Quotulatiousness

August 27, 2012

Central planning is always attractive to the ones who see themselves in charge

Filed under: Bureaucracy, Economics, Government — Tags: , — Nicholas @ 00:01

At the Why Nations Fail blog, Daron Acemoglu and James Robinson explain that central planning is not just a Marxist idea:

Essentially central planning is not about the efficient allocation of economic resources, it is about control.

Central planning maximizes the extent of control that the state, and the people running the state, exercise. The desire to control others is a constant in history and is part and parcel of the construction of states. If the state can grab all the land and resources and control who and on what terms people get access to them, then this maximizes control, even if it sacrifices economic efficiency.

This sort of economic and political control — not Marxist ideology — is what central planning is all about. This is not to deny that Marxist ideology supported and legitimized central planning in several 20th-century societies. But it is to emphasize that the emergence and persistence of central planning is often a solution to the central economic and political problem of many elites: to control and extract resources from society.

The people who push for central planning may say they’re trying to solve a problem, but the problem they say they’re trying to solve is just an excuse. They really just want to gain control over you.

April 4, 2012

The authoritarian High-Modernist recipe for failure

Filed under: Bureaucracy, Government, History, Liberty — Tags: , , , — Nicholas @ 08:37

Charles Stross linked to this older post at Ribbonfarm discussing “how to think like a state”:

James C. Scott’s fascinating and seminal book, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed, examines how, across dozens of domains, ranging from agriculture and forestry, to urban planning and census-taking, a very predictable failure pattern keeps recurring.

[. . .]

Scott calls the thinking style behind the failure mode “authoritarian high modernism,” but as we’ll see, the failure mode is not limited to the brief intellectual reign of high modernism (roughly, the first half of the twentieth century).

Here is the recipe:

  • Look at a complex and confusing reality, such as the social dynamics of an old city
  • Fail to understand all the subtleties of how the complex reality works
  • Attribute that failure to the irrationality of what you are looking at, rather than your own limitations
  • Come up with an idealized blank-slate vision of what that reality ought to look like
  • Argue that the relative simplicity and platonic orderliness of the vision represents rationality
  • Use authoritarian power to impose that vision, by demolishing the old reality if necessary
  • Watch your rational Utopia fail horribly

The big mistake in this pattern of failure is projecting your subjective lack of comprehension onto the object you are looking at, as “irrationality.” We make this mistake because we are tempted by a desire for legibility.

[. . .]

Central to Scott’s thesis is the idea of legibility. He explains how he stumbled across the idea while researching efforts by nation states to settle or “sedentarize” nomads, pastoralists, gypsies and other peoples living non-mainstream lives:

    The more I examined these efforts at sedentarization, the more I came to see them as a state’s attempt to make a society legible, to arrange the population in ways that simplified the classic state functions of taxation, conscription, and prevention of rebellion. Having begun to think in these terms, I began to see legibility as a central problem in statecraft. The pre-modern state was, in many crucial respects, particularly blind; it knew precious little about its subjects, their wealth, their landholdings and yields, their location, their very identity. It lacked anything like a detailed “map” of its terrain and its people.

The book is about the 2-3 century long process by which modern states reorganized the societies they governed, to make them more legible to the apparatus of governance. The state is not actually interested in the rich functional structure and complex behavior of the very organic entities that it governs (and indeed, is part of, rather than “above”). It merely views them as resources that must be organized in order to yield optimal returns according to a centralized, narrow, and strictly utilitarian logic.

It’s a long post, but it is well worth reading. In a couple of throwaway examples, it rather cleverly ties the Indian caste system (as made “legible” by the Raj) and the entire Roman empire to Scott’s failure model.

March 16, 2012

One symptom, but lots of different causes

Filed under: Britain, Economics, History, India — Tags: , , , , — Nicholas @ 08:41

Tim Worstall responds to a simplistic definition of poverty:

What we then want to know is why do some individuals have a shortage of money? At which point we enter a forest of different explanations.

By far the largest cause of poverty is that people live in societies ruled by people variously ignorant, stupid or evil. N Korean poverty I would ascribe to that last. The early Soviets, I am sure along with Socialists of the time, really did think that planning would be more efficient, create more wealth. The evil came later, it was ignorance at first.

[. . .]

And, yes, really, there is also that culture of poverty that Ms. Ehrenreich wants to insist does not exist. Choices over drugs, booze, delayed gratification, marriage, children, education, all have their effects on poverty or not poverty.

Sure, poverty is indeed the lack of money. But there are different reasons for different people at different times about why they lack money. Given these different reasons therefore different solutions have to be applied. Our Down’s Syndrome lad does simply need a transfer of resources, of wealth, from others in the society to him.

But that is not to say that the cure for all poverty is such a transfer: poverty in India is going to be better alleviated by the continuing destruction of Nehru’s extentions of the Licence Raj, poverty among some others in the UK is going to be best addressed by a change in the behaviour of those individuals.

April 18, 2011

The real secret weapon of the “China economic miracle”

Filed under: China, Economics, Government — Tags: , , , , — Nicholas @ 10:35

Chriss W. Street thinks the Chinese banks are about to suffer a crisis moment:

It is ironic that China is demanding greater control of the World Bank and International Monetary Fund, just as the nation’s banking system is about to be devastated by the white hot flames of inflation.
From a distance, China’s economy seems to be the poster child of sustainable growth. Recent government reports show the economy expanding by 9.7%, retail sales up a blistering 17.4%, foreign reserves at $3 trillion, and inflation only 5.4%. But these statistics mask a dark side; Chinese communist authorities have been artificially holding down fierce inflationary pressures by subsidizing consumer prices.

[. . .]

The less known and far more important secret-weapon of the “China Economic Miracle” is the absolute control of the banking industry by China’s four largest state-owned banks (“SOB”); Industrial and Commercial Bank, Agricultural Bank, People’s Bank of China and Construction. Since the government does not provide adequate social welfare programs and restricts its citizen’s investment options to bank accounts, about 40% of Chinese household income is deposited in SOBs each month. The SOBs then leverage the deposits by ten times and loan 75% of this massive amount of cash at extremely low interest rates to state-owned-enterprises (“SOE”). The other 25% of lending is allocated to real estate development.

China is no stranger to bankers making risky loans to communist party officials and their crony real estate developers. During the Asian Financial Crisis of the mid-1990s, it is estimated that 40% of all SOB loans were non-performing and most were written off. The Chinese paid for the SOB losses with a 76% devaluation of their currency that crushed the people’s buying-power by 76%. From 1997 to 2004 Chinese frivolous lending was somewhat restrained, but since 2003 the bureaucrats have mandated a massive expansion of lending. In comparison to the U.S. and Europe where bank lending is flat, SOBs have been expanding loans by 25% annually.

H/T to Jon for the link.

Malinvestment the next big problem for China?

Filed under: China, Economics, Government — Tags: , , — Nicholas @ 09:54

Nouriel Roubini thinks that the Chinese central planners are missing the clues about overinvestment in their infrastructure binge:

China’s economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible — most likely after 2013 — China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium.

Despite the rhetoric of the new Five-Year Plan — which, like the previous one, aims to increase the share of consumption in GDP — the path of least resistance is the status quo. The new plan’s details reveal continued reliance on investment, including public housing, to support growth, rather than faster currency appreciation, substantial fiscal transfers to households, taxation and/or privatization of state-owned enterprises (SOEs), liberalization of the household registration (hukou) system, or an easing of financial repression.

China has grown for the last few decades on the back of export-led industrialization and a weak currency, which have resulted in high corporate and household savings rates and reliance on net exports and fixed investment (infrastructure, real estate, and industrial capacity for import-competing and export sectors). When net exports collapsed in 2008-09 from 11 percent of GDP to 5 percent, China’s leader reacted by further increasing the fixed-investment share of GDP from 42 percent to 47 percent.

Thus, China did not suffer a severe recession — as occurred in Japan, Germany, and elsewhere in emerging Asia in 2009 — only because fixed investment exploded. And the fixed-investment share of GDP has increased further in 2010-2011, to almost 50 percent.

The problem, of course, is that no country can be productive enough to reinvest 50 percent of GDP in new capital stock without eventually facing immense overcapacity and a staggering nonperforming loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

H/T to Publius for the link.

April 17, 2011

China’s real estate bubble

Filed under: China, Economics, Government — Tags: , , , — Nicholas @ 09:24

February 17, 2011

Victor Shih interview on China’s economy

Filed under: China, Economics, Military, Politics — Tags: , , , , — Nicholas @ 07:35

The Browser interviews Victor Shih:

What do people get most wrong when they think of the Chinese economy?

The biggest misperception about China is that it’s a dynamic market economy — it isn’t. It’s a fast-growing, state-dominated economy with some dynamic, private-market aspects. If you look at investment, a main driver of growth, much of it is going to state-owned enterprises (SOEs) or shareholding companies dominated by state entities. Or it’s going directly to government investments carried out at a central or local level. The misperception has abated recently following Richard McGregor’s book on the Chinese Communist Party. People are realising that the party is still behind much of what happens in China.

[. . .]

Your first choice is Yasheng Huang’s Capitalism with Chinese Characteristics. I believe this book successfully demolishes the idea that China is developing a new economic model called ‘market authoritarianism’.

I think Yasheng goes a little too far with some of his claims. But the broad outline is correct. There was a period of healthy organic growth in the 80s, driven by the de facto private sector. Many township and village enterprises were collectives or owned by the local government. But in reality they were private enterprises. This changed in the mid-90s, especially with the adoption of the ‘grasping the large and letting the small go’ policy that circumvented the special interests in the state sector. When Deng Xiaoping was alive, his executive vice premier, Zhu Rongji, wanted to bankrupt or merge many of the smaller state-owned enterprises into larger ones. It was a political tactic to further reform. And it worked.

The problem was that it created these giant, state-owned enterprises. Recent statistics reveal the state sector made a profit of 2 trillion renminbi last year, of which the 122 largest SOEs made 1.35 trillion. They have combined assets of over 10 trillion dollars and have become an enormously resourceful and powerful interest group. Their CEOs have numerous ties with top political leaders and sit on the party’s central committee. Most bank loans, issued bonds and stock-listing proceeds in the system go to these conglomerates. There’s still a private sector but it has been squeezed tremendously, especially in the last two years.

[. . .]

Most investment bankers like to talk things up, but that’s not something we can accuse Carl of doing.

By the late 90s, China’s banks were technically insolvent because the non-performing loans ratio was 40 to 50 per cent. Carl’s still a big fan of Zhu Rongji, the former prime minister. One of Zhu’s greatest achievements was to ‘solve’ the problems in the banking sector by setting up asset-management companies and recapitalising the banks. Today, of course, the banks are still lending very recklessly despite a lot of reform — the formation of credit and risk-management committees, for example. The banks continue to require bailouts and recapitalisation from the Chinese government, which props them up so that they can sell these bank shares to the public in Hong Kong or Shanghai. Carl sees this process as a kind of Ponzi scheme.

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