Nothing else to do so I started reading Paul Krugman columns on Greece, didn't understand them, and then saw a column, a blog post I guess or the shortest column in history, on China which linked to an earlier post. The title was:
"China's Ponzi Bicycle Is Running Into a Brick Wall."-July 19, 2013.
Don't know what a Ponzi bicycle is but know what a Ponzi scheme is so that got my interest. That's vaguely what I had in mind when I wrote about China's mag-lev trains to nowhere recently. The concern of experts that I repeated is that China's 39 years of uninterrupted economic expansion, literally a first in human history, might not be, in some sense real. Let's see what Paulie wrote two years ago.
[I]n a way, China’s low-consumption high-investment economy was a kind of Ponzi scheme. Chinese businesses were investing furiously, not to build capacity to serve consumers, who weren’t buying much, but to serve buyers of investment goods — in effect, investing to take advantage of future investment, adding even more capacity. Would there ever be final buyers for what all this capacity could produce? Unclear. So, a kind of Ponzi scheme.
Also, my worries are that China doesn’t know how to slow down — that it’s a bicycle economy that falls over if it stops moving forward.
All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most.
Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.
Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment.
All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume.
China, however, seems to invest only to expand its future ability to invest even more. America, admittedly on the high side, devotes 70 percent of its gross domestic product to consumption; for China, the number is only half that high, while almost half of G.D.P. is invested.
How is that even possible?
What keeps consumption so low, and how have the Chinese been able to invest so much without (until now) running into sharply diminishing returns? The answers are the subject of intense controversy.
[T]he main thing holding down Chinese consumption seems to be that Chinese families never see much of the income being generated by the country’s economic growth. Some of that income flows to a politically connected elite; but much of it simply stays bottled up in businesses, many of them state-owned enterprises.
Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place.
"China's Ponzi Bicycle Is Running Into a Brick Wall."-July 19, 2013.
Don't know what a Ponzi bicycle is but know what a Ponzi scheme is so that got my interest. That's vaguely what I had in mind when I wrote about China's mag-lev trains to nowhere recently. The concern of experts that I repeated is that China's 39 years of uninterrupted economic expansion, literally a first in human history, might not be, in some sense real. Let's see what Paulie wrote two years ago.
[I]n a way, China’s low-consumption high-investment economy was a kind of Ponzi scheme. Chinese businesses were investing furiously, not to build capacity to serve consumers, who weren’t buying much, but to serve buyers of investment goods — in effect, investing to take advantage of future investment, adding even more capacity. Would there ever be final buyers for what all this capacity could produce? Unclear. So, a kind of Ponzi scheme.
That is very much like what I had in mind.
Ah, understand "Ponzi bicycle" now which led me to a related thought which I shall just touch on here, en passant. Knowing next to nothing about economics it has struck me nonetheless that capitalism itself is "bicycle economics." I have used the legend of the shark rather than a bicycle as metaphor: capitalist economies must continuously expand, the shark must constantly move forward, to aereate its gills, or both die. I have written this. Is there not some truth in that? Back to China. I read recently that the Center played an aggressive role in the current stock market situation. I assume without knowing for sure that it plays an aggressive role in China's economy generally. In this instance the government encouraged Chinese to buy particular stocks. Knowing something about the Chinese people--"The Chinese people have a slavish mentality."--this encouragement would have had the effect more of an exhortation, little short of a command. The Chinese people bought the stocks that the government "suggested" they buy and the stock market took a Great Leap Forward. Enter, "bubble" and shortly thereafter, bust. Then the Center decided to partially reinflate the bubble, or the bicycle tire, by suspending trading in the stocks that a few months before it was exhorting the people to buy! It started poring money into the stock market, buying itself the stock of those now partially deflated, once over-inflated companies. These strike me as particularly intrusive moves by a government into a "free" market, no? Is a market subject to such intrusion a free market? What are the real values of companies whose stock is manipulated so? Back to Paulie:
The blog post links to a Krugman column, not another blog post, from the same day, "Hitting China's Wall." Okay, let's see what Paulie-the-columnist said in 2013.
Yep. Oh lord. "Waiter! Another double scotch, please."
When investors get a lack transparency they get "concerns;" these concerns can slide easily into panic. "Sheer size of the country:" I have a question. Could it be, is an alternative reasonable explanation for the unique four decades of uninterrupted economic growth, that in some meaningful sense the "laws" of economics do not apply to China because of the "sheer size of the country," its remarkable homogeneity, the slavish mentality of the people, etc., etc. etc.? A China has never before in history just literally decided overnight, "Hi! We're capitalists now, we're going to play, K?" They did things practically overnight that other countries are thinking about but have never gotten beyond thinking about. "Google, you piss us off, be gone." Enter, Baidu. China can successfully take on Google, did successfully take on Google, they did what Brazil can only dream of doing, even the EU
is only now cautiously creating a degree of separation. There are 1.357 billion Chinese. The world population is 7 billion. 19% of the world's population is Chinese. They have a humongous land mass, resources out the ass, a near monopoly on some critically needed rare metals. If Chinese inhabited their own planet exclusively, without Foreigners, could they not do what they have done the last 40 years with "socialism with Chinese characteristics?" Size matters. Rules do not apply in one size fits all manner to big things and little things. Individuals and companies must balance their budgets. Governments can deficit spend. Greece could not get away with this lack of transparency and market manipulation but China is not Greece. The most eminent economists that America has, guys like Larry Summers, like Krugman, have been predicting "The Coming Chinese Collapse" for a lot of the last forty years. It has not happened. The expansion goes on and on. Is there maybe some "Chinese exceptionalism" that they haven't taken proper account of? No? Alright, then.
Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.is only now cautiously creating a degree of separation. There are 1.357 billion Chinese. The world population is 7 billion. 19% of the world's population is Chinese. They have a humongous land mass, resources out the ass, a near monopoly on some critically needed rare metals. If Chinese inhabited their own planet exclusively, without Foreigners, could they not do what they have done the last 40 years with "socialism with Chinese characteristics?" Size matters. Rules do not apply in one size fits all manner to big things and little things. Individuals and companies must balance their budgets. Governments can deficit spend. Greece could not get away with this lack of transparency and market manipulation but China is not Greece. The most eminent economists that America has, guys like Larry Summers, like Krugman, have been predicting "The Coming Chinese Collapse" for a lot of the last forty years. It has not happened. The expansion goes on and on. Is there maybe some "Chinese exceptionalism" that they haven't taken proper account of? No? Alright, then.
You didn't expect Krugman to write something un-dreary, did you? This was written two years ago and certainly the two years since have not visited "big trouble" on China, have they? I mean, the economy has continued to expand--I know that much.--it has expanded not as much as in some (most?) years previous but wasn't it 7% last year? If so, America would kill for 7% growth.
See! The empty mag-lev trains. Isn't this similar to the "fundamental" problem that finally consumed the Japanese economy? Damn Japanese saved and saved and saved, which is usually a good thing!, Japanese were held up to Americans as exemplars, money saved is invested by banks, but like everything in economics, there's always an "on the other hand." On the other hand, if all you do is save and never buy, never consume, never ride those mag-lev trains, ride your bicycle instead, the cycle of economic growth ends. The trains run rider-less and stores are stocked with wonderful toys which nobody buys. Currency is after all an abstract measure of true value; stocks of currency are only as good as what they buy, not what they could buy, what they actually buy. A people who save too much and spend too little are similar to a people who have no money to buy anything! They're a poor people.
Toldja! The cycle has to keep on cycling, it can't end with investment. Capitalism is a perpetual motion machine.
Alright, well, whatever, I certainly don't know if Chinese should be more like Americans. Presumably there's some "optimum" percentage between 35% and 70% that we all should be shooting for. What is that optimum percentage, Krugman? Wait...Aren't those percentages supposed to add up to 100? America: 70% to consumption; that means 30% to investment, no? China: "half that high" to consumption, so 35%, and "almost half of G.D.P.," 50%, to investment--That's only 85%, Paulie.
See, when you get a Nobel economics laureate like Krugman asking "How is that even possible?", that is worse than an idiot blogger asking the same question, that is officially, or "quasi-officially," a concern, on a slippery slope to panic.
He then says something about too many peasants, "surplus labor," but I'm getting tired now.
It’s all very peculiar by our standards, but it worked for several decades. Now, however, China has hit the...point... — to put it crudely, it’s running out of surplus peasants.
Too few peasants, my bad. Toldja I was getting tired.
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How big a deal is this for the rest of us?
...
Just the other day we were afraid of the Chinese. Now we’re afraid for them. But our situation has not improved.
No, of course not! The situation never improves for Krugman. That's how the column ends.
Krugman, on Greece: Could Greece mint a special $1 trillion drachma or Euro and drop it in the Eurozone tiller and pay off all its debts like you half-seriously suggested a couple of years ago Obama do in minting a $1 trillion coin to pay off our debts? Big things can do things little things can't.
Krugman, on Greece: Could Greece mint a special $1 trillion drachma or Euro and drop it in the Eurozone tiller and pay off all its debts like you half-seriously suggested a couple of years ago Obama do in minting a $1 trillion coin to pay off our debts? Big things can do things little things can't.
