China: A Keynesian Monster

Tyler Durden's picture

Authored by Per Bylund via The Mises Institute,

I recently spent two weeks traveling in the People’s Republic of China (PRC), a vast country with many contrasts: old vs. new, poor vs. rich, traditional vs. modern, East vs. West. While it is a strange experience with many impressions, what’s most striking is the obvious and contradictory economic contrast between wealth and waste.

Chinese city skylines in the economic development zones consist of business district skyscrapers mixed high-rise apartment complexes at least 30 stories high. The latter exist in groups of a dozen or so buildings of identical designs shooting far up into the sky, sometimes placed in the outskirts to facilitate the city’s expansion or change travel patterns according to some (central) master plan for the city.

The boxy skylines are interrupted by vast numbers of tower cranes in the many construction projects that produce more high-rises and skyscrapers at impressive speeds. The city is conquering the countryside and devouring the surroundings much like a swarm of locusts.

This image is one of production, a society experiencing enormous economic growth and wealth creation.

But traveling as the day gives in to night shows a very different picture of these sprawling Chinese cities. While the setting sun makes the tower cranes stand out even more, what is obviously missing is the sign of civilization: artificial lighting. Many of these newly constructed buildings become silhouettes against the sunset that are as dark as a dead tree trunk.

One can stand in the middle of the city watching the glass-and-metal skyscrapers wrapped in neon lighting, as one would expect. Yet among them see many dark shapes of buildings that are empty – if not dead. These buildings are not necessarily new and move-in ready, they are simply uninhabited and unused.

This image is one of wasteful spending and immense economic errors. The contrast is as puzzling as it is scary. It tells us something important about the nature of the recent Chinese economic miracle: that it is fundamentally fake.

The Chinese economy obviously relies very heavily on state-sponsored, state-planned projects such as these constructions of buildings. It probably wouldn’t be much of an exaggeration to say that the Chinese economy is a Keynesian jobs project of outrageous scale, which also means that is as removed from real value creation as any Keynesian undertaking.

The much talked about “One belt, one road” project is the same thing on an international scale. The project aims to recreate the silk road with modern infrastructure, connecting the Far East with Europe via both land and water. Consisting of numerous infrastructure projects in about 60 countries and trade deals to leverage the projects, the OBOR is a political project to connect the East and the West. It is state-planned and state-sponsored, and intended to, at least during the build phase, create projects primarily for Chinese companies abroad (though the immediate effect seems to have been capital outflow). It will most likely boost Chinese GDP, just as intended, and will be a catastrophic failure due to its reliance on planning rather than markets. But as states tend to think of GDP statistics as actual economic growth, rather than as a crude and faulty measure of it, the project may seem like a success at first.

What China teaches us about economics and economic policy is the lesson that is generally not provided in college classrooms: the important distinction within production between value creation and capital consumption. The story of China’s economic development is to a great extent one of unsustainable, centrally planned growth specifically in terms of GDP — but a lack of sustainable value creation, capital accumulation, and entrepreneurship.

Production creates jobs even if what is produced is wasteful infrastructure projects, ghost cities, or only ghost buildings in otherwise inhabited cities. But those jobs only exist for as long as the projects are underway – that is, for as long as there is already created capital available to consume, domestically or attracted from abroad.

 

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nmewn's picture

Government-Sponsored-Entities.

What-Could-Possibly-Go-Wrong? 

Oh regional Indian's picture

I think you meant to ask what could go Wong?

Manthong's picture

 

.maybe if the dark skyscrapers were stocked with Tunisian boys……

TuPhat's picture

For most of the article I thought it was about the US.

americhinaman's picture

this article is written by a retard.  the thesis is that since many chinese cities do not waste electricity needlessly at night, that something is wrong.  that's a function of the two things: 1) green initiatives in china, which china leads the world in. 2) building operators don't waste money on decorative lighting (other than iconic buildings in big cities... which arguably isn't a waste it's an advertisement)

 

But traveling as the day gives in to night shows a very different picture of these sprawling Chinese cities. While the setting sun makes the tower cranes stand out even more, what is obviously missing is the sign of civilization: artificial lighting. 

python_snake's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it.!pa59d: Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2f0fLIz !pa60d:

Quantum Bunk's picture

It still doesn't make sense. They have capitalism. It is kind of capitalism

OpenThePodBayDoorHAL's picture

LOL

The Chinese Communist Party (6% of people are members) own 100% of all land. If you stay on their good side they might give you a 70-year lease. Normally these leases are to land confiscated from previous owners (estimated 40 million people, adding +/- 3M per year), usually originally paid for with gold.

Even during the Great Leap Forward, when cadres busted down doors looking for evidence of "capitalism" and executed +/- 800,000 landlords, they did not confiscate the land.

So you might go looking for redress in the courts. LOL. 99% of prosecutions result in convictions, so the real game is to get a prosecutor to put forward your case. A bag of money might help, or havng a Party member uncle. And the opposite also applies, in other words at any time and for any reason they can decide they like your house or your business and decide to enforce a law to seize it.

There's a saying locally: "money in China is not real money". No wonder there's a tsunami of money trying to leave.

Xena fobe's picture

It seems the US is headed in the same direction as what you describe.  Very interesting.

I would love to know the percentages of land ownership here in the US.  Probavly 20% own 80% 

 

malek's picture

"99% of prosecutions result in convictions"

Maybe you want to compare to the US number before blasting off ignorantly

land_of_the_few's picture

If you want something, no need to be shy, just ask!

land_of_the_few's picture

"Government-Sponsored-Entities"

thought you meant the Mises Institute ;)

rejected's picture

From what I have read on Keynes, there isn't a nation on the planet that practices it.

What we have are fraud economics.

nmewn's picture

Well, you haven't read his foreword in the German edition of his General Theory.

Of course, the Nazi state is no longer with us...or is it?

////

Ah yes, here it is...I almost couldn't find it on the interwebs anymore, so I guess I'll have to favorite, for posterity ;-)

"Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire."

Iskiab's picture

After reading the article my comment was going to be how can all these writers comment about Keynes when they obviously have no idea about his theories, to the point where they haven't even checked out Wikipedia.

Keynes =/ equal socialism. He's the father of modern macroeconomics. It's like people just parrot what someone else has told them to think without doing even the smallest amount of research, then wonder why no one listens to their drivel.

Then I saw your guys posts, I was shocked to read someone's read him.

If you have an issue with the fed and their policies, it's the monetarist you have problems with, monetarists with like Friedman. It's in the 70s that economics went off the rails and turned into the garbage it is today. At least frame an argument with some research so you can make an argument that makes sense.

Quantum Bunk's picture

All of his stuff turned out to be totally fucking wrong, Keynes means economic waste with the government involved. Specifically when the govt is overriding prices or markets.

 

So get used to it. Keynes was a fag pedophile that made stupid macro theories .

Iskiab's picture

No, Keynes wasn't wrong. He came up with theories like aggregate demand and supply, the bulk of his theories are still used today. Later economists like monetarists built on his theories and didn't supplant them.

Read a book sometime, it helps.

Manthong's picture

can I have some of that obviously great dope you are snorting, smoking or otherwise imbibing?

..maybe the pages of that book are infused with fine Moroccan hash oil…

That’s good for people who are into central banks and divorced from real economics.

Manthong's picture

 

"Keynes was a fag pedophile that made stupid macro theories ."

 

Geezus … you said it before I did???

Crap…

At least he was a close advisor to FDR …

…and his advice was instrumental in helping foment socialism and the destructive bent in education since he infected policy.

..but at least the government dweebs got further into the purses of American society,

And another thing…

Read this and weep….

http://www.independent.org/newsroom/article.asp?id=2092

 

rejected's picture

Harald Hagemann's version? Seemed a bit confusing but I am not a PhD.

That said,,, From what I understand the idea is to 'save' in good times and then 'spend' in bad times. What our PTB have managed to do is create constant bad times where they just spend, spend, spend telling us it's necessary to stimulate the economy.  Which is why I called it Fraud Economics. Another moniker would be Voodoo Economics.

Well,,, Fascism (Mussolini's Definition)  is for sure alive and well in the West.

Although the Third Reich is no longer with us the West is rapidly becoming it's incarnate.  IMO....

EDIT: See your edit and understand now what you were insinuating and agree.

Manthong's picture

 

Keynes was a faggot pedophile and remains Krugman’s hero.

Seriously......

His letters are explicit.

Do some research.

peddling-fiction's picture

The West should extricate that beam in their own eye first.

 

<-- Lots of Cognitive Dissonance going on here.

therevolutionwas's picture

It would be interesting to see what would happen to the value of all that spending on building things if China went on a gold standard and stuck to it.

peddling-fiction's picture

Coming up in 2018. And Phoenix was its name.

Creepy_Azz_Crackaah's picture

Wait...  China isn't going to go on the Bitcoin standard?  Where are the Bitcoinistas to straighten them out?!?!

NoPension's picture

They are just spinning and spinning trying to keep ...what...over a half billion people working.

Buildings that are not occupied and constantly maintained deteriorate.
Period. End of discussion.

These buildings will ultimately need to be torn down. Maybe that's the plan.

therover's picture

I think you are correct. Lots of demolition jobs coming down the pike. All types of work too...nice variety. Possibly employ 100-200K ? That may be low. 

spag's picture

errr... right, the chinese waste money and end up with under utilized infrastructure..... and the US waste money by blowing things up.....

 

what to choose, what a dilemma.....NOT!

Horse Pizzle's picture

China has one hundred million migrant laborers.  They all have cell phones. They live hand to mouth.  If they had no jobs they make one hell of a flash crowd.

media_man's picture

The Chinese spend its borrowed money on infrastructure creation while the US spends it on Medicaid, Medicare, & bloated pensions for government retirees. Methinks the Chinese win when the shitshow ends.

not a yahoo's picture

No because they borrow a lot more

Another regional indian.'s picture

of their own money. China owes most of its debt to itself.

land_of_the_few's picture

Perhaps, but that is the privilege of actually making and selling things, instead of just printing money ....

Yen Cross's picture

 The ECB is like a giant festering boil, just waiting to be lanced/

  The gateway to emerging markets is through European lending mechanisms.

 Did anyone catch the transcripts of Scaramucci resignation?

 He wants to work at/with/for _ Ex Im Bank! 

  Ex-Im is totally shadow corrupt banking at it's best!  I wonder how much of that FAKE q-2 GDP ~ via Boeing~ was funnelled through Ex-Im- and BIS?

order66's picture

So basically, their first experience with an economic bubble is going to be the worst in history. Great start!

hairball48's picture

@ Iskiab

Now go read Mises, Hayek,and  Rothbard. Mises.org
land_of_the_few's picture

I did. Rothbard is a total loon.

"He asserted that parents have the right to put a child out for adoption or sell the rights to the child in a voluntary contract in what Rothbard suggests will be a "flourishing free market in children". He believes that selling children as consumer goods in accord with market forces, while "superficially monstrous", will benefit "everyone" involved in the market"

 

VIS MAIOR's picture

they will now make 1000 nukes  100mg/t  and 100 milion army men....   if byznis will stop----))  to make peace no shit like usa last 100 years. i will support them all

thats why is  geriathric general sooo nervous in satancity-washheadtown   )))

 

and russia need new stalin .. 

just imagine how fast they can build army if they start build nukes and other weapons. 

 

ReturnOfDaMac's picture

Yea, so sad, China is gonna implode any minute. Credit gonna bust. Boo hoo. What a load of malarchy. If they do implode, they will have world class cities to send their huddled masses to. Most modern infrastructure, new airports, roads, bridges and airports.  Most of the worlds manufacturing infrastructure. High precentage of the planets rare earth metals. Millions of engineers and doctors who know what to do with that material. Probably about 20,000 mtns of gold to base their currency with. AND a decent, nuclear backed, million man military.

Now, let's see what I have, enemies everywhere because I have bombed them, hundreds of holes in someone else's desert, a few hundred thousand casualty's, $20t in debt,  43M unemployable cholesterol artery chocked, diabetes laiden exceptional lazy ignorant fat ass hoveroundables, and tens of thousand wounded soldiers to care for. Which to choose, which to choose....

Hyjinx's picture

Don't get too excited.  Most Chinese don't even have running water.

ReturnOfDaMac's picture

I know, even more infrastructure needed.  See win-win!  Seriously, let's not forget that they are 1/6th the whole species bro...

jcaz's picture

LOL- yeah, India used to make that same point- "We're too big not to matter, there are too many of us"-

They're fucking prawns, dude- always have been, always will be.

ReturnOfDaMac's picture

Both points may be true but are emotional, irrational.  China is no joke, plenty of nukes, plenty of people, plenty of industry.  India is 1/6 the species too, nukes as well but lack industry and infrastructure.  Underestimate at your own peril.  British arrogance did the same thing.  These are space faring nations.  We exceptionals forgot how that works.  We like land based MIC finance quick buck schemes better. 

Last time I checked we could immediately find funding for making desert pot holes, but we have to beg the Russians (who we claim we sanction) for a taxi to the space station that we built and paid for.  Brilliance of our reloonican warmongering red-state leaders (ya know, the deficit and all).  We are paying for short sightedness and will continue to pay all the way down.  Doesn't matter though, the sooner we are just a strong among equals, multi-polar world the better.  This exceptional shit has only given me a bigger tax bill and shittier roads.

jcaz's picture

Irrational?

China has had 3000 YEARS- what- are they waiting for the right planetary formation to make their move?

They only have industry because the rest of the world HANDS IT TO THEM-  they're the lowest-cost denominator, nothing more to it.

It ain't that fucking complex, dude.

Xena fobe's picture

I'm really starting to wonder about that. 

gregga777's picture

And they only have around 900 million people living on a few dollars a day in the vast interior.

ReturnOfDaMac's picture

Impressive that they can survive on such low levels of income. Self sufficiency most be very strong.  But lest we get too "uppity" in our superior western lifestyle and think all others are savages let's consider the following that exists in the so-called wealthiest (brokest), most advanced(highest healt cost worst life expectancy), coutry of the west...

http://www.pmmag.com/articles/85508-north-carolina-effort-seeks-to-wipe-...
http://www.jldr.com/mississippioh.html
https://www.pinterest.com/mooomooo50/outhouses/

Point is we see the sawdust in our neighbors eye but miss the plank in our own ...

Centerist's picture

It's called low standards and low expectations.  That isn't noble.  It's just the mark of a population that knows no better.

jcaz's picture

With that logic, you must be really impressed by roaches-  yes, roaches are the next global power......