine a government without taxes. You should re-read your Constitution. There was no federal income tax until the 16th Amendment in 1913. In fact, every tax and tax increase in US history can be directly tied to a war. Please read this link for a little history primer on the subject of taxes in the United States.²

Now let me be clear: the Chinese are NOT free to speak ill of the government. At all. Not even a little. Start running your mouth about Beijing and you may well find men with guns showing up in your house in the middle of the night. And you may disappear for a few months, get a serious ass-beating (or lose a major organ), and then show up on Chinese television apologizing for having transgressed “against the people.” It has happened to a number of reporters in Hong Kong. I do not want to make light of that. That is always and everywhere wrong and immoral - but it’s wrong and immoral regardless of who does that, government or private citizen.³

V. What does bureaucracy really provide?

On the other hand, you would be amazed at how much less you have to bitch about when you get to keep a bigger chunk of your money and are free to earn without impediment by the government. I hadn’t realized just how over-regulated the US was until I came to China. And it makes perfect sense: you can’t possibly regulate 1.4 billion people. You’d have to have a bureaucracy of 500 million… And so the Chinese are largely left to earn and keep as they can. I walk around neighborhoods all the time where the local version of the copy shop is a tiny, tiny hole in the wall with a fax machine or two, a computer and printer, and an old Xerox copier. Some local person has cobbled it all together to serve that neighborhood. There is no gleaming “OfficeMax” or “FedEx.” I can guarantee you that not a single government official has been consulted in the setup of that business. I assure you that there is no certificate of occupancy issued or other maze of regulations that impedes people from starting a business to serve their local fellows and make a buck.

The same is true of most little tea shops and restaurants. There is no sign assuring the locals that the health inspector has been there or that the myriad of regulations that stand between the poor and their own business have been complied with. Now, some of you are thinking, “OMG! B-but, but – how will they know that the food is safe?!” To think that a certificate on the wall guarantees food safety, however, is to prove just how brainwashed we are in the US. No certificate on the wall guarantees you won’t eat bad food. It happens all of the time in the US, notwithstanding all of the USDA and other regulators we have. And the same is true of financial markets and every other thing that is hyper-regulated. (Covid vaxes, anyone?) There were 37 regulator on the floor of all of the major trading houses when the financial markets shit themselves in 2008. Afterwards the bureaucracy added another half-dozen or so useless eaters who didn’t understand the products they were regulating.

Let’s suppose we have two restaurants, one that has complied with every single law and regulation and health inspection and one that has not. How would we know the difference? In other words, forget about the certificate on the wall and the false confidence it gives you for a moment. In real, concrete terms, how would anyone know that something was “wrong” in food quality, cleanliness, etc. (in either place)? The answer is identical in either case – no one would know until someone gets sick enough and can trace that sickness back to the restaurant. But that would be true whether you had the “certificate” or not. In other words, the certificate doesn’t prevent anyone from getting sick. It’s a false assurance. I could comply with all of the regulations and then decide that the costs were too much to continue to bear and start cutting corners and no health inspector is going to come in there and “catch me.” They come by – if at all – once a year for inspections. Maybe.

Yet the most direct feedback – and the most deleterious thing for a small shop owner – is not a health inspector: it’s the locals who frequent it. If the people in the local area are getting sick, they will tell everyone else that you make food that makes people sick. You couldn’t survive in a small neighborhood for more than a few weeks to a month (I would bet even less) if you were a small shop owner in one of these tiny neighborhoods selling crappy food.

And so we have to ask ourselves: at what cost health inspectors and regulators and bureaucrats? Because the costs that are associated with all of those things are born disproportionately by the poor. It takes vast (excessive) amounts of capital to open a small restaurant in the face of all of those regulatory requirements and minimum wages and labor laws and OSHA reqs on and on.

VI. The Rising Tide of Economic Freedom Lifts Even Commie Boats.

In 1979, the city of Shenzhen, where I just spent this past weekend, was a fishing village of 30,000 people. It sits on Mainland China, just north of its sister city, Hong Kong, the former British protectorate. I had to take a trip across the border to meet with some of our attorneys in Hong Kong, so I had the chance to make the crossing (and back) and spend some time in both cities.

According to Index of Economic Freedom, Hong Kong had the highest degree of economic freedom in the world since the inception of the Index in 1995.

….

As one of the world’s leading international financial centres, Hong Kong’s service-oriented economy is characterized by its low taxation, almost free port trade and well established international financial market. Its currency, called the Hong Kong dollar, is legally issued by three major international commercial banks, and pegged to the US dollar. Interest rates are determined by the individual banks in Hong Kong to ensure it is fully market-driven. There is no officially recognised central banking system, although Hong Kong Monetary Authority functions as a financial regulatory authority.

Deng Xiaoping took over as the leader of China in 1978. I cannot help but notice that the first “Special Economic Development Zone” he established in China was Shenzhen. Again, just 35 years ago, it was a fishing village of 30,000 people. Today it is the 7th largest city in China, with a population of 12 million, although most of the locals tell me that’s “official number only” – and that the reality is more like 25,000,000. Let me write that number out for you: Twenty-Five Million Souls.

The locals on both sides of the border have an open rivalry over the fact that Shenzhen will pass Hong Kong for GDP this year. I offer the claim that this did not happen because of government regulators. I saw perhaps three people with a cup asking for a handout the entire time I was there. Shenzhen is sizzling, as is Xiamen, as is Hangzhou, as is… everywhere I go in China. EVERYWHERE.

The government here may be “commie” in thought and word, but not in deed. Officials in the “communist party” move up after serving as mayors or officials in these special economic development zones. Guess what they’re judged by: economic performance of those cities. And guess what they’ve figured out? Government bureaucrats and regulators do NOT grow economies or help the poor. So they pay lip service to communism and publish wonderful tracts about the benefits of the “ideology” and paeans to Karl Marx while they all have copied Hong Kong.

Deng knew. He couldn’t help but know. At the time, the Chinese were looking at the rampant starvation that killed upwards of 70 million of their countrymen under Mao’s Five-Year Plans, while Hong Kong – full of Chinese people, too! – grew like wildfire. It enjoyed an unprecedented standard of living, average GDP, etc. You think Deng didn’t look and ask himself what the difference was between “those” Chinese people awash in wealth in Hong Kong, and the ones just a few miles north and west, starving and dying? Deng was twice purged from the Party under Mao for suggesting that maybe those five-year plans weren’t such a great idea. He likely lived solely because of how close he had been to Mao and the fact that they fought together against the Japanese occupation in the 1930s.

The track at Xiamen University on a normal day in March

I came here prepared to see…well… “commies” – and all the ills of a managed economy on display. Just like the Soviet Union was centrally planned and managed before it finally, inevitably (and thankfully) collapsed under the weight of its own stupid and disastrous economic policies. Frederick Douglass once called socialism “arrant nonsense.” I am embarrassed to find that my beloved United States has a lot more of that disease than “communist” China. And if there is one final thing I could share with you to prove the point, consider this:

So-called “Millennials” are people born after 1980. In China, there are roughly 385 million millennials, making up 28.4% of the total population. Here is what a western-based marketing firm says about them:

Thanks to the economic growth of the country, people are less worried about finding a job.  They are also more likely to enjoy their work.  According to recent research 85% feel their jobs help them to pursue their passion.

There is also an abundance of entrepreneurial spirit, with 74% saying they would start their own business if they lost their job or struggled to find work.

Read that last part again. 3 of every 4 young people aren’t worried about work at all because they’ll just “open their own business” if they can’t find a job. Now, ask yourself this: what do you think that number is in the U.S. for our millennials?

We certainly are the Home of the Brave because of our warriors, but I am sorry to say I don’t think we’re quite the Land of the Free any more. Our spirit of rugged individualism has been smothered by regulators and replaced by a belief in the necessity of Government Almighty to provide for us. We smugly tell ourselves that we’re “Free! [‘Murica]” while our government reads our emails, throws people in jail for using intoxicants (evidently they don’t teach about Prohibition any more), and continues to chip away at each of the 10 Amendments that were supposed to be inviolable. Now there is talk about regulating “fake news” because evidently we’re too stupid to be able to sort out Truth from Fiction any more – and we’ll need the Government to decide that issue for us, too.

I truly am sorry for having to send this to each of you. In a way that I can’t begin to convey with simple words. I hesitated each time before hitting send, hence the time between posts – but I can’t bring myself to turn back from what I know, no matter how uncomfortable that Truth. I keep looking for something to prove me wrong, truly, but the reality is so obvious. Everywhere I go in China I am daily confronted with the reality of how economically free the average Chinese person is. It came to a head when I was having lunch with some friends here and they were discussing how “rich” I must be as an American and I told them point-blank how much I make – and then how much I pay in taxes. And they were like, “WHAT?!”

They believe the American mythos in the Middle Kingdom, too. They looked like kids when learning that the Santa Claus at the mall is really some guy playing dress-up. They were bummed out about it. When we talked about what it took to open a small business in the United States – compared to here – they were shocked. They won’t talk about it with me any more.

That has been my job for the last 9 years as CF’s General Counsel – and now as the “Special Envoy to China”: I have helped open up 14,000 small businesses – gyms – all over the world. I have done it in over 100 different countries with a variety of rules, regulations, and government impediments. The US does not rank high on my list of countries for ease of opening up a small business… and “commie” China does.⁴

With all of my love,

~D

1. See Kahneman, D. and Tversky, A., “Thinking Fast and Slow”.

2. This doesn’t even begin to delve into the double- and triple- and quadruple taxation where you pay your state taxes and sales taxes using the income you already were taxed on, and then pay your property taxes to keep a home you supposedly own, pay taxes on capital gains on whatever post-tax money you’ve been able to save and invest, and then pay inheritance taxes when you die on what meager amount you have left and have been able to squirrel away from Uncle Sugar’s greedy hands over the course of your life.

3. Given what USG did to its military and entire populace with unlicensed gene-transfection biologics during Covid-19, how much better can we claim to be on this count?

4. This piece/email was originally written in 2017. A lot has happened in 6 years, but I’ve tried to update this without losing the intent and feeling of the original missive. I claim that subsequent events have only proved my point more forcefully in the aftermath of Covid-19 and the actions taken by governments all over the world. And yes, I know how bad China was because I have friends there - but ask yourself this, how much “better” was the supposed “Land of the Free” during Covid-19 compared to “communist” China?