Quotulatiousness

March 9, 2019

Old posts (from the old blog) about Chinese official economic statistics

Filed under: China, Economics, Media — Tags: , , , , , — Nicholas @ 03:00

This post at Continental Telegraph a few days back reminded me I wanted to get around to gathering some of my older posts about the reasons to take the official GDP numbers from the Chinese government with more than just a pinch of salt. Here’s my very first rant on the topic from 10 August, 2004 (original expired URL – http://bolditalic.com/quotulatiousness_archive/000323.html):

On my way in to work this morning, I heard a stock advisor doing his best to make reasonable assumptions about what the average listener needed to know about the economy. This guy has been pretty level-headed in the past, but this morning’s talk just got my head ready to explode.

The topic of discussion was the Chinese economy and how the Chinese central bank was having to take greater efforts to rein in economic expansion. He talked about how many different sectors of the North American economy were, to greater or lesser degree, depending more and more on Chinese growth to increase their own investments and output. The idea that the Chinese economy was "overheating" was bandied about. He closed by indicating that a slight drop in the official growth rate from 9.8% to 9.6% showed that the Chinese central bank was seeing some results from their intervention in the economy.

There are so many things wrong here that I’m almost at a loss where to start. While there is no doubt that China is a fast-growing economy, the most common mistake among both investors and pundits is to assume that China is really just like South Carolina or Ireland … a formerly depressed area now achieving good results from modernization. The problem is that China is not just the next Atlanta or Slovenia. China is still, more or less, a command economy with a capitalist face. One of the biggest players in the Chinese economy is the army, and not just in the sense of being a big purchaser of capital goods (like the United States Army, for example).

The Chinese army owns or controls huge sectors of the economy, and runs them in the same way it would run a division or an army corps. The very term "command economy" would seem to have been minted to describe this situation. The numbers reported by these "companies" bear about the same resemblance to reality as those posted by Enron or Worldcom. With so much of their economy not subject to profit and loss, every figure from China must be viewed as nothing more than a guess (at best) or active disinformation.

Probably the only figures that can be depended upon for any remote accuracy would be the imports from other countries — as reported by the exporting firms, not by their importing counterparts — and the exports to other countries. All internal numbers are political, not economic. When a factory manager can be fired, he has his own financial future at stake. When he can be sentenced to 20 years of internal exile, he has his life at stake. There are few rewards for honesty in that sort of environment: and many inducements to go along with what you are told to do.

Under those circumstances, any growth figures are going to be aggregated from all sectors, most of which are under strong pressure to report the right numbers, not necessarily corresponding with any real measurement of economic activity. So, if the economic office wants to see a drop in the economy, that’s what they’ll get.

Basing your own personal financial plans on numbers like this would quickly have you living in a cardboard box under a highway overpass. Companies in the soi-disant free world have shareholders or owners to answer to. Companies in China exist in a totally different environment.

I returned to the same topic on October 25, 2004, triggered by yet another talking head on the radio under the heading “More Economic Voodoo — or is that Feng Shui?” (original URL – http://www.bolditalic.com/quotulatiousness_archive/000580.html):

Again this morning, I was listening to my local jazz radio station on the way in to work. As usual, they had a broker from CIBC Wood Gundy giving portfolio advice at about 9:20 a.m. Today’s talk was about investing in China, and how the markets have been reacting to the recent small drop in the official GDP growth figures released by the Chinese central bank.

This time, the emphasis was on the idea that in spite of the breathtaking growth figures, Chinese firms still are not particularly profitable and that therefore there are better ways of investing your money to benefit from all that growth. Unlike the last time I addressed this issue, this time I thought that the advisor was actually making pretty good sense. The incredible transformation of China from a pure command-driven economy to a mixed economy will certainly provide lots of opportunities for people to get rich; it will also provide even more opportunities to lose big money.

Much of the problem is that even now, the Chinese economy is not particularly free: the official and unofficial controls on the economy provide far too many opportunities for rent-seeking officialdom to play favourites and cripple antagonists (and for once, "cripple" is not just a bit of hyperbole). Any numbers provided by the Chinese authorities cannot be depended upon, and should probably only be viewed as an indication of what the Chinese government wants the outside world to believe.

Even in a relatively free economy like Canada, the underground economy can be huge, with plenty of economic activity happening out of reach of the taxman. In China, where everybody was raised in an environment where providing the "wrong" answer to your leader could get you imprisoned (or executed) as an economic criminal, the numbers upon which the bankers and financial officials depend can only be described as extremely unreliable.

Update 26 October: The Last Amazon asks a highly pertinent and pointed question:

    In the past week, the Globe and Mail has been featuring the economic engine that China has become. Its economy is thriving so much so that Chinese government owned companies like China Minmetals Corp (which had revenues in 2003 of USD$11.7 billion) is currently negotiating to buy outright 100% of the stock of the Canadian mining corporation, Noranda Inc. The total stock is estimated at approximately CDN$6.7 billion.

    If the Chinese government can afford to buy Noranda Inc. why hasn’t anyone asked when China will reimburse the overburdened Canadian taxpayers of this fair land for the Cdn$65.4 million that has been given to China as foreign aid?

I managed to stay away from the topic until April 13, 2007, when I posted “The Chinese Economy”, which largely quoted from my first two posts (old URL – http://bolditalic.netfirms.com/quotulatiousness_archive/003649.html):

Everyone must have heard many different variations on how incredible the Chinese economy is: spectacular growth, innovations galore, etc., etc. And there’s much truth to it — China has been industrializing at a mind-croggling pace. At least, the visual evidence says so. The economic data coming out of China is, to be kind, not as dependable as similar data from most other countries. […]

Three years on, I must retract a tiny bit there … Enron’s and Worldcom’s figures, while deliberately misleading, were refutable (and the culprits taken to court). […]

Samizdata links to a brief Tyler Cowen post which includes this quote:

    …of the 3,220 Chinese citizens with a personal wealth of 100 million yuan ($13 million) or more, 2,932 are children of high-level cadres. Of the key positions in the five industrial sectors – finance, foreign trade, land development, large-scale engineering and securities – 85% to 90% are held by children of high-level cadres.

That’s even higher than I expected. But it’s an excellent example of what I originally wrote about back in 2004: the economy isn’t free, and the beneficiaries are disproportionally those who are politically well-connected. Caveat investor.

And that was when I discovered that my “full” backup of files from the old site is actually missing nearly a year of posts from May 2008 to May 2009 (when I moved to the current site). I vaguely recall that Jon (my former virtual landlord) was having problems with limited storage on that site — I was just a freeloading guest — so perhaps one of the things we lost was the auto-archiving after we reached a certain capacity.

Thanks to the Wayback Machine, I found a couple of other entries but they were often just rehashes of the first two posts interspersed with quotations from articles I felt were being too Pollyanna-ish about the Chinese economic numbers, like this one from May 2, 2008:

Those untrustworthy Chinese economic numbers

Regular readers will know that I’ve been a long-term skeptic about the economic figures reported by the Chinese government (for example, here and here back in 2004). As a result, this post at the Economist is not very surprising:

    As China’s importance in the global economy increases, investors are paying more attention to its economic numbers. Yet the country’s official statistics are notoriously ropy. Some commentators accuse China’s government of overstating GDP growth for political reasons, others complain that the official inflation rate is fraudulently low. So which data can you trust?

    One reason to be suspicious of GDP figures is that China is always one of the first countries to report them, usually only two weeks after the end of each quarter. Most developed economies take between four and six weeks to produce them.

However, The Economist still feels that the Chinese economy is larger than reported. My sense of distrust in the figures argues for it being neither as big nor as robust as the reported figures indicate. They’re professional economic reporters … I’m a guy typing a blog entry. I wonder what the long-term odds are for either of us to be closer to the truth?

It’s tough to disagree with this, though:

    The prize for the dodgiest figures goes to the labour market. The quarterly urban unemployment rate is meaningless because it excludes workers laid off by state-owned firms as well as large numbers of migrant workers, who normally live in urban areas but are not registered. Wage figures are also lousy. There has recently been much concern about the faster pace of increase in average urban earnings. But this series does not cover private firms, which are where most jobs have been created in recent years.

    Now that China is such an engine of global growth, it urgently needs to improve its economic data. Only a madman would drive a juggernaut at full speed with a faulty speedometer, a cracked rear-view mirror and a misty windscreen.

By this point, Jon was referring to my obsession with bogus Chinese economic statistics as my “hobby horse” … yet it wasn’t unknown for him to send me links to articles on that very topic. Here’s another post, courtesy of the Wayback Machine, from January 23, 2009:

China’s economic situation

There’s an article at The Economist today that shows a touching belief in the magic of the Chinese economy. The reported Gross Domestic Product has fallen to “only” 5.8%. The Economist‘s writer spends much of the article worrying about this gloomy report:

    New figures show that China’s GDP growth fell to 6.8% in the year to the fourth quarter, down from 9% in the third quarter and half its 13% pace in 2007. Growth of 6.8% may still sound pretty robust, but it implies that growth was virtually zero on a seasonally adjusted basis in the fourth quarter.

    Industrial production has slowed even more sharply, growing by only 5.7% in the 12 months to December, compared with an 18% pace in late 2007. Thousands of factories have closed and millions of migrant workers have already lost their jobs. But there could be worse to come. Chinese exports are likely to drop further in coming months as world demand shrinks. Qu Hongbin, an economist at HSBC, forecasts that exports in the first quarter could be 19% lower than a year ago. 2009 may well see the first full-year decline in exports in more than a quarter of a century.

    Economists have become gloomier about China’s prospects, with many now predicting GDP growth of only 5-6% in 2009, the lowest for almost two decades.

I’ve blogged about the Chinese economy on a few occasions (most recently here), generally with the same concern: that the numbers reported cannot be relied upon. The same is true here. Interestingly, the Economist article I linked to back in May makes this point quite well, yet today’s article appears to treat the Chinese government’s numbers as solid.

China has changed substantially from twenty years ago, and in many ways for the better. Most ordinary Chinese today are more free — economically anyway — than they were a generation ago, and there is a lot more opportunity for individuals to set up businesses and to succeed without needing Party connections. All this is indisputable … yet vast swathes of the Chinese economy are a legacy of the worst command-and-control period. It’s not an exaggeration to say that we can expect to discover the “official numbers” have absolutely no relationship to reality, because the numbers are compiled from various sources including both free-r quasi-capitalist companies and tottering government-owned (and often People’s Liberation Army-owned) conglomerates which cannot be depended upon to report anything accurately.

An example from this article: “a fall in electricity output of 6% in the year to the fourth quarter, down from average annual growth of 15% over the previous five years.” That’s not just a reduction in the rate of growth, that’s a reported drop in output of 6%. Imagine what the state of a European or Japanese/Korean economy running at only 94% of electricity … it’d be something you’d only see at times of severe economic contraction, not as a sign of a slow-down in growth.

Finally, on May 22, 2009, a final post on the topic at the old blog:

Official Chinese statistics

If you’ve read the blog for a while, you’ll know that I’m pretty skeptical about how believable the official statistics coming from the Chinese government may be. The Economist is somewhat undecided on the matter … sometimes publishing articles that treat the official numbers as legitimate and other times, showing more doubt:

    Part of the recent optimism in world markets rests on the belief that China’s fiscal-stimulus package is boosting its economy and that GDP growth could come close to the government’s target of 8% this year. Some economists, however, suspect that the figures overstate the economy’s true growth rate and that Beijing would report 8% regardless of the truth. Is China cheating?

    Economists have long doubted the credibility of Chinese data and it is widely accepted that GDP growth was overstated during the previous two downturns. In 1998-99, during the Asian financial crisis, China’s GDP grew by an average of 7.7%, according to official figures. However, using alternative measures of activity, such as energy production, air travel and imports, Thomas Rawski of the University of Pittsburgh calculated that the growth rate was at best 2%. Other economists reckon that Mr Rawski was too pessimistic. Arthur Kroeber of Dragonomics, a research firm in Beijing, estimates GDP growth was around 5% in 1998-99, for example. The top chart, plotting the official growth rate against estimates by Dragonomics, clearly suggests that some massaging of the government statistics may have gone on. The biggest adjustment seems to have been made in 1989, the year of political protests in Tiananmen Square. Officially, GDP grew by over 4%; Dragonomics reckons it actually declined by 1.5%.

Of course, The Economist doesn’t want to lose sales in China, so the last paragraph of the article blithely re-assures readers that things are improving and that the official numbers are much harder to fudge now than they used to be. That may well be true (I rather hope it is), but in the same way that you can get much more impressive growth from a very small base, you can become much more honest with your numbers when you’re starting from pure fiction.

[…] Let’s just say that I’m still unconvinced.

After that, my hobby-horse rides can be found by searching for “china economy” (or just click this link) on the current blog, or you can just peruse the China category.

QotD: “Scientific” urban planning versus messy, unscientific, evolved town growth

Filed under: Architecture, Environment, Government, History, Quotations — Tags: , , — Nicholas @ 01:00

Natural organically-evolved cities tend to be densely-packed mixtures of dark alleys, tiny shops, and overcrowded streets. Modern scientific rationalists came up with a better idea: an evenly-spaced rectangular grid of identical giant Brutalist apartment buildings separated by wide boulevards, with everything separated into carefully-zoned districts. Yet for some reason, whenever these new rational cities were built, people hated them and did everything they could to move out into more organic suburbs. And again, for some reason the urban planners got promoted, became famous, and spread their destructive techniques around the world.

Ye olde organically-evolved peasant villages tended to be complicated confusions of everybody trying to raise fifty different crops at the same time on awkwardly shaped cramped parcels of land. Modern scientific rationalists came up with a better idea: giant collective mechanized farms growing purpose-bred high-yield crops and arranged in (say it with me) evenly-spaced rectangular grids. Yet for some reason, these giant collective farms had lower yields per acre than the old traditional methods, and wherever they arose famine and mass starvation followed. And again, for some reason governments continued to push the more “modern” methods, whether it was socialist collectives in the USSR, big agricultural corporations in the US, or sprawling banana plantations in the Third World.

Traditional lifestyles of many East African natives were nomadic, involving slash-and-burn agriculture in complicated jungle terrain according to a bewildering variety of ad-hoc rules. Modern scientific rationalists in African governments (both colonial and independent) came up with a better idea – resettlment of the natives into villages, where they could have modern amenities like schools, wells, electricity, and evenly-spaced rectangular grids. Yet for some reason, these villages kept failing: their crops died, their economies collapsed, and their native inhabitants disappeared back into the jungle. And again, for some reason the African governments kept trying to bring the natives back and make them stay, even if they had to blur the lines between villages and concentration camps to make it work.

Why did all of these schemes fail? And more importantly, why were they celebrated, rewarded, and continued, even when the fact of their failure became too obvious to ignore? Scott gives a two part answer.

The first part of the story is High Modernism, an aesthetic taste masquerading as a scientific philosophy. The High Modernists claimed to be about figuring out the most efficient and high-tech way of doing things, but most of them knew little relevant math or science and were basically just LARPing being rational by placing things in evenly-spaced rectangular grids.

But the High Modernists were pawns in service of a deeper motive: the centralized state wanted the world to be “legible”, ie arranged in a way that made it easy to monitor and control. An intact forest might be more productive than an evenly-spaced rectangular grid of Norway spruce, but it was harder to legislate rules for, or assess taxes on.

The state promoted the High Modernists’ platitudes about The Greater Good as cover, in order to implement the totalitarian schemes they wanted to implement anyway. The resulting experiments were usually failures by the humanitarian goals of the Modernists, but resounding successes by the command-and-control goals of the state. And so we gradually transitioned from systems that were messy but full of fine-tuned hidden order, to ones that were barely-functional but really easy to tax.

Scott Alexander, “Book Review: Seeing Like a State”, Slate Star Codex, 2017-03-16.

February 6, 2019

The “Green New Deal” of Alexandria Ocasio-Cortez won’t work

Filed under: Economics, Environment, Politics, USA — Tags: , , — Nicholas @ 03:00

Tim Worstall predicts — well in advance of hearing any details of Alexandria Ocasio-Cortez’s Green New Deal — that it won’t work:

Alexandria Ocasio-Cortez speaking at the Reardon Convention Center in Kansas City, on 20 July 2018.
Photo by Mark Dillman via Wikimedia Commons.

Alexandria Ocasio-Cortez is to reveal the details of her Green New Deal in the next few days – the one thing we absolutely know about this being that it won’t work. This isn’t a commentary upon climate change nor the desirability of doing something about it. This is just a simple statement of fact about the universe we inhabit. As with the climate the economy is a complex, even chaotic, thing. Plans to substantially reform it therefore don’t work, no matter how egghead the planners nor pure in motive the instigators.

All of this being why the very reports which tell us we should do something about climate change – say, the Stern Review – tell us that we shouldn’t try to have those detailed plans for what we’ll do and how we’ll do it. Instead we’ve got to use the only management technique we’ve got for something this complex, markets and prices. Which is why near every economist who has even thought about the problem advocates either cap and trade or a carbon tax.

This is, of course, just a rerun of Friedrich Hayek’s point in his Nobel Lecture, “The Pretence of Knowledge”. That universe out there is a complicated place. There’s just no manner that the planner can gain enough information about it, in anything like real time, to be able to plan it. We’ve thus got to use other methods to bend that reality to our will. We can jam a crowbar into prices with a carbon tax for example, but we can’t start planning who should be taking how many car journeys in what sort of vehicles powered in what manner.

So, the Green New Deal from Alexandria Ocasio-Cortex, it fails at this first and basic hurdle. She’s using the wrong method to try to solve the agreed upon problem. Central planning just doesn’t work.

[…]

The reason we want cheap solutions to climate change is that this justifies producing more of a solution. Again, the justification of doing something about climate change is that it will be expensive. So, we should spend up to the amount of the damage to prevent it. Say it will cost $100, then we’re willing to spend up to $99.99 to stop it. This makes us one cent better off. We’re not willing to spend $200 to stop those $100 damages, that would make us poorer.

And more – we should spend that $99.99 as efficiently as we can because that means we’ll stop more climate change for our dollars. That also makes us richer.

Don’t forget, we’ve all already agreed that we’re going to have some climate change. Our arguments are over how much and how much are we willing to do to stop how much of it?

February 4, 2019

QotD: Brasilia and reconciling with Jane Jacobs

Filed under: Architecture, History, Quotations, USA — Tags: , , , , , , — Nicholas @ 01:00

Brasilia is interesting only insofar as it was an entire High Modernist planned city. In most places, the Modernists rarely got their hands on entire cities at once. They did build a number of suburbs, neighborhoods, and apartment buildings. There was, however, a disconnect. Most people did not want to buy a High Modernist house or live in a High Modernist neighborhood. Most governments did want to fund High Modernist houses and neighborhoods, because the academics influencing them said it was the modern scientific rational thing to do. So in the end, one of High Modernists’ main contributions to the United States was the projects – ie government-funded public housing for poor people who didn’t get to choose where to live.

I never really “got” Jane Jacobs. I originally interpreted her as arguing that it was great for cities to be noisy and busy and full of crowds, and that we should build neighborhoods that are confusing and hard to get through to force people to interact with each other and prevent them from being able to have privacy, and no one should be allowed to live anywhere quiet or nice. As somebody who (thanks to the public school system, etc) has had my share of being forced to interact with people, and of being placed in situations where it is deliberately difficult to have any privacy or time to myself, I figured Jane Jacobs was just a jerk.

But Scott has kind of made me come around. He rehabilitates her as someone who was responding to the very real excesses of High Modernism. She was the first person who really said “Hey, maybe people like being in cute little neighborhoods”. Her complaint wasn’t really against privacy or order per se as it was against extreme High Modernist perversions of those concepts that people empirically hated. And her background makes this all too understandable – she started out as a journalist covering poor African-Americans who lived in the projects and had some of the same complaints as Brazilians.

Her critique of Le Corbusierism was mostly what you would expect, but Scott extracts some points useful for their contrast with the Modernist points earlier:

First, existing structures are evolved organisms built by people trying to satisfy their social goals. They contain far more wisdom about people’s needs and desires than anybody could formally enumerate. Any attempt at urban planning should try to build on this encoded knowledge, not detract from it.

Second, man does not live by bread alone. People don’t want the right amount of Standardized Food Product, they want social interaction, culture, art, coziness, and a host of other things nobody will ever be able to calculate. Existing structures have already been optimized for these things, and unlesss you’re really sure you understand all of them, you should be reluctant to disturb them.

Third, solutions are local. Americans want different things than Africans or Indians. One proof of this is that New York looks different from Lagos and from Delhi. Even if you are the world’s best American city planner, you should be very concerned that you have no idea what people in Africa need, and you should be very reluctant to design an African city without extensive consultation of people who understand the local environment.

Fourth, even a very smart and well-intentioned person who is on board with points 1-3 will never be able to produce a set of rules. Most of people’s knowledge is implicit, and most rule codes are quickly replaced by informal systems of things that work which are much more effective (the classic example of this is work-to-rule strikes).

Fifth, although well-educated technocrats may understand principles which give them some advantages in their domain, they are hopeless without the on-the-ground experience of the people they are trying to serve, whose years of living in their environment and dealing with it every day have given them a deep practical knowledge which is difficult to codify.

How did Jacobs herself choose where to live? As per her Wikipedia page:

    [Jacobs] took an immediate liking to Manhattan’s Greenwich Village, which did not conform to the city’s grid structure.

Scott Alexander, “Book Review: Seeing Like a State”, Slate Star Codex, 2017-03-16.

February 2, 2019

QotD: Le Corbusier

Filed under: Architecture, Europe, History, Quotations — Tags: , , , , — Nicholas @ 01:00

So the early modern period is defined by an uneasy truce between states who want to be able to count and standardize everything, and citizens who don’t want to let them. Enter High Modernism. Scott defines it as

    A strong, one might even say muscle-bound, version of the self-confidence about scientific and technical progress, the expansion of production, the growing satisfaction of human needs, the mastery of nature (including human nature), and above all, the rational design of social order commensurate with the scientific understanding of natural laws

…which is just a bit academic-ese for me. An extensional definition might work better: standardization, Henry Ford, the factory as metaphor for the best way to run everything, conquest of nature, New Soviet Man, people with college degrees knowing better than you, wiping away the foolish irrational traditions of the past, Brave New World, everyone living in dormitories and eating exactly 2000 calories of Standardized Food Product (TM) per day, anything that is For Your Own Good, gleaming modernist skyscrapers, The X Of The Future, complaints that the unenlightened masses are resisting The X Of The Future, demands that if the unenlightened masses reject The X Of The Future they must be re-educated For Their Own Good, and (of course) evenly-spaced rectangular grids.

(maybe the best definition would be “everything G. K. Chesterton didn’t like.”)

It sort of sounds like a Young Adult Dystopia, but Scott shocked me with his research into just how strong this ideology was around the turn of the last century. Some of the greatest early 20th-century thinkers were High Modernist to the point of self-parody, the point where a Young Adult Dystopian fiction writer would start worrying they were laying it on a little too thick.

The worst of the worst was Le Corbusier, the French artist/intellectual/architect. The Soviets asked him to come up with a plan to redesign Moscow. He came up one: kick out everyone, bulldoze the entire city, and redesign it from scratch upon rational principles. For example, instead of using other people’s irrational systems of measurement, they would use a new measurement system invented by Le Corbusier himself, called Modulor, which combined the average height of a Frenchman with the Golden Ratio.

The Soviets decided to pass: the plan was too extreme and destructive of existing institutions even for Stalin. Undeterred, Le Corbusier changed the word “Moscow” on the diagram to “Paris”, then presented it to the French government (who also passed). Some aspects of his design eventually ended up as Chandigarh, India.

Scott Alexander, “Book Review: Seeing Like a State”, Slate Star Codex, 2017-03-16.

January 31, 2019

QotD: Top-down solutions

Filed under: Books, Government, History, Quotations — Tags: , , — Nicholas @ 01:00

The closest analogy I can think of right now – maybe because it’s on my mind – is this story about check-cashing shops. Professors of social science think these shops are evil because they charge the poor higher rates, so they should be regulated away so that poor people don’t foolishly shoot themselves in the foot by going to them. But on closer inspection, they offer a better deal for the poor than banks do, for complicated reasons that aren’t visible just by comparing the raw numbers. Poor people’s understanding of this seems a lot like the metis that helps them understand local agriculture. And progressives’ desire to shift control to the big banks seems a lot like the High Modernists’ desire to shift everything to a few big farms. Maybe this is a point in favor of something like libertarianism? Maybe especially a “libertarianism of the poor” focusing on things like occupational licensing, not shutting down various services to the poor because they don’t meet rich-people standards, not shutting down various services to the poor because we think they’re “price-gouging”, et cetera?

Maybe instead of concluding that Scott is too focused on peasant villages, we should conclude that he’s focused on confrontations between a well-educated authoritarian overclass and a totally separate poor underclass. Most modern political issues don’t exactly map on to that – even things like taxes where the rich and the poor are on separate sides don’t have a bimodal distribution. But in cases there are literally about rich people trying to dictate to the poorest of the poor how they should live their lives, maybe this becomes more useful.

Actually, one of the best things the book did to me was make me take cliches about “rich people need to defer to the poor on poverty-related policy ideas” more seriously. This has become so overused that I roll my eyes at it. “Quantitative easing could improve GDP growth…but instead of asking macroeconomists, let’s ask this 19-year old single mother in the Bronx!” But Scott provides a lot of situations where that was exactly the sort of person they should have asked. He also points out that Tanzanian natives using their traditional farming practices were more productive than European colonists using scientific farming. I’ve had to listen to so many people talk about how “we must respect native people’s different ways of knowing” and “native agriculturalists have a profound respect for the earth that goes beyond logocentric Western ideals” and nobody had ever bothered to tell me before that they actually produced more crops per acre, at least some of the time. That would have put all of the other stuff in a pretty different light.

Finally, I understand Scott is an anarchist. He didn’t really try to defend anarchism in this book. But I was struck by his description of peasant villages as this unit of government which were happily doing their own thing very effectively for millennia, with the central government’s relevance being entirely negative – mostly demanding taxes or starting wars. They kind of reminded me of some pictures of hunter-gatherer tribes, in terms of being self-sufficient, informal, and just never encountering the sorts of economic and political problems that we take for granted. They make communism (the type with actual communes, not the type where you have huge military parades and kill everyone) look more attractive. I think Scott was trying to imply that this is the sort of thing we could have if not for governments demanding legibility and a world of universal formal rule codes accessible from the center? Since he never actually made the argument, it’s hard for me to critique it. And I wish there had been more about cultural evolution as separate from the more individual idea of metis.

Overall, though, I did like this book. I’m not really sure what I got from its thesis, but maybe that was appropriate. Seeing Like A State was arranged kind of like the premodern forests and villages it describes; not especially well-organized, not really directed toward any clear predetermined goal, but full of interesting things and lovely to spend some time in.

Scott Alexander, “Book Review: Seeing Like a State”, Slate Star Codex, 2017-03-16.

January 16, 2019

Tropico, the game for budding central planners

Filed under: Economics, Gaming — Tags: , , , — Nicholas @ 05:00

At FEE, Ong Jia Yi Justin looks at the video game Tropico and what it can show about real world economics:

In Tropico 5, you are El Presidente — the leader of a Caribbean island that is a semi-democratic banana republic. Your primary objective is to preserve your rule by micromanaging your country’s economy to appease your citizens, the Tropicans. If they are dissatisfied with your rule, they can vote you out in the next elections or stage a coup d’état, costing you the game.

First released in 2001, the city-building and management game has sold millions of copies worldwide, and the sixth installment is scheduled for release later in 2019. The game was even banned in Thailand due to concerns it would stir social unrest. In a hilarious response, the game developers included a mission in its DLC (downloadable content) to steal away tourists from Thailand.

Tropico 5 presents an engaging platform for players to craft their socialist paradise and examine the mechanics of socialist economies. Apart from sandy beaches and skyscrapers, Tropico 5’s appeal arises from loading players with a swarm of decisions to make, each with certain trade-offs that must be accounted for. Since most of us formulate our ideals from an armchair perspective, Tropico 5 delivers a much-needed dose of reality and numerous lessons on economics for its players to reflect upon.

Pineapples, Cotton, or Death

The first focus when you start up the Tropico 5 game is managing your agricultural sector. Players must choose between constructing two types of farms. Farms producing food crops for local consumption, such as bananas and pineapples, boost your approval rating but don’t add income to your budget. Conversely, farms growing economic crops such as tobacco and cotton bring a healthy income stream but don’t feed your people.

Some players prefer to amass large sums of wealth in the early game through cotton exports and then focus on food production later, hopefully before too many people starve to death. Other players risk bankruptcy in their attempt to bring their popularity to a safe level by spamming pineapple plantations before transitioning to economic crops later. Either way, you’re stuck between a rock and a hard place.

December 6, 2018

QotD: The best “industrial policy” is not to have one at all

Filed under: Britain, Business, Government, Quotations — Tags: , , — Nicholas @ 01:00

Which brings us to nub of the matter: how do we increase trade and productivity, given that productivity is the thing they claim the whole schemozzle is about. There is one simple and single policy which will do both. One policy which will increase British productivity simply by allowing more trade.

This policy is so simple that even the Treasury (yes, that’s our Treasury, the one in London) was able to get right, even when being run by George Osborne. As they set out in their analysis of Brexit repercussions:

“The benefits of trade in terms of increasing productivity are well understood… greater openness to trade creates a larger market which the most productive firms expand to serve. Openness also increases competition between firms, enhancing the incentives for domestic firms to innovate or adopt new technology… It increases returns on investment, and encourages UK firms to make greater use of new technologies, either by improving the quality of inputs, or through the more effective adoption of technological innovations. Greater openness to trade also increases consumer choice and reduces prices. Lower trade costs give consumers access to cheaper imported goods and competition reduces the price of domestically-produced goods.”

In plain English, it is the competition from imports which forces British firms to buck up their act and become more productive. So here is how we improve British productivity: we move to unilateral free trade. No barriers to imports, no tariffs, just the same regulation as domestically produced items.

British industry, facing the stiffest competition from the best in the world, would be forced to meet global standards of productivity. So the best industrial policy would be to stop trying to have an industrial policy about what we can and can’t buy from beyond Britain’s borders – and the rest should take care of itself.

Tim Worstall, “The best industrial strategy for Britain is not to have one”, CapX, 2017-01-23.

November 5, 2018

QotD: Technological advance and the Knowledge Problem

Filed under: Economics, Quotations — Tags: , — Nicholas @ 01:00

Technology’s heightening of society’s complexity outstrips its heightening of the social planner’s informational capabilities. Hayek, like [Adam] Smith, drew a lesson for policy: Except in the most clear-cut cases of systemic harm, like air pollution, the supposition that government officials can figure out how to improve the results of decentralized (i.e., voluntary) decision making becomes more and more outlandish. In his Nobel lecture, Hayek called that supposition the pretense of knowledge. As intellectuals who ponder the complex workings of the social world, we really know little aside from one hardy fact: If those who participate in an activity do so voluntarily, each is probably bettering his or her own condition. The more complex the system is, the more skeptical we ought to be about claims to knowledge that go beyond and against that hardy fact.

Fred Foldvary and Daniel Klein, The Half-Life of Policy Rationales, 2003.

August 30, 2018

“This is simply drivel. And it’s the standard Green Party phantasm written out again”

Filed under: Bureaucracy, Economics, Environment, Government — Tags: , , , , — Nicholas @ 05:00

Tim Worstall is not impressed with a new study out of Finland which recommends that the United Nations become much more involved in organizing and directing the lives of everyone on the planet … for our own good, of course:

We’ve another of those pieces of environmental drivel on offer to us. Here it’s the considered opinions of some Finnish knownothings on what is necessary to achieve the UN’s Sustainable Development Goals. The basis of which is that we should all prepare to be rather poorer. No, not because the Earth is running out of stuff to make us richer but because our Finnish knownothings are recommending that the UN take charge of things and forcibly make us poorer.

This is perhaps not the correct manner of running the global economy.

[…]

That’s all entirely drivel, of course. Capitalism doesn’t depend upon cheap fossil fuels nor even cheap energy. It’s just an economic system in which we have private property. Including the value added belonging to the people who own the property which adds the value. That’s really all it is too. Profit belongs to the people providing the capital – this is definitional by the way. For that’s what we define profit as, that part of the returns from an activity which go to those who provide the capital.

There is absolutely nothing at all which requires that energy, or any natural resource, be of any particular price nor level of price. All we are saying when we recommend capitalism is that the system seems to work better when those who make a profit get to keep it. Our economic definition of profit being when value of output is greater than the costs of inputs. Who gets those profits is definitional about capitalism. Any and every economic system is trying to produce profits. Because any and every economic system is trying to add value to inputs, trying to create value.

[…]

There’s a remarkable lack of reasoning as to why international trade needs to be limited or regulated. If we’re facing more expensive energy then we should be doing more of it, not less. But then perhaps those doing bio- and physics don’t know that Adam Smith pointed out we’d do better getting the wine from Bourdeaux rather than growing the grapes in Scotland. Or even that David Ricardo launched an entire subset of economics with his observation that trade uses fewer resources than non-trade. I mean, it is possible that they’re just ignorant of the most basic points here, isn’t it?

They’ve also not grasped that good life and economic growth part at all. No one actually producing economic growth – defined, as always, as an increase in the value being produced – does so in order to produce economic growth. They do it in pursuit of their definition of the good life. Economic growth is simply the aggregate of all those people trying to make their own lives better, their pursuit of that good life. The inverse is also true. If we leave people alone to pursue their own versions of the good life then economic growth is what we get. Our bio-p types seem unaware of the laissez faire argument. That we all get richer faster if left alone to our own visions of life?

Now, if this was just a few blokes in the Far North muttering to themselves among the trees of future toilet roll this wouldn’t matter. But this is serious advice to the United Nations? It’s about to become art of how world governance works? Dear God Above, what have any of us one to deserve this?

Try this for example:

    A key problem with carbon pricing has been that states, federations, or unions have not implemented it on a sufficiently high level, fearing industrial leakage to less environmentally-regulated countries. For this reason, many economists and politicians hope for global carbon pricing. But if we return to the four examples above, energy, transport, food, and housing, we can see that it would be highly unlikely that even global carbon pricing would guide economic activity in the right direction – at least with sufficient speed and breadth. As a policy tool, carbon pricing lacks the crucial element of coordinating a diverse set of economic actors toward a common goal. Individual actors would have an incentive to decrease carbon emissions, but they would still compete through their own business logics; there would be nothing to ensure that any one business logic would support the transition to sustainability on a systemic level.

Everyone on the planet economises on their carbon emissions because emissions are now more expensive. This does not work to coordinate everyones’ actions about carbon emissions? These people never have considered the role of the price system in coordinating human activities, have they? Not heard a single beanie about Hayek, the Pretence of Knowledge and all that?

August 18, 2018

QotD: Adam Smith and Charles Darwin

Filed under: Economics, Quotations, Science — Tags: , , — Nicholas @ 01:00

… today few people appreciate just how similar the arguments made by Smith and Darwin are. Generally, Adam Smith is championed by the political right, Charles Darwin more often by the left. In, say, Texas, where Smith’s emergent, decentralised economics is all the rage, Darwin is frequently reviled for his contradiction of dirigiste creation. In the average British university, by contrast, you will find fervent believers in the emergent, decentralised properties of genomes and ecosystems who yet demand dirigiste policy to bring order to the economy and society. But if life needs no intelligent designer, then why should the market need a central planner? Where Darwin defenestrated God, Smith just as surely defenestrated Leviathan. Society, he said, is a spontaneously ordered phenomenon. And Smith faces the same baffled incredulity — How can society work for the good of all without direction? — that Darwin faces.

Matt Ridley, The Evolution of Everything, 2015.

August 4, 2018

QotD: Supply and demand

Filed under: Economics, Quotations — Tags: , , , — Nicholas @ 01:00

… that terribly simplistic stuff about supply and demand in those econ 101 classes is actually true. Prices are not some arbitrary numbers thrown at something by the capitalist neoliberals in order to do down the proletariat. They’re vital and essential information about who wants what and who is willing to produce what. Where the supply and demand curves meet is where the market will clear and the market price will be the market clearing price. The meaning of this is that when you decide to arbitrarily throw a price at something you’re going to up set that balance. And if you tell producers that the price will be lower than the market one then they will produce less. And as demand curves slope downwards so will consumers desire more at that lower price. Thus price fixing below the market price produces a shortage, a dearth.

This is not some optional feature, it’s an essential fact about our universe. It is the explanation for those food shortages that Venezuela has been having. More than that it’s the only explanation we need or desire. Fix prices below the market price and you will have shortages. Stop fixing prices and you will stop having shortages.

So, well done to Venezuela for giving in to reality there. And this is something that we need to take on board too. Rent controls which fix the price of housing below the market price will lead to a shortage of housing. And the opposite applies too – fix the price of labour above that market price with a minimum wage and you’ll have an excess supply of labour. Or, as we usually call that, an excess of unemployment.

The price of something simply is the price of something and don’t ever forget it.

Tim Worstall, “Congratulations To Bolivarian Socialism – Finally A Sensible Economic Policy In Venezuela”, Forbes, 2016-10-15.

August 2, 2018

QotD: Economic complexity

Filed under: Economics, Quotations — Tags: , , — Nicholas @ 01:00

“Progressives” mistake as “science” their habit of lumping countless idiosyncratic individuals and things, each always in an ever-changing set of deeply nuanced circumstances, into catch-all categories (such as “consumers,” “labor,” “government,” “the environment,” “the health-care sector,” “the money supply,” “the unemployment rate,” “the capital stock,” and “imports”) and then theorizing about how these big blobs of people and things interact with each other, and how these interactions can be “improved” by an apolitical, loving, intelligent, ever-diligent scientific guiding hand. That professors and their graduate students can assemble data on each of these big blobs of people and things, can write intricate equations describing mathematically how the professors and their graduate students imagine these blobs interacting with each other, and use the gathered data and sophisticated software to “test” the equation-ladened “models” seems oh-so-objective and truly scientific.

Yet most such exercises are b.s. Far too many of these exercises, when done by economists, are done in utter disregard of the meaningful, if impossible to observe from afar, differences that separate from each other each of the individuals and things that comprise each constructed blob. Far too many of these exercise are done by people whose impressive, deep, and vast knowledge of econometric techniques does not begin to compensate for their innocence of price theory, of history, and of formal and informal institutions.

Correctly taught and understood, economics reveals that reality is vastly more complex than the economically untutored mind realizes. Yet this message of complexity is unwelcome by those who want to rule and command. The reason is that to understand the reality of reality’s complexities is to understand that ruling and commanding – the actions of the “man of system” – can only worsen most individuals’ lives. Ruling and commanding of the sort that “men – and women – of system” itch to do can only disrupt for the worse, and not improve for the better, the spontaneous forces of society.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-09-20.

July 3, 2018

QotD: The fatal conceit

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

… each of these questions, like the larger point made here, applies not only to proposals for complete, economy-wide central planning of the sort that was fashionable during the mid-20th century. These questions apply to any proposal for government direction of economic affairs, however ‘partial’ it might be (or seem to be).

We can all agree, for example, that economic equality is fine thing – but do we count only monetary income as relevant for assessing equality, or do we count monetary income plus monetary wealth? What about the value of voluntarily chosen leisure: does it count? if not, why not? if so, how is it weighed against monetary income or wealth? And even if we all agree upon just what sources of utility do and don’t count as relevant for assessing economic equality, and agree also on the weights of the various sources of utility for making this assessment, how is the goal of economic equality itself to be traded off against competing goals – such as economic growth, or environmental sustainability (however that might be defined!)?

The previous paragraph gives only one small example of a huge problem that confronts those who believe that entrusting the state with the power to engineer economic outcomes is really just a matter of science, of empirically discovering the allegedly objective costs and benefits of various economic arrangements and then choosing that particular arrangement that best satisfies society’s object preferences.

The very notion that there is an objective ‘best’ arrangement of economic affairs that can be discovered independently of actual market processes and then imposed by the state to improve everyone’s, or most everyone’s, well-being is, truly, a fatal conceit.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-09-03.

June 18, 2018

How Georgian wine survived the Soviet Union and its central planners

Filed under: Europe, History, Russia, Wine — Tags: , , , — Nicholas @ 03:00

Last week, Atlas Obscura posted a fascinating story by Nickolaus Hines on how Georgian winemakers somehow managed to keep their craft alive during the Soviet period of mass production and mandated conformity:

Georgian Kvevri or Qvevri wine fermentation vessels. They are typically buried in the ground and grapes are fermented, then the resulting wine is scooped or suctioned out and the qvevri will be cleaned and sterilized for the next year’s vintage.
Photo by Levan Totosashvili, via Wikimedia Commons.

Qvevri are cultural metaphors, writes Keto Ninidze, Kiknavelidze’s great-granddaughter and a Georgian winemaker, in an email. Much like how someone might give birth to a child, she says, qvevri give birth to wine. And after many years of giving life, the qvevri were used as a burial place. “So in Georgian cultural perception, [qvevri are] regarded as the cycle of life and death,” she says.

Georgia has the oldest wine culture in the world, and little changed from the earliest qvevri to Ninidze’s qvevri. Everything — down to the shape of the clay pots, the method of burying the qvevri, and letting crushed grapes ferment naturally inside — is passed down from generation to generation. When the Soviet Union took control of the country in 1921, this ancient winemaking tradition was pushed underground, where it almost disappeared. During these years, Georgian winemakers lost their land or had to give over all of their grapes every harvest. If they wanted to make their own wine, they’d have to forage grapes from wild vines on hillsides, in forests, and sometimes on the sides of village streets.

Before the Soviet Union imposed their rule on Georgia, though, more than 500 different grape varieties flourished in the country’s moderate climate, tempered by its proximity to the Black Sea. Thanks to the environment, wine grapes grow without much intervention. Back then, most grapes were picked by hand and crushed by foot. The juice, skins and stems and all, were then put into qvevri.

[…]

For around six months, natural yeasts ferment the juice inside the pots. The solid parts of the grapes filter the liquid, which funnels naturally towards the bottom. Once fermentation is over, the wine is suctioned or scooped out and bottled. Or, more likely, it’s stored in smaller pots. Then the cleaning process begins. The tools of the trade have upgraded, Ninidze says, and winemakers now wash qvevri with high pressure water, ash, and citric acid, then disinfect the vessels with sulphur smoke. What hasn’t changed is the immovability. Qvevri is “something you can’t take from one place to another,” Ninidze says, adding that once a winemaker chooses a spot for their qvevri, they’re rooted there until they pass it on or buy new qvevri.

This process didn’t budge for years. Then, the Soviet Union invaded and annexed Georgia in 1921. The slow, natural qvevri cycle — an extension of the Georgian lifestyle — didn’t fit Joseph Stalin’s five-year economic plans. These plans set economic goals and called for industrializing industries, including wine. Rural winemaking would need to be mechanized, and the wild-looking vines would need to be tamed. In the region of Kakheti, officials uprooted more than 500 native varieties. Steel tanks replaced the storied underground clay pots, too.

The government then redistributed and repurposed the annexed land previously used for wine, and built sterile buildings on top of them. “You see these Soviet buildings everywhere that are sturdy cement and nothing beautiful about them, but very practical,” Railsback says. “And then the Georgian [buildings] are more beautiful, and the architecture is really unique with hand-carved woodworking on the front of houses. There’s the Georgian look, and there’s the Soviet [look] that tried to demolish the culture and vibe — you feel that literally everywhere.”

During that time, families were given a single acre of land compared to the full vineyards they once tended to alongside their homes. Vines were ripped out and replaced with tidy rows of hardy, high-yielding varieties such as Saperavi and Rkatskeli. While they were plentiful and certainly sweet, they were bland and lacked the character of traditional Georgian vines. “There was one or two state factories that [processed] the whole yield of the country,” Ninidze says. “The production policy was of course industrial (especially after Stalin’s period), based on the five-year plans and neither the factories nor the farmers cared [about] the quality of the grape.”

« Newer Posts — Older Posts »

Powered by WordPress