Sadly, blogs had not been invented in the 1980s. That's when I regularly predicted the collapse of the Soviet Union, to anyone who would listen. My wife, and plenty of other people, thought I was crazy. Unfortunately, I have no written record to prove my prescience.
In fact, it's a pretty safe bet to predict that any economy, or piece of an economy, organized on a socialist model will sooner or later collapse. That's because socialism reverses the virtuous incentives of a private ownership/free exchange system (sometimes known as "capitalism"). In a private ownership/free exchange system, individuals can improve their economic well being by working a little harder or a little smarter. In a socialist "to each according to his needs" system, individuals cannot improve their economic well-being by hard work, and often can improve their economic well-being by doing nothing and waiting for handouts. As a result, in capitalism you have continuous economic growth; but in socialism you have productivity decline, and the people get poorer and poorer year after year. This is what I've called the "socialist death spiral." It's only a matter of time until the collapse.
But unfortunately, no one knows when the collapse will come. It could be tomorrow, or a year from now, or ten years, or fifty. Which is what makes betting on the timing of any particular collapse an interesting sport. When will the Castros finally give up the ghost in Cuba, or Maduro in Venezuela? Put your money down!
Today's challenge is to try to guess which will collapse first as between North Korea and the New York City Housing Authority (NYCHA). The question is tricky because both entities have survived well past any date on which they could reasonably have been expected to collapse absent massive outside support to prop them up. So far both have received just enough outside support to keep going. Might that end in either case?
North Korea has been surviving on fumes for decades. Even in between periodic famines and mass starvation, defectors still report living by eating grass and tree bark. The economy produces next to nothing, and night time satellite photos show a country in total darkness while adjacent South Korea is ablaze with light. Surely this cannot continue much longer!
A publication called The Diplomat from January 27 has some history of this subject, titled "The Long History of Predicting North Korea's Collapse." You won't be surprised to learn that the predictions started shortly after the Soviet Union went under, with another spike after the death of Kim Jong-Il:
Predicting the end of North Korea has a long history marked by countless false dawns. Claims of impending collapse gained prominence after the death in 1994 of North Korea’s founder Kim Il-sung, the current leader’s grandfather, only for his son, Kim Jong-il, to smoothly take the reins of power. Former President Bill Clinton was reported to have agreed to an ill-fated denuclearization deal with Pyongyang that year largely out of a belief the regime’s end was near. Nearly a decade and a half later, Kim Jong-il’s sudden death again sparked predictions of regime implosion, only for his son to successfully assume power and keep the system intact.
But miraculously, they are still around. Actually, it may not be so much of a miracle, but rather the result of backing from their one kind-of ally in the world, China. Although nobody knows the exact amounts, China has clearly been helping the Norks by buying some of their stuff, let alone by providing enough border enforcement assistance to keep the entire population from escaping. But is some or all of that about to end? According to the Washington Post on Saturday, China has suspended its purchases of coal from North Korea as of yesterday, and will keep the suspension in place at least until the end of the year. The suspension is seen as a punishment to the Norks for their recent missile test, and as a tightening of compliance with the U.N. sanctions regime.
China will suspend all imports of coal from North Korea until the end of the year, the Commerce Ministry announced Saturday, in a surprise move that would cut off a major financial lifeline for Pyongyang and significantly enhance the effectiveness of U.N. sanctions. Coal is North Korea’s largest export item, and also China’s greatest point of leverage over the regime.
This is not a small change. Coal to China constitutes around a third of all of North Korea's exports, around $1 billion out of a total of about $3 billion, according to an MIT website here. Seems like Mr. Xi might be a little upset, maybe by the recent nuclear and missile tests, or maybe by the assassination of Kim Jong-Nam (who had been living in China and under its protection). Are the Norks getting to the end of their rope? Place your bet!
Or, you can bet on NYCHA. NYCHA is not a full sovereign economy, but just a small piece. Nonetheless, it is run on the full classic socialist model. Prove yourself to be poor and incapable of providing housing for yourself, and qualify for deeply a deeply subsidized apartment for life, many of them now located in highly desirable areas. In this post last May I characterized NYCHA as being in the "terminal phase" of a socialist death spiral. Their rents cover barely a third of their operating costs, and they have a backlog of some $17 billion of capital repairs, with no source of the money anywhere on the horizon.
But here they are about 10 months later, still going on as if nothing is wrong. Hey, none of the buildings has collapsed yet! In this instance, the New York Post has joined the Manhattan Contrarian as finally noticing that something is badly wrong. They had a lead editorial devoted to NYCHA yesterday, titled "The slow death of New York's public housing." Excerpt:
New York City’s public housing is slowly sinking into decrepitude as its oldest developments creakily approach 80 years in age. It’s long past time to set ideology aside to fund vital repairs — and to think about a future without public housing. Nearly half the New York City Housing Authority’s properties won “troubled” or “low-performing” ratings in the most recent federal inspections. . . . The clear truth is that time will inevitably spell the end of all current NYCHA properties — with no hope that new ones will replace them. A rational city would face those facts . . . .
My only quibble is with the Post's assertion that it is "time to set ideology aside to fund vital repairs." If NYCHA is in the terminal phase of a death spiral, and if "the clear truth is that time will inevitably spell the end" of its properties, then isn't the right answer to get this over with sooner rather than later, before we throw more tens of billions of dollars down the hopeless rathole? The right answer to the miseries of NYCHA, and of its tenants, as proposed many times here, is to give away the projects to the tenants and make them owners.
In the case of NYCHA, the mystery financial backer that has kept it going long past its sell-by date is the Federal Department of Housing and Urban Development. HUD in recent years has been sending some $2 billion of annual operating subsidies to NYCHA. As far as I know, it's all subject to annual appropriation from Congress. (When they built these things, nobody seems to have thought that they might need to do capital improvements some day.)
As of today, Ben Carson is still awaiting his confirmation as HUD Secretary, and of course, HUD's budget for the coming year has not begun to be considered. But if they focus on this a bit, it could all unravel very quickly.
So, which do you bet will collapse first, North Korea or NYCHA? Put your money down!