Quotulatiousness

August 12, 2012

China’s economic situation in Keynesian and Austrian terms

Filed under: China, Economics — Tags: , , , , — Nicholas @ 09:27

Tyler Cowen in the New York Times:

Keynesian economics holds that aggregate demand — the sum of all consumption, investment, government spending and net exports — drives stability, and that government can and should help in difficult times. But the Austrian perspective, developed by the Austrian economists Ludwig von Mises and Friedrich A. Hayek, and championed today by many libertarians and conservatives, emphasizes how government policy often makes things worse, not better.

Economists of all stripes agree that China may be in for a spill. John Maynard Keynes emphasized back in the 1930s the dangers of speculative bubbles, and China certainly seems to have had one in its property market.

[. . .]

The Austrian perspective introduces some scarier considerations. China has been investing 40 percent to 50 percent of its national income. But it is hard to invest so much money wisely, particularly in an environment of economic favoritism. And this rate of investment is artificially high to begin with.

Beijing is often accused of manipulating the value of its currency, the renminbi, to subsidize its manufacturing. The government also funnels domestic savings into the national banking system and grants subsidies to politically favored businesses, and it seems obsessed with building infrastructure. All of this tips the economy in very particular directions.

The Austrian approach raises the possibility that there is no way for China to make good on enough of its oversubsidized investments. At first, they create lots of jobs and revenue, but as the business cycle proceeds, new marginal investments become less valuable and more prone to allocation by corruption. The giddy booms of earlier times wear off, and suddenly not every decision seems wise. The combination can lead to an economic crackup — not because aggregate demand is too low, but because the economy has been producing the wrong mix of goods and services.

Lots of earlier discussion of the problems in China’s economy here.

Wendy McElroy on the Myth of the Greater Good

Filed under: Liberty, Randomness — Tags: , , — Nicholas @ 09:12

Have you been punked by your philosophy professor?

In entry-level philosophy class, a professor will often present a scenario that seems to challenge the students’ perspective on morality.

The argument runs something as follows: “The entire nation of France will drop dead tomorrow unless you kill your neighbor who has only one day to live. What do you do?”

Or “You could eliminate cancer by pressing a button that also kills one healthy person. Do you do so?”

The purpose is to create a moral dilemma. The questions pit your moral rejection of murder against your moral guilt for not acting to save millions of lives.

In reality, the questions are a sham that cannot be honestly answered. They postulate a parallel world in which the rules of reality, like cause and effect, have been dramatically changed so that pushing a button cures cancer. The postulated world seems to operate more on magic than reality.

Because my moral code is based on the reality of the existing world, I don’t know what I would do if those rules no longer operated. I presume my morality would be different, so my actions would be as well.

As absurd as they are, these are considered to be the “tough” moral questions. In grappling with them, some students come to believe that being true to morality requires the violation of morality in a profound manner; after all, there is no greater violation than the deliberate murder of another human being.

But how can the life of one outweigh those of millions in your hands? At this point, morality becomes a numbers game, a matter of cost-benefit analysis, rather than of principle. This is not an expansion of morality, as the professor claims, but the manufacture of a conflict that destroys morality. In its place is left a moral gray zone, a vacuum into which utilitarianism rushes.

The (long awaited) growth in Indian manufacturing

Filed under: Business, Germany, History, India, Technology — Tags: , , , , , — Nicholas @ 08:59

The Economist on the relatively slow development of India’s manufacturing sector:

If India is to become “the next China” — a manufacturing powerhouse — it is taking its time about it. “We have to industrialise India, and as rapidly as possible,” said the country’s first prime minister, Jawaharlal Nehru, in 1951. Politicians have tried everything since, including Soviet-style planning. But India seems to prefer growing crops and selling services to making things you can drop on your foot.

Manufacturing is still just 15% of output (see chart), far below Asian norms. India needs a big manufacturing base. No major country has grown rich without one and nothing else is likely to absorb the labour of the 250m youngsters set to reach working age in the next 15 years. But it can seem a remote prospect. In July power cuts plunged an area in which over 600m people live into darkness, reminding investors that India’s infrastructure is not wholly reliable. And workers boiled over at a car factory run by Maruti Suzuki. Almost 100 people were injured and the plant was torched. The charred body of a human-resources chief was found in the ashes.

Yet not all is farce and tragedy. Take Pune in west India, a booming industrial hub that has won the steely hearts of Germany’s car firms. Inside a $700m Volkswagen plant on the city’s outskirts, laser-wielding robots test car frames’ dimensions and a giant conveyor belt slips by, with sprung-wood surfaces to protect workers’ knees. It is “probably the cheapest factory we have worldwide”, says John Chacko, VW’s boss in India. In time it could become an export hub. Nearby, in the distance it takes a Polo to get to 60mph, is a plant owned by Mercedes-Benz.

The initial demand for a domestic manufacturing base was more political than economic: it would serve to reinforce the newly won independence of India by showing that India could make its own goods rather than importing from the UK or other major manufacturing nations. It was also economic, in that it would provide relatively high-paying jobs for India’s rapidly urbanizing population.

Ironically, now that the manufacturing sector seems to be on the upswing, the one thing it isn’t going to do for India is provide lots and lots of jobs: as with the rest of the world, manufacturing “things” is being done with fewer workers every year (even when the total output increases, fewer workers are needed to produce that output).

Relative poverty is not a very useful measurement

Filed under: China, Economics — Tags: , — Nicholas @ 08:37

At the Adam Smith Institute blog, Tim Worstall explains why measuring relative poverty isn’t helpful:

Here actually is the problem with using relative poverty as a measure:

    Compared to the 1960s, China today has higher income inequality, but also incomparably lower levels of material poverty. By Brady’s definition, China was less impoverished in the near-starvation years of the 1960s than it is as an economic superpower today. According to the OECD, during the last three decades the share of Chinese living in absolute poverty dramatically declined from eight in ten to one in ten (Garroway and de Laiglesia 2011). During the same period, relative poverty, measured exactly as Brady measures it, roughly doubled. Although inequality and relative poverty are not irrelevant for measuring the well-being of a society, we should be apprehensive about a measure of poverty that is incapable of detecting the largest decline in material poverty in human history.

As pointed out, a measure of poverty that not just ignores, but actually gets the sign wrong on, the largest reduction in poverty in the history of our species is of limited value.

[. . .]

Which leads us to something of a conclusion: it’s fine to consider the distribution of incomes within a society. But we do it rather too much with the constant political obsession over relative poverty. We need to be paying a lot more attention to absolute standards of living: most especially how these change over time. Most specifically I’m thinking about the effects attempts to reduce relative poverty might affect our ability to increase absolute standards of living in the future.

Powered by WordPress