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.

August 8, 2012

The economy is booming in Parasite City, DC

Filed under: Bureaucracy, Economics, Government, USA — Tags: , , — Nicholas @ 00:02

Gene Healy points out that while the rest of the US is still in the doldrums, there’s one bright spot: the one place that is booming, because it’s almost purely tax dollars feeding the growth.

Have you seen the latest jobs report? Major buzzkill: creeping unemployment, anemic growth, and the recovery’s totally stalled.

But not here: The District is booming! “Washington may have the healthiest economy of any major metropolitan area in the country,” says New York Times D.C. bureau chief David Leonhardt in Sunday’s Gray Lady. “You can actually see the prosperity”!

Yes we can! Construction cranes dominate the downtown skyline, and your average homeless guy can barely grab a stretch of sidewalk before yet another boutique store pops up to bounce his bedroll.

True, if you venture outside the Death Star’s orbit to visit the colonies for Thanksgiving or Christmas, you’ll see a lot of boarded-up storefronts. You might even feel a twinge of shame when Matt Drudge feeds you headlines like “D.C. Leads List of Most Shopaholic Cities in America.”

Whatever: Guilt is for losers! The main lesson the rest of the country should take from the capital’s prosperity is, per Leonhardt, that “education matters.”

D.C.’s “high-skill” economy boasts more college degrees than any other major metropolitan area in America. “If you wanted to imagine what the economy might look like if the country were much better educated,” Leonhardt writes, “you can look at Washington.”

Hey, you people out there in flyover country: We’re eating your lunch because we’re “smarter” than you! Hit the books, rubes: We built this!

August 6, 2012

India’s blackouts are a sign that reform is desperately needed

Filed under: Economics, India — Tags: , , , , — Nicholas @ 10:20

The Economist on the massive blackouts in India recently:

FOR an aspiring economic superpower, there can be few more chastening events than electricity cuts as massive as those that struck northern and eastern India this week. An area (including the capital, Delhi) in which more than 600m people live faced blackouts over two days. Infrastructure, from traffic lights to trains, stopped working. Hospitals, sanitation plants and offices ground to a halt. Airports and factories had to rely on backup generators, often fuelled by truckloads of diesel.

The impact on India’s economy goes far beyond lost output. The blackout will badly damage the country’s reputation, and highlights the rotten infrastructure that is hobbling its efforts to catch up with China.

[. . .]

At one end, not enough cheap coal is being dug up and gasfields are sputtering. At the other, the national transmission grid needs investment. Meanwhile the “last mile” distribution companies, largely state-owned, that buy power and deliver it to homes and firms, are financial zombies. Much of their power is pinched or given away free. Local politicians put pressure on them to keep tariffs low, which leads to huge losses. Squeezed between a shortage of fuel and end-customers who are nearly bust, those private generating firms are now cutting back on vital long-term investment in new plants.

[. . .]

The solution is to cut graft, tackle vested interests and allow markets to work better. The coal monopoly needs to be broken up and local distribution firms privatised. Yet despite the looming crisis, for a decade the government has shirked doing what is clearly necessary, just as it has failed to implement key tax reforms, cut public borrowing or open the retail sector to competition. It has allowed corruption and red tape to damage other vital industries, such as telecoms.

August 1, 2012

It’s not congressional gridlock: it’s abdication of responsibility

Filed under: Government, Politics, USA — Tags: , , , , — Nicholas @ 16:23

We’ve all seen journalists refer to the situation in the US congress as being “gridlocked”: the Democrats and Republicans just can’t manage to get along at all, leaving the system constipated and unable to function. Nick Gillespie and Veronique de Rugy in The Hill point out that this is letting the members of congress off far too lightly:

Many observers and participants — including the entire GOP and Democratic leadership — are quick to cry gridlock and to blame inaction on some new awful hyper-partisan or ideological era.

But there isn’t gridlock, which usually results from Democrats and Republicans sharing power and clashing over alternative positions. Gridlock slows things down — almost always a good thing — but it doesn’t stop serious legislation from happening. Welfare reform, balanced budgets, defense cuts and capital-gains tax rate cuts in the 1990s were all the product of gridlock that slowly gave way to consensus.

And today’s Congress is more than happy to pass legislation when it suits members’ interests. In just the past few months, for instance, the ostensibly gridlocked Congress reauthorized the Export-Import Bank program that gives money to foreign companies to buy U.S. goods; extended sharply reduced rates for government-subsidized student loans; re-upped the Essential Air Service program that subsidizes airline service to rural communities; and voted against ending the 1705 loan-guarantee program that gave rise to green-tech boondoggles such as Solyndra and Abound. None of these were party-line votes — all enjoyed hearty support from both Democrats and Republicans.

[. . .]

What we’re actually witnessing — and have been for years now — is not gridlock, but the abdication of responsibility by Congress and the president for performing the most basic responsibilities of government. Despite the fiscal crisis that Washington knows will occur if it fails to deal with unsustainable spending and debt, it hasn’t managed to produce a federal budget in more than three years.

July 31, 2012

QotD: The crony capitalist Olympics

Filed under: Britain, Government, Politics, Quotations, Sports — Tags: , , , — Nicholas @ 09:17

The Olympics are a giant exercise in sports socialism — or crony capitalism, if you prefer — where the profits are privatized and the costs socialized. The games never pay for themselves because they are designed not to. That’s because the International Olympic Committee (an opaque “nongovernmental” bureaucracy made up of fat cats from various countries) pockets most of the revenue from sponsorships and media rights (allegedly to promote global sports), requiring the host country to pay the bulk of the costs. Among the very few times the games haven’t left a city swimming in red ink was after the 1984 Los Angeles Olympics, when voters, having learned from Montreal’s experience, barred the use of public funds, forcing the IOC to use existing facilities and pick up most of the tab for new ones.

Even that’s far from fair. If anything, the Olympics should be compensating the host city for the hassle and inconvenience, not the other way around. The only reason they don’t is because the Cold War once stirred retrograde nationalistic passions, blinding the world to the ass-backwardness of the existing arrangement. Londoners are signaling that this can’t go on.

Shikha Dalmia, “Why London Is Yawning Over the Olympics: Have Western countries finally outgrown the sports socialism of the Olympic Games?”, Reason, 2012-07-31

July 18, 2012

Who Exploits You More: Capitalists or Cronies?

Filed under: Business, Government, Liberty, Politics — Tags: , , , , — Nicholas @ 09:48

The “you didn’t build it” meme, inter-personal relations style

Filed under: Economics, Government, Humour, Politics — Tags: , , — Nicholas @ 09:02

An amusing extension of President Obama’s “you didn’t build it” claim:

You Got Laid Last Night? That’s Nice, But . . .

somebody else made that happen. Sport.

You met this chick on the Internet, which DARPA invented, with money taken from taxpayers by the government, which printed the money after giving the concession to log national forests to produce the paper, lands stolen from the Indians by the government, aided by soldiers who were paid for with taxes paid by taxpayers through the government. The logging was opposed by ineffectual lawyers hired by environmentalist organizations which received grants from the government, who nevertheless received their legal fees from environmental agencies who still paid themselves liberal salaries underwritten by taxpayers, and which donate to liberal PACs.

The beer you plied her with was paid for with money paid to you by a corporation for whom you used to work, before you conspired to get fired to collect your 99 because you were tired of taking it from The Man, which is permitted to exist by the government, which taxes both its income and yours. On the way to meet your date, you withdrew money for the date at an ATM which charged you a $2 convenience fee, though it operates on a system paid for by taxpayers to the government. The government used taxpayer money to bail out the bank in question when its mortgage investments went bust-oh! largely because the government, in concert with government-subsidized political agencies and government lawyers, threatened the banks, who paid their executives lavishly for accepting the ridiculous loan standards demanded by the government-subsidized political agencies and government lawyers who performed their agitation on the taxpayer dime. Once again, the lawyers and the non-profit executives were well remunerated, and turned around to send some of their salaries to legislators who would vote them more grants and loans, and who were further rewarded by well-compensated positions at those institutions after they were forced to resign after scandals for which other people might have been sent to prison.

If you somehow missed the start of the “you didn’t build it” meme, try here.

H/T to Jon, my former virtual landlord.

July 13, 2012

Questioning the accuracy of official Chinese economic figures

Filed under: Business, China, Economics, Government — Tags: , , , — Nicholas @ 09:50

Yes, we’ve heard this several times before, and for good reason:

China’s relatively mild slowdown in the second quarter has reignited a controversy about whether its official statistics can be trusted.

Chinese growth edged down to 7.6 per cent in the second quarter from 8.1 per cent in the first quarter, and analysts said the momentum in June, from stronger bank lending to rising investment, pointed to a rebound in the second half of the year.

But rather than delivering reassurance, the numbers instead provoked questions about whether the reality is worse than the government is letting on.

Economists with Barclays noted that a deceleration in industrial production was consistent with 7.0-7.3 per cent growth. Analysts at Capital Economics said that the true figure was probably closer to 7.0 per cent.

[. . .]

Doubts about Chinese data have a fine pedigree. Li Keqiang, who is widely expected to succeed Wen Jiabao later this year as premier, confided to U.S. officials in 2007 that gross domestic product was “man made” and “for reference only”, according to a diplomatic cable published by WikiLeaks.

Earlier posts on the Chinese economy are here.

July 11, 2012

Crony Capitalism: the issue that unites the Tea Party and the Occupy movement

Filed under: Business, Government, Liberty, Politics — Tags: , , , , , — Nicholas @ 09:17

Matthew Mitchell at the Mercatus Center:

Despite the ideological miles that separate them, activists in the Tea Party and Occupy Wall Street movements agree on one thing: both condemn the recent bailouts of wealthy and well-connected banks. To the Tea Partiers, these bailouts were an unwarranted federal intrusion into the free market; to the Occupiers, they were a taxpayer-financed gift to the wealthy executives whose malfeasance brought on the financial crisis.[1] To both, the bailouts smacked of cronyism.

The financial bailouts of 2008 were but one example in a long list of privileges that governments occasionally bestow upon particular firms or particular industries. At various times and places, these privileges have included (among other things) monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts. Whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.

[. . .]

… regulations can be especially useful to firms if they give the appearance of being anti-business or somehow pro-consumer. Regulations are often supported by strange bedfellows. Bruce Yandle of Clemson University has studied the phenomenon extensively:

The pages of history are full of episodes best explained by a theory of regulation I call “bootleggers and Baptists.” Bootleggers … support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer.[25]

The moralizing arguments are often front and center in regulatory policy debates, while the narrow interests that stand to benefit from certain regulations are much less conspicuous.

June 29, 2012

From Maoism to Kleptocracy in one generation

Filed under: Business, China, Economics, Government — Tags: , , , — Nicholas @ 08:14

China’s economic growth has been one of the wonders of the modern world, as one of the poorest nations has pulled itself well up the economic tables over just the last twenty years. What it has not done, however, is replace the communist leadership with democratically elected leaders. What has happened is that switching from a pure command economy to a freer economy has created fantastic opportunities for graft and corruption. Opportunities which have been grasped eagerly by party leaders and their friends and family:

As I set out in The Fall of the Communist Dynasty, and a HT to John Hempton’s piece within which he contends that the entire Chinese economy is a Kleptocracy , this week we have news from Citron Research who reports that Evergrande Real Estate Group Ltd is ‘a deception on a grande scale’ .

Citron quote ;-

‘Evergrande who ranks among the top 5 Chinese property companies. Our analysis and primary research reveal that: 1] Evergrande is insolvent; and 2] Evergrande will be severely challenged from a liquidity perspective. The Company’s management has applied at least 6 accounting shenanigans to mask Evergrande’s insolvency. Our research indicates that a total write-­down of RMB 71bn is required and Evergrande’s pro forma equity is negative 36bn.’

What sparked Citrons interest in Evergrande was the mail order doctorate the chairman claimed from the University of West Alabama, a small college 230 miles north of New Orleans with 2300 on-campus students. Evergrande’s is one of the top 5 players in the Chinese property market that fell for its 8th consecutive month in May. My experience with these types of matters is that small things can be excellent markers to greater problems. Small examples of dishonesty in one area of life are often reflected in larger undiscovered examples in other areas of a person’s life.

[. . .]

Zoomlion has an interesting business model, it is similar in many of ways to Caterpillar, except whereas Caterpillar report falling sales, Zoomlion reports astounding sales growth with a fivefold increase in revenue since 2007. Zoomlion customers sometimes buy ten concrete mixers when they planned to initially by one or two. They have a perverse incentive to buy more than they need because these concrete trucks are purchased via finance packages supplied by Zoomlion.

Then the machines can be garaged and used as collateral to borrow further funds from other lenders. Zoomlion continues to grow while cement sales have plunged. In May, cement output increased 4.3 per cent YoY, down from 19.2 per cent recorded last year. Zoomlion’s new debt of $22.5B buys roughly 900,000 trucks which could produce enough concrete (at six loads a day) to build over thirty Great Pyramids of Giza a day.

[. . .]

All revolutions have class and economic matters at their core. Ironically, the difference in a future Chinese collapse is that the expropriators in China in this cycle have been the Communist Party political class. The CCP have become the Kleptopreneur bourgeoisie who have expropriated from China’s proletariat (the industrial working class), via corruption and theft from the state and state owned enterprises. The Ka-Ching Dynasty is responsible for the greatest looting of a nation in history.

Marx wrote that modern bourgeois society (Capitalism) has conjured up such gigantic means of production and of exchange, that it is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells (Karl Marx)

The CCP ‘sorcerers’ have summoned up a political and economic nether world that is so systemically corrupted it is in the process of spiralling into same revolutionary physics that destroyed the original Chinese merchant bourgeoisie that Mao overthrew.

Earlier posts on China’s economy are here. H/T to Cory Doctorow for the link.

June 27, 2012

John Kay on the evils of rent-seeking

Filed under: Economics, Germany, Government, Politics — Tags: , , , , — Nicholas @ 08:08

Broadly speaking, wealth can be accumulated in two distinctly different ways. It can be earned through hard work, innovation, and competition, or it can be extracted from the public by use of coercive methods, corruption, and misappropriation:

Whatever the true extent of the Mubarak family fortune, it stands in stark contrast to the lot of most Egyptians. Gross domestic product per capita in Egypt is a mere $2,500. In western Europe and North America GDP per capita is about $40,000, yet the capacities of Egypt’s intellectual and entrepreneurial elite are the rival of any state in the world.

The real damage imposed by men such as Mr Mubarak is not the money they might have stolen. The tragedy is that the system that enables them to steal it destroys opportunities for others to generate wealth — not only for themselves but for the whole population.

The price of requiring a potential Mark Zuckerberg or Mr Gates to pay a $100 bribe to each of 10 officials before he can establish his new business is not the $1,000 creamed off by corrupt bureaucrats. It is the far greater one of lost businesses that never came into being because the licensing process that makes such corruption possible was not navigated. In the meantime, people who might be successful entrepreneurs choose instead to seek political power. If business is endlessly frustrating and politics endlessly rewarding, the career choice for able and enterprising people is obvious.

Institutions are the key influence on economic prosperity — West Germany did not outperform East Germany because of its excellent monetary policies. And, as Daron Acemoglou and James Robinson point out in their book, Why Nations Fail, a critical feature of successful economic institutions is that they limit the scope for what these authors call “extractive activity” — others have described it as predation or rent-seeking — which appropriates the wealth created by other people.

June 19, 2012

Big business loves regulation: it keeps competition at bay

Filed under: Business, Economics, Government — Tags: , , , , — Nicholas @ 08:04

Jan Boucek at the Adam Smith Institute blog, with a couple of examples of big business welcoming additional government intervention in their markets:

First out of the trap was Barclays CEO Bob Diamond. In an interview Wednesday with Bloomberg, he reprised his long-standing mantra that “strong banks, like Barclays, want strong regulation.”

This sounds good in our current age of finger-pointing and bank-bashing but serves Barclays well if high barriers to entry keep out more competition from Diamond’s industry.

Then in an interview Friday with The Financial Times, the outgoing head of retail at Royal Bank of Scotland Brian Hartzer suggested regulators should forcibly end free current accounts. He smoothly phrased it in terms that chime with today’s sentiment: “Regulatory intervention might be helpful in forcing banks to the table” and “A large proportion of customers are being cross subsidised — we think that’s unfair.”

Of course, what Hartzer proposes means banks no longer having to compete on price for their most basic product.

Both these sweetly melodious proposals for more regulation need to be treated with Adam Smith’s “most scrupulous” and “most suspicious attention” because they’re music to the ears of our discordant political maestros.

The closer big business and government become, the stricter the regulations against individuals and firms trying to compete with the big businesses. Small firms are almost always disproportionally impacted by industry-wide regulations (and that’s by design), which makes them less able to compete with the established firms. Regulators are more help to big companies than clever advertising, innovative product development, or good customer relations.

June 11, 2012

We can’t “save” capitalism, because we don’t “have” capitalism

Filed under: Economics, Media, Politics — Tags: , , , , , , , — Nicholas @ 09:38

James Delingpole in the Telegraph (the italicized opening paragraph is a quite from Tim Morgan):

    Reforming capitalism so that it serves the majority, and strengthening the individual against the collectivist and the corporate, are inspiring visions. This is where government should be taking Britain.

Easier said than done, of course — as I was reminded yesterday when I Tweeted it under the headline “How to rescue capitalism….” only to have some Twentysomething smartarse Tweet back “Rescue it? Bury it!”

This is the kind of fifth-form, sub-Banksy political analysis which passes for conventional wisdom these days. It’s the dominant strain of thinking at the Guardian, at the BBC, among the studio audience at Channel 4’s apocalyptically lame 10 O’Clock Live, on Twitter, in the right-on brains of groovester opinion-formers all the way from Ben Goldacre to Graham Linehan to Polly Toynbee — and, of course, across the world in the entire Occupy movement. Capitalism, they all maintain, has failed.

No, capitalism has not recently been tried: that’s the real problem. And what I particularly like about Morgan’s report — well worth reading in full — is that it addresses this extremely important point. What we’re experiencing around the world at the moment is not laissez-faire, self-correcting, authentic, free-market capitalism but an excedingly corrupt and bastardised form thereof.

What we’re seeing is a grotesque stitch up between the banking class, the corporate class and the political class — at the expense of the rest of us.

One day, I like to hope, those of us on the libertarian right will find common cause with (at least some of) the Occupy crowd and unite against our real enemy.

May 1, 2012

A second Obama term might be better for the Republicans

Filed under: Economics, Liberty, Politics, USA — Tags: , , , , , — Nicholas @ 09:57

Shikha Dalmia explains why a Mitt Romney presidency is far from the best outcome for the Republican party:

One: Smart folks are betting that the Supreme Court will outlaw the individual mandate but leave the rest of ObamaCare to Congress. Hence, one conservative argument for a Romney victory is that, combined with a GOP-controlled Congress, it’ll offer the last hope for repealing the law. But repeal is not an end in itself. The question is, can the GOP replace ObamaCare with sensible market-based reforms?

[. . .]

Two: Commentators like Michael Gerson maintain that precisely because Romney has been a serial flipper previously, he’ll be less likely to flop now on conservative issues. But Romney’s desperation to establish his street cred with the base is not a blessing when it comes to government spending.

[. . .]

Three: Both the left and the right, according to the polls, are troubled by the fact that America is becoming a land of crony capitalism. No doubt that’s why Romney has been mouthing clumsy platitudes about how “you’ve got to stop the spread of crony capitalism” and striking a brave pose against the auto bailout.

But, tellingly, the financial bailout was just fine with him. That’s no coincidence. He is, after all, the ultimate Wall Street insider, receiving millions of dollars in subsidies and government handouts for companies he was trying to rescue as CEO of Bain Capital. He might not be running with the intention of helping his corporate pals, but it is inevitable that they’ll have his ear. Their interests and needs are far more comprehensible to him than, say, those of consumers

[. . .]

Four: If Romney wins this election, odds are he’ll automatically be the Republican nominee in 2016. Regardless of whether he wins then, this will effectively kill all prospects for putting a more serious Republican reformer (such as Wisconsin’s Rep. Paul Ryan) in the White House until 2020 or 2024. It might be far better to swallow hard and accept another Obama term to keep the path clear for a Republican more likely to deal with our fiscal and political dysfunction, rather than elect President Romney and block that possibility for another generation.

April 15, 2012

Is crony capitalism the way of the American future?

Filed under: Economics, Liberty, Politics, USA — Tags: , , , , , , — Nicholas @ 12:15

Sheldon Richman on the distressing similarities shared by the Republican and Democratic parties:

So the presidential campaign is shaping up as a contest between a Democrat who says we had a free market from 2001 through 2008 and a Republican who . . . agrees — he says “[w]e are only inches away from ceasing to be a free market economy.” You can’t cease to be something you never were.

Thus Barack Obama claims and Mitt Romney implicitly concedes that the free market 1) has existed and 2) therefore presumably created the housing and financial debacle. This bodes ill for advocates of liberty and voluntary exchange.

Notice what will happen if this framing is widely accepted: Genuinely freed markets won’t make the list of feasible options. That will leave us with mere variations on a statist theme, namely, corporatism. How will voters choose among them? Most of those who abhor “socialism” (however they define it) will rally round Republican corporatism because of the pro-market rhetoric, while most who abhor the cruel “free market” (“Look at the hardship it created!”) will rush to Democratic corporatism because of its anti-market rhetoric.

And the winner will be: Corporatism. (That is, the use of government force primarily to benefit the well-connected business elite.) The loser? The people, who would benefit from freedom and freed markets — markets void of privileges and arbitrary decrees. That’s what maximizes consumer and worker bargaining power and enhances general living standards.

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