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Guest Post: Where’s The Crisis?
Submitted by Azizonomics
Where’s The Crisis?
A hilarious BusinessWeek piece from 2005 asked:
Is the U.S. in a savings crisis? We think not, though one may be brewing if attitudes toward the budget deficit don’t change in Washington. The fact is that for the past 20 years, America has grown faster than Europe and Japan, two of the world’s highest savers. Year after year, U.S. deficits are financed, bills are paid, and living standards rise. If anything, America is awash in money. So where’s the crisis?
2008 answered that question pretty well, I think. They asked for a crisis, and they got one. This is the same slack-jawed cocaine-addled bozo thinking that led some very serious analysts to declaim that subprime was “contained” in 2007 (of course, we know now that thanks to the cult of endless syphilitic re-hypothecation nothing can be contained), and the same brand of thinking that leads some very serious economists today to claim that the threat of an alien invasion would trigger an economic recovery.
Here’s the dreamland fantasy:
It could only go up and up, right? This time is different, right?
And here’s the crisis:
I know, I know. Correlation does not imply causation. But that’s a pretty brutal correlation: personal savings fall lower and lower and lo and behold we hit a once-in-a-generation crisis. (Of course, if governments keep repeating the policies that led to that “once in a generation crisis”, it will be soon be a twice-, or thrice-in-a-generation crisis).
So what brought us here? What took us from the savings and investment-driven society of the postwar years to the wild-eyed derivatives, hookers and iPads society enchained to a crushing swathe of debt?
Was it moral decline? The decline of the notion that debt is something to be avoided? Was it the softening and fattening of society, bread and circuses, Superbowls and all-you-can-eat Vegas buffets? The aura of American invincibility having won the cold war? The arrogance of modernity, and the undying myth that “this time is different”?
All factors played their part. However one shines out above and beyond any other: the intellectual fallacy that all GDP is equal, and that GDP growth — even debt-driven growth, even growth based on lies, fallacies and errors — paves the road to the future.
Simply, the social variables emerged from a period in which the dominant intellectual, governmental and media culture condoned and actively encouraged profligacy.
Easy money policies pushed by Greenspan and the lackeys of irresponsibility discouraged savings in favour of consumption. As it became less (in the short term) expensive to borrow and consum, more people did it. It became socially acceptable. As the debt was securitised, and pumped off into the shadow banking system for endless re-hypothecation and carry trading, the companies issuing the debt stopped giving a damn about creditworthiness. The easy-money mythology led to house price rises that seemed never-ending and built up the social acceptability of remortgaging your house, and spending the proceeds on boats, cruises and keeping up with the Joneses.
That is where the BusinessWeek article picked up; to an objective observer versed in history, the United States fiscal and financial situation in 2005 seemed perverse and absurd. But GDP kept growing, and the hopium kept flowing, and so this time it was different until it wasn’t.
The thing about GDP, is that it doesn’t really measure wealth creation, or the size of the economy. It measures a derivative of that: money circulation. If Congress passed a law saying that everyone in America had to smoke meth (hey, if you can mandate the purchase of health insurance, why not mandate drug consumption in the name of increasing GDP?) and gamble all their disposable income on horse racing, GDP would almost certainly improve. And that’s growth, right? Except it isn’t. Real growth comes from innovation, productivity, imagination, and hard work. You can attempt to quantify it, but there is no easy catch-all number that will give you a quick and simple insight.
Here’s industrial production:
In 2005, we were where we were five years previous. That looked problematic at the very least.
Here’s the US trade balance:
In 2005 — after a century of being creditor and importer to the world — America was running the greatest trade deficit in history. America was losing its spirit of self-sufficiency, which in my view was one of the keys behind its earlier successes.
So it was easy to find a brewing crisis without even looking at the crisis of savings, and without even looking at the growing bubbles in subprime, in the DJIA, in securitisation, in student debt, and in McMansions. But only if you knew where to look. Only if you knew that the concept of GDP — the prism through which the political and intellectual hoi polloi viewed the economy — didn’t really represent the underlying reality.
The frightening truth is that those who do not learn from history are doomed to repeat it. And the focus of the intellectual and governmental elite since the crisis has been on reflationism — reflating GDP, housing, stocks, corporate earnings, consumer borrowing — with no regard to the concept that the system being reflated is the problem.
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Did not mean to be condescending and I apologize if I came across as such.
Do you think the blame rests on both sides? Yes, it is our responsibility to wake the fuck up and take back our lives, yet the overlords have been perfecting their business since before we can remember and they are very, very good at what they do. It is a slow process for us but we are coming around and I believe that we will prevail, no matter the cost, no matter how long it takes.
Didn't mean to take personal responsibility out of it, as there's many places in my past (with the benefit of hindsight) that I can look at and say "I FUCKING KNEW BETTER BUT I WENT ALONG WITH IT ANYWAY".
However...
I do believe there's been a full court press to enslave our nation, what with the:
Full-court press to create a police state
Propaganda (fear-based, feel-good and nationalistic)
Government mandated education (indoctrination)
Slick ad-campaign pitched pharma-fixes (makes you sick and stupid)
Fluoride (makes you stupid and compliant)
HF corn syrup in EVERYTHING (makes you fat and lethargic)
Low-fat diet promotion (makes you stupid... And depressed)
Social Justice promotion
Corporate lobbied regulation
Etc.
Governments, government employees, and Crony Capitalists HATE ENTREPRENEURS.
Every trip-wire invented by man is put in the way of a private sector investor with an idea.
"Governments, government employees, and Crony Capitalists HATE ENTREPRENEURS."
It sure seems that way. The comments I've heard their type speak about entrepreneurs usually sound a lot like the comments that a lot of blacks make about Asians and Hispanics. Usually something along the lines of "they're making us look bad with all their hard work and long hours and rugged independence."
Hey, black people come from the environment too you know.
We are all spontaneous generation like rats from hay.
Not to mention snowflakes.
LoL
Plenty of crackers singin' the same tune, dipshit. (not to mention any of the union guys)
GDP calculations do not take into account the loss of "inventory", environmental, human, or other life on this planet.
Wasting forests, destroying fisheries, factory farms, poisoning consumers, debilitating workers, financial swindling, and of course, meting out death and destruction in warfare ALL can be counted as increasing GDP.
GDP cares not how anything is "produced", nor under what political system that anything is produced.
Nice post!
The answer to how this debt bonanza could occur is simple: it is all tied to real estate and creating the illusion real estate will always go up in price in real terms. Politicians then put in place laws propping the real estate ponzi and threw money in support every time the illusion faltered, creating the mindset among consumers that the fix is in.
The way the ponzi has worked here in Australia is that household debt has tripled and house values doubled. Net effect is beneficial only to bankers and the first entrants of the ponzi.
The illusion should have stopped in the US and maybe even Europe too once it became apparent that there is no such thing as a clear title or full ownership.
Real estate is a liability, not an asset , even if debt free.
i've come to the conclusion that our standard of living can go up ONLY IF GDP GOES DOWN.
Look how the savings rate went up and the trade balance improved during the 2008 recession they claim is over. Now its all falling right down again.
http://betterbadnews.com/
ZIRP makes saving so 1980's.
It's all about Apple after the close tomorrow....slow day until 4 pm
Ben, some advice: stand out on the street corner and hand out $100K to every citizen. At least documented citizens. Aww heck to anyone who can stand or crawl to the head of the line, no questions asked. You'll get a lot mroe GDP BANG! than handing out trillions to former banks and former insurance companies.
Thats the point right Caviar? You have to believe Ben knows that. Shit even G W Bush was smart enough to send me a check 10 years ago. So why does Ben choose to do it the hard way?
He wants to trickle down...he better try trickle up
All the demand was pulled forward via debt. The leveraged asset prices fropping, debt remains... all that demand pulled forward goosed BDP, but what happended to real wages? So now wages continue to drop even though the FED tries to push more mush(debt) down the gooses throat to float GDP. The trajectory is down, except for taxes...and higher taxes won't levitate GDP either. The need for adjustment has not chnaged, just the time frame and anglr of decline.
"The welfare of a nation, can scarcely be inferred from a measurement of national income as defined above."
Guess who?
Uhhh... Eve Johnson ?
The very one who formulated GDP...Simon Kuznets.
He was very clear what it was and was not...and went out of his way to tell politicians and idiot "economists" like Krugman et al to not use it the way they use it now.
"Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long run,..."
"Goals for more growth should specify more growth of what and for what"
Pretty sure he had a Solyndra-like orgy of incompetence in mind when he wrote that ;-)
Thank you.
Yes my brutha...we're all here to learn as much as we can in the short amount of time we have.
Time...without getting too esoteric...is a very big component of all this ;-)
+1
Cannot say this enough
EXACTLY. The "meth" reference will get a lot of knee jerk reactions, so let's look at an example more relevant to most people. Every time they make the tax code more complicated, more people need to hire CPAs to do their taxes. This increases GDP. Is this a good thing?
Taken out of context, yeah, Solyndra. But in context, Solyndra is dwarfed by subsidies to Big Oil.
"Big Oil" operates under the very same tax code as any other corporation as far as I know.
Unless you mean the subsidies they get to process corn into ethanol...which was a government mandate. I think of it like, I make writing paper and the government comes to me and says I have to retool and make cardboard boxes AND writing paper. Its a brand new law.
I don't really care to do it, but if my costs are covered I will. Besides, they have a bigger gun than I do...lol...and I really don't want to shut down my refinery and lay people off just to prove a point.
Maybe I missed something...subsidies for what?...generally, I'm against all subsidies to industry as a rule.
I wish someone had a decent chart for black market! I want to see the surge in drug addictions. Addiction bubble here we come.
This article is absolutely correct. Very few economist like Marc Faber, & Peter Schiff understand the concept of real genuine growth that is savings, & investment. Those are the sources of high end employment, which creates a higher standard of living by adding things to the economy, but also can create higher wages. GDP is a just a general measurement of money flowing around. A depletion of savings, is a depletion of capital that allows a economy to maintain liquidity, and investment. Where a Keynesian like Krugman thinks ignorantly that savings is evil, or that supposed liquidity traps, or savings glut trigger a crisis, or slows down the economy, Austrians which I agree with, see a depletion of real savings, & a increase of consumption that is not supported by production, but rather easy money circulating around, & profigate spending. In China, despite the recession, the country had around 10% growth, coincidently at the same time suffering from inflation. Another words freshly printed money circulating around the Chinese economy emulating GDP growth. The article is very correct.
With every election coming up this year - from school board to el Presidente, just remember that everyone with a stake in the status quo did nothing to divert course these last years.
Neither political party, no corporate entity, no sublimely wealthy elite, no media outlet raised the idea to simply reintroduce Glass-Steagall and then made it happen.
Once again with feeling. You have to separate the "real economy" from the speculative economy.
You have to keep commercial finance grounded in reality and the financial engineers lost in space, but their losses purely separate from taxpayers' moral hazard.
No republican or democrat between Bush and Obama started down a road of sanity.
Remember that this election cycle and burn those incumbent fuckers out of office.
If Citizens don't take the country back soon, we are headed down a much darker road - a road where rational men plea for war and scapegoats.
If you want another Hitler and chaos then vote for Romney or Obama.
The handwriting is on the wall for everyone to read.
Meth and horses, bitchez!
Well an honest Princeton economist Kemmerer did show in 1920 that the 1913-1919 "boom" due to war demand in first world war, was actually a massive transfer of weatlh and massive stagflation. HE WOULD COUNT THE QUANTITIES NOT THE DOLLARS!!
Kemmerer in 1920 [...]
In attempting to form a judgement as to the extent to which our circulating media have been inflated since 1913, the first problem is to measure in some way the growth, since that date, of the country´s physical volume of business. Money and circulating credit exist primarily as instruments for exchanging goods and services. This exchange work is their job. To what extent, if any, has the job increased during the last six years? This question cannot be answered with any high degree of accuracy, but a rough approximation can be reached the study of certain business statistics which typify business activity and growth. Obviously the statistics used for this purpose should be statistics of physical quantity and not of value involving prices, since the movements of price level are one of the results of inflation. [...]
http://gentlemaneconomics.wordpress.com/category/inflationary-periods/
http://vimeo.com/25966415
All Watched Over by Machines of Loving Grace
by science2art
"The thing about GDP, is that it doesn’t really measure wealth creation, or the size of the economy. It measures a derivative of that: money circulation."
There are some good points in this article, but it is very poorly written and makes some pretty absurd statements as if they're literal fact as opposed to loose hyperbole. Like the one above. If reported GDP measured money circulation, then it would be going parabolic, like the money supply has been. Yet it's not, to the consternation of lots of central planners and bankers and Keynesians generally.
That said, the more money that is in circulation, the more goods and services people/businesses will produce, over the long run, IF that money represents savings (past production of goods and services, i.e., real capital and not fiat money.) In the very short run, the creation of more fiat money will tend to cause people to produce/businesses to produce more, and that's the problem with artificial money creation. It leads to "bubbles" and production of goods/services for which there is insufficient demand and the only way to clear the market of the excess inventory is for prices to fall so more people can afford more of the stuff produced. The problem today is, central planners are determined to NOT allow prices of anything to fall, especially houses and corporate stock.
Gravity is a bitch.
But to say that GDP is a function of the money supply more than just marginally, in the very short run, is to make the broken window fallacy. Ironic that the author used this fallacy as a way to apparently just disparage statistics the central idiots are spewing. It's not the Austrians who say that GDP is a function of the fiat money supply. Its the KEYNESIANS, who constantly scream for MORE money because that directly translates to GDP, in their broken window view.
This is another thing that makes no sense to me when it comes to stimulous spending. The assumption is that providing consumers with more money creates more demand, but that assumes credit is a non-factor, Many peiople are just as likely to pay off loans (which contracts the money supply) and/or save the money to hedge against more hard times. Thus money printing does not equate to money in circulation. The reason GDP is not going parabolic (yet), is that there's a difference between creating money and getting it into circulation.
Whats more I doubt it would result in greater production. People don't work for fun, they work to get money with which to support their chosen standard of living. If they get more money without working harder then they they need to work that much less to maintain the same standard of living. I fail to see how making it possible to work less and maintain the same standard of living would increase productivity.
It would seem to me that bubbles occur precisely because the rate of production does not change as quickly as the dollars available to be spent on the goods produced. Take home loans. As it became progressively easier and easier to get a home lioan more money was available for housing driving up the costs of housing faster than the rate of inflation. More money resulted in inflated prices not greater productivity.
"The reason GDP is not going parabolic (yet), is that there's a difference between creating money and getting it into circulation."
Yes, there'a big difference. BUT, "into circulation" means it's BEING SPENT, which means goods and services are being produced for it to have been spent on. You put the cart before the horse.
Some of the discussion here just goes to prove that it's kind of pointless to discuss something like economics without first defining terms. Way too many terms used in economics are everyday words that have very different, sometimes almost opposite, meanings than they do in everyday usage.
This will probably be my last foray into "discussing economics" here. It's hard enough to avoid the semantical pitfalls debating a Keynesian with a Ph. D. who speaks much of the same language.
Spending money isn't a sign of productivity. Of course spending money is money on spent on a good or service, but doesn't mean it's sustainable, or productive. Spending money alone isn't economic growth. That's a lie. Consumer spending is a result of productivity, or investment. Increased consumer spending without increases of productivity means that consumers are spending more than they are saving. This means less liquidity for productive ventures, and more liquidity for unproductive ventures, like reselling assets like a house, biding up their prices. There is a huge difference. GDP doesnt' indicate the health of a economy, because consumption is measured in calculating GDP. There is no such thing as a economy that grows on reselling houses. That's not productive. Supply is production.
Measuring the quantities instead of measuring the dollars would probably give an inverted chart of the number of people on foodstamps. It would tell that the economy is actually contracting steeply. And absolutely agreed, the economy is not a function of the money supply, as Kemmener showed, the economy was stagnating completely during 1913-1920 (something very similar to Vietnam and the 1970s.) Today is great depression II with inflation of commodities (very easy to measure on soft commodities) and not much inflation on non basic necessities. So the GDP measures raising prices times constant consumption to slighlty declining prices + collapse of demand for cruise vacations, new homes, news cars times flat to marginally increasing prices on those except housing still correction, result is a a growth of 2 %. So the Fed is managing the short term, trying to ignore who we get out of this morass.
Money supply? Oh I guess that does not matter. Right, you can't have hyperinflation without velocity- FAIL.
Actually, I never thought of it that way and it makes perfect sense. My belief is that what determnines prosperity is productivity. The more productivity, the more goods there are competing for people to buy them. People think what makes a society prosperous is everyone having more money, but low productivity with lots of money just makes for high prices. On the other hand, if you double the production of goods from the same resources you should see a substantial drop in costs as the same money chases more goods. Such a jump in prosperity wouldn't result in a huge change in GDP, but you would see a massive change in prosperity as people could buy much more with the same dollars. Money printing doesn't improve productivity it just makes more money to chase the same goods and so it creates a false sense of growth.
Keynsians think you can just give more money to consumers (whether individuals, corporations, or governments) and that will stimulate the economy, but all it does is create more money chasing the same goods as before. In fact it probably creates a disincentive to produce (since you have more money now why work harder) resulting in a descrease in prosperity as fewer goods are made and more money is available to chase them. While it is much maligned, supply side economics lets producers keep more money so they produce more, which creates more prosperity. Since there are more goods competing for consumer dollars people can afford more from their reduced income.
In other words, there is a very real cost for creating and injecting capital/money into the system without creating anything of real value. ZIRP leads to malinvestment and capital mis-allocation, the more money and capital generated through ZIRP, the greater the mal-investment and mis-allocation.
There you go again, denying the sustainablity of the Perpetual Motion Money Machine.
That's what interest rates set to very low level do. Low interest rates means expansion of money supply. Means more unproductive projects are pursued. It also encourages consumer debt, no incentive to save. To producers it sends a false signal that the economy has more real savings than it really has. Consumers are spending more, but only because it's financed by cheap money, & relaxed lending standards. This causes home builders to think there is geniune demand for more houses to be built, so they build more than usual. The result is savings is reduced, more consumer financed growth increases. It's a fallacy to say that consumer spending creates growth. Investment in consumer goods and services is what creates growth. The higher the productivity, the larger amounts of capital are needed. It's similar to why some jobs pay more than others. Tim Geithner, Ben Bernanke, Greenspan knew there was a housing bubble, and they basically screwed up, that's why they were downplaying the housing bubble. They were trying to raise interest rates very slowly without pricking the bubble. They didn't have much of escape plan in regards to that. Bubbles are created when producers make erroroneus judgement to the real extent of how much wealth really exists that allows consumers to spend. Manipulations in the money supply send these wrong signals. The reason why the economy collapsed isn't because consumers suddenly stopped spending. That's not the cause, the cause of unemployment is that savings were irredeemably squandered on unproductive activity by de facto were not sustainable such as home prices doubling, or tripling forever without any meaningful rises in real productivity.
Actually what it means is lesser likely ideas are going to get funding.
That doesn't translate to unproductive until after the fact.
I wholly realize the incredible desire for a completely ordered existence where step 3 follows step 2
and so forth,
that is not how it works.
No bubbles or extremely easy money periods, the most far out, least likely ideas do not get funding which means slower advancement for the human race.
This is PE 101.
IT is not a coincidence that one of the last easy money periods in the US led to the global proliferation of the computer chip.
Facebook First-Quarter Profit Drops; Costs Almost Double
http://www.bloomberg.com/news/2012-04-23/facebook-reports-sales-growth-i...
That was fast!
may as well add an i and change their symbol to fbi.
By Ron Unz | April 18, 2012
The rise of China surely ranks among the most important world developments of the last 100 years. With America still trapped in its fifth year of economic hardship, and the Chinese economy poised to surpass our own before the end of this decade, China looms very large on the horizon. We are living in the early years of what journalists once dubbed “The Pacific Century,” yet there are worrisome signs it may instead become known as “The Chinese Century.”
But does the Chinese giant have feet of clay? In a recently published book, Why Nations Fail, economists Daron Acemoglu and James A. Robinson characterize China’s ruling elites as “extractive”—parasitic and corrupt—and predict that Chinese economic growth will soon falter and decline, while America’s “inclusive” governing institutions have taken us from strength to strength. They argue that a country governed as a one-party state, without the free media or checks and balances of our own democratic system, cannot long prosper in the modern world. The glowing tributes this book has received from a vast array of America’s most prominent public intellectuals, including six Nobel laureates in economics, testifies to the widespread popularity of this optimistic message.
Yet do the facts about China and America really warrant this conclusion?
China Shakes the World
By the late 1970s, three decades of Communist central planning had managed to increase China’s production at a respectable rate, but with tremendous fits and starts, and often at a terrible cost: 35 million or more Chinese had starved to death during the disastrous 1959–1961 famine caused by Mao’s forced industrialization policy of the Great Leap Forward.
China’s population had also grown very rapidly during this period, so the typical standard of living had improved only slightly, perhaps 2 percent per year between 1958 and 1978, and this from an extremely low base. Adjusted for purchasing power, most Chinese in 1980 had an income 60–70 percent below that of the citizens in other major Third World countries such as Indonesia, Nigeria, Pakistan, and Kenya, none of which were considered great economic success stories. In those days, even Haitians were far wealthier than Chinese.
All this began to change very rapidly once Deng Xiaoping initiated his free-market reforms in 1978, first throughout the countryside and eventually in the smaller industrial enterprises of the coastal provinces. By 1985, The Economist ran a cover story praising China’s 700,000,000 peasants for having doubled their agricultural production in just seven years, an achievement almost unprecedented in world history. Meanwhile, China’s newly adopted one-child policy, despite its considerable unpopularity, had sharply reduced population growth rates in a country possessing relatively little arable land.
A combination of slowing population growth and rapidly accelerating economic output has obvious implications for national prosperity. During the three decades to 2010, China achieved perhaps the most rapid sustained rate of economic development in the history of the human species, with its real economy growing almost 40-fold between 1978 and 2010. In 1978, America’s economy was 15 times larger, but according to most international estimates, China is now set to surpass America’s total economic output within just another few years.
Furthermore, the vast majority of China’s newly created economic wealth has flowed to ordinary Chinese workers, who have moved from oxen and bicycles to the verge of automobiles in just a single generation. While median American incomes have been stagnant for almost forty years, those in China have nearly doubled every decade, with the real wages of workers outside the farm-sector rising about 150 percent over the last ten years alone. The Chinese of 1980 were desperately poor compared to Pakistanis, Nigerians, or Kenyans; but today, they are several times wealthier, representing more than a tenfold shift in relative income.
A World Bank report recently highlighted the huge drop in global poverty rates from 1980 to 2008, but critics noted that over 100 percent of that decline came from China alone: the number of Chinese living in dire poverty fell by a remarkable 662 million, while the impoverished population in the rest of the world actually rose by 13 million. And although India is often paired with China in the Western media, a large fraction of Indians have actually grown poorer over time. The bottom half of India’s still rapidly growing population has seen its daily caloric intake steadily decline for the last 30 years, with half of all children under five now being malnourished.
China’s economic progress is especially impressive when matched against historical parallels. Between 1870 and 1900, America enjoyed unprecedented industrial expansion, such that even Karl Marx and his followers began to doubt that a Communist revolution would be necessary or even possible in a country whose people were achieving such widely shared prosperity through capitalistic expansion. During those 30 years America’s real per capita income grew by 100 percent. But over the last 30 years, real per capita income in China has grown by more than 1,300 percent.
Over the last decade alone, China quadrupled its industrial output, which is now comparable to that of the U.S. In the crucial sector of automobiles, China raised its production ninefold, from 2 million cars in 2000 to 18 million in 2010, a figure now greater than the combined totals for America and Japan. China accounted for fully 85 percent of the total world increase in auto manufacturing during that decade.
It is true that many of China’s highest-tech exports are more apparent than real. Nearly all Apple’s iPhones and iPads come from China, but this is largely due to the use of cheap Chinese labor for final assembly, with just 4 percent of the value added in those world-leading items being Chinese. This distorts Chinese trade statistics, leading to unnecessary friction. However, some high-tech China exports are indeed fully Chinese, notably those of Huawei, which now ranks alongside Sweden’s Ericsson as one of the world’s two leading telecommunications manufacturers, while once powerful North American competitors such Lucent-Alcatel and Nortel have fallen into steep decline or even bankruptcy. And although America originally pioneered the Human Genome Project, the Beijing Genomics Institute (BGI) today probably stands as the world leader in that enormously important emerging scientific field.
China’s recent rise should hardly surprise us. For most of the last 3,000 years, China together with the Mediterranean world and its adjoining European peninsula have constituted the two greatest world centers of technological and economic progress. During the 13th century, Marco Polo traveled from his native Venice to the Chinese Empire and described the latter as vastly wealthier and more advanced than any European country. As late as the 18th century, many leading European philosophers such as Voltaire often looked to Chinese society as an intellectual exemplar, while both the British and the Prussians used the Chinese mandarinate as their model for establishing a meritocratic civil service based on competitive examinations.
Even a century ago, near the nadir of China’s later weakness and decay, some of America’s foremost public intellectuals, such as Edward A. Ross and Lothrop Stoddard, boldly predicted the forthcoming restoration of the Chinese nation to global influence, the former with equanimity and the latter with serious concern. Indeed, Stoddard argued that only three major inventions effectively separated the world of classical antiquity from that of 18th-century Europe—gunpowder, the mariner’s compass, and the printing press. All three seem to have first appeared in China, though for various social, political, and ideological reasons, none were properly implemented.
Does China’s rise necessarily imply America’s decline? Not at all: human economic progress is not a zero-sum game. Under the right circumstances, the rapid development of one large country should tend to improve living standards for the rest of the world.
This is most obvious for those nations whose economic strengths directly complement those of a growing China. Massive industrial expansion clearly requires a similar increase in raw-material consumption, and China is now the world’s largest producer and user of electricity, concrete, steel, and many other basic materials, with its iron-ore imports surging by a factor of ten between 2000 and 2011. This has driven huge increases in the costs of most commodities; for example, copper’s world price rose more than eightfold during the last decade. As a direct consequence, these years have generally been very good ones for the economies of countries that heavily rely upon the export of natural resources—Australia, Russia, Brazil, Saudi Arabia, and parts of Africa.
Meanwhile, as China’s growth gradually doubles total world industrial production, the resulting “China price” reduces the cost of manufactured goods, making them much more easily affordable to everyone, and thereby greatly increases the global standard of living. While this process may negatively impact those particular industries and countries directly competing with China, it provides enormous opportunities as well, not merely to the aforementioned raw-material suppliers but also to countries like Germany, whose advanced equipment and machine tools have found a huge Chinese market, thereby helping to reduce German unemployment to the lowest level in 20 years.
And as ordinary Chinese grow wealthier, they provide a larger market as well for the goods and services of leading Western companies, ranging from fast-food chains to consumer products to luxury goods. Chinese workers not only assemble Apple’s iPhones and iPads, but are also very eager to purchase them, and China has now become that company’s second largest market, with nearly all of the extravagant profit margins flowing back to its American owners and employees. In 2011 General Motors sold more cars in China than in the U.S., and that rapidly growing market became a crucial factor in the survival of an iconic American corporation. China has become the third largest market in the world for McDonald’s, and the main driver of global profits for the American parent company of Pizza Hut, Taco Bell, and KFC.
Social Costs of a Rapid Rise
Transforming a country in little more than a single generation from a land of nearly a billion peasants to one of nearly a billion city-dwellers is no easy task, and such a breakneck pace of industrial and economic development inevitably leads to substantial social costs. Chinese urban pollution is among the worst in the world, and traffic is rapidly heading toward that same point. China now contains the second largest number of billionaires after America, together with more than a million dollar-millionaires, and although many of these individuals came by their fortunes honestly, many others did not. Official corruption is a leading source of popular resentment against the various levels of Chinese government, ranging from local village councils to the highest officials in Beijing.
But we must maintain a proper sense of proportion. As someone who grew up in Los Angeles when it still had the most notorious smog in America, I recognize that such trends can be reversed with time and money, and indeed the Chinese government has expressed intense interest in the emerging technology of non-polluting electric cars. Rapidly growing national wealth can be deployed to solve many problems.
Similarly, plutocrats who grow rich through friends in high places or even outright corruption are easier to tolerate when a rising tide is rapidly lifting all boats. Ordinary Chinese workers have increased their real income by well over 1,000 percent in recent decades, while the corresponding figure for most American workers has been close to zero. If typical American wages were doubling every decade, there would be far less anger in our own society directed against the “One Percent.” Indeed, under the standard GINI index used to measure wealth inequality, China’s score is not particularly high, being roughly the same as that of the United States, though certainly indicating greater inequality than most of the social democracies of Western Europe.
Many American pundits and politicians still focus their attention on the tragic Tiananmen Square incident of 1989, during which hundreds of determined Chinese protesters were massacred by government troops. But although that event loomed very large at the time, in hindsight it generated merely a blip in the upward trajectory of China’s development and today seems virtually forgotten among ordinary Chinese, whose real incomes have increased several-fold in the quarter century since then.
Much of the Tiananmen protest had been driven by popular outrage at government corruption, and certainly there have been additional major scandals in recent years, often heavily splashed across the pages of America’s leading newspapers. But a closer examination paints a more nuanced picture, especially when contrasted with America’s own situation.
For example, over the last few years one of the most ambitious Chinese projects has been a plan to create the world’s largest and most advanced network of high-speed rail transport, an effort that absorbed a remarkable $200 billion of government investment. The result was the construction of over 6,000 miles of track, a total probably now greater than that of all the world’s other nations combined. Unfortunately, this project also involved considerable corruption, as was widely reported in the world media, which estimated that hundreds of millions of dollars had been misappropriated through bribery and graft. This scandal eventually led to the arrest or removal of numerous government officials, notably including China’s powerful Railways Minister.
Obviously such serious corruption would seem horrifying in a country with the pristine standards of a Sweden or a Norway. But based on the published accounts, it appears that the funds diverted amounted to perhaps as little as 0.2 percent of the total, with the remaining 99.8 percent generally spent as intended. So serious corruption notwithstanding, the project succeeded and China does indeed now possess the world’s largest and most advanced network of high-speed rail, constructed almost entirely in the last five or six years.
Meanwhile, America has no high-speed rail whatsoever, despite decades of debate and vast amounts of time and money spent on lobbying, hearings, political campaigns, planning efforts, and environmental-impact reports. China’s high-speed rail system may be far from perfect, but it actually exists, while America’s does not. Annual Chinese ridership now totals over 25 million trips per year, and although an occasional disaster—such as the 2011 crash in Weizhou, which killed 40 passengers—is tragic, it is hardly unexpected. After all, America’s aging low-speed trains are not exempt from similar calamities, as we saw in the 2008 Chatsworth crash that killed 25 in California.
For many years Western journalists regularly reported that the dismantling of China’s old Maoist system of government-guaranteed healthcare had led to serious social stresses, forcing ordinary workers to save an unreasonable fraction of their salaries to pay for medical treatment if they or their families became ill. But over the last couple of years, the government has taken major steps to reduce this problem by establishing a national healthcare insurance system whose coverage now extends to 95 percent or so of the total population, a far better ratio than is found in wealthy America and at a tiny fraction of the cost. Once again, competent leaders with access to growing national wealth can effectively solve these sorts of major social problems.
Although Chinese cities have negligible crime and are almost entirely free of the horrible slums found in many rapidly urbanizing Third World countries, housing for ordinary workers is often quite inadequate. But national concerns over rising unemployment due to the global recession gave the government a perfect opportunity late last year to announce a bold plan to construct over 35 million modern new government apartments, which would then be provided to ordinary workers on a subsidized basis.
All of this follows the pattern of Lee Kwan Yew’s mixed-development model, combining state socialism and free enterprise, which raised Singapore’s people from the desperate, abject poverty of 1945 to a standard of living now considerably higher than that of most Europeans or Americans, including a per capita GDP almost $12,000 above that of the United States. Obviously, implementing such a program for the world’s largest population and on a continental scale is far more challenging than doing so in a tiny city-state with a population of a few million and inherited British colonial institutions, but so far China has done very well in confounding its skeptics.
The Crisis appears to reside in our identity.
In the US, we have not yet decided what we need in order to thrive as a free people. The debt/monetary system is slavery. Pure and simple. But, debt is not the only factor, of course.
College Education is largely a facade and believing anything "low fat" must be healthy...that anything on DWTS actually matters..
I digress.
Maybe I picked the wrong word 'identity'. It seams to fit. The public is so divided and distracted over utter nonsense, part of the enslavement, indeed perhaps the very foundation of it, is our manipulated perceptions.
Its all getting very discouraging.
-1
Economists measure productivity growth and possibly GDP, incorrectly. The value of imported parts going into products assembled in the US, are counted in the final product produced with US labor. Even though the parts are produced abroad (i.e., a good example is the automobile industry). US productivity growth and possibly GDP are actually much lower.
Good God Almighty. WTF is with all the little whiny socialist big-gov loving sissified wannabe-a-victim dumbasses around here lately? I've been reading here for a few years and this place gets more full of these leeches by the day. Tyler, you're pissing a lot of pussies off out there or soemthing. GOOD WORK!
Defense Department Plans New Intelligence Gathering Service
By ERIC SCHMITT
http://www.nytimes.com/2012/04/24/world/asia/defense-department-plans-ne...
How many more do they need ? They already have google , Facebook , and ,iPhones to gather what they need from the American public. And we all know how well the "intelligence gathering " worked in Iraq. They are still trying to find those elusive WMD's.
Identify the portion that goes to Phil Gramm, the repeal of Glass-Steagall. Find Phil, haul his arse back into Congress, denounce him and throw him in prison, since he seems even more of the cause of problems than Corzine will ever be.
Do away with the secondary derivative products that came with/after the repeal of Glass-Steagall. How many trillions and billions vanish as problems? Let's attribute the blame and the consequences to the right man. Yeah, Bill Clinton signed off on Glass-Steagall when he was President. He's no longer in office. Get over it.
Dutch feel the pinch as economic crisis bites
Throughout the stormy financial crisis, the Netherlands has appeared to be riding the waves of economic unrest comparatively well. But now Prime Minister Mark Rutte's government has collapsed because of disagreements over budget cuts, and there are increasing signs of the effects of the economic downturn.
One indication is the growing need for food handouts.
http://www.bbc.co.uk/news/world-europe-17757235
I kinda get why one might assume that money circulation is a derivative of wealth creation ... but at the same time it seems wrong.
Isn't wealth creation actually the labor value add put into an economy? I am confused how else wealth can be created. Creating money certainly does not create wealth. It dilutes and transfers wealth. (In the most simple sense, say someone builds a log cabin with only their hands, trees from the forest that they cut down and a few tools that they own; they have cerated value and a degree of wealth, yet no money has changed hands. Next someone comes and buys the log cabin with Benji-fiat-bucks. The Benjis, a debt instrument, created no wealth and yet they circulated. How can this contribute to GDP or wealth creation. A debt instrument has transfered, but the debt still exits and no one is richer ... unless one makes the erroneous assumption that the debt instrument is actual wealth ... which it cannot possibly be.)
Currently we create pseudo-wealth through labor arbitrage and call it GDP. If it costs Apple $50 (or whatever) to make an iPhone and they bring it to the US, its value immediately jumps to $250 (or whatever) for them. The $200 difference created through labor arbitrage (substituting low labor for high labor value) immediately becomes positive GDP, or am I smoking something?
GDP is like measuring profits as wealth. If you gambled your way to riches, might as well call it wealth. In the mainstream view, wealth is measured by money. If you sold a house cheaper than you bought it, that's wealth. That's not correct view of wealth in my view. Wealth is when a economy produces adequate supply. Price tags are cheap, you can buy more things with the limited disposal income you have, or limited cash balance. Your real wage appreciates in value. Most economist measure consumer spending as wealth, because consumer spending brings riches to retail for example. That's not real wealth, that's squandering wealth. The more the consumer spends, the more his savings depletes, the more retail makes profits. However, the result of profigate consumer spending is simply enriching retail, not producing high end jobs. So more retail jobs are created. Productive jobs is what decreases the price of living which in turn increases the standard of living. Increasing spending, whether retail, health care, government or education, does not create on net more wealth it simply enriches those sectors while even bidding up prices even higher. Capital acculumation is essential for investments to occur. Without savings, there is no loan, there is no investment especially on capital intensive ventures. Capital saved is capital invested. In international terms, things like trade deficit indicate productivity of a economy. It indicates that the economy with a large trade deficit isn't very productive, or productivity lacking, producing only low end productive jobs that only requires humans servicing others like a person who works in the massage business, or even a prostitute. Being a prostitute isn't productive, because any willing person can be a prostitute. It's not high end occupation, though some prostitutes charge insane amount of money. Get it? Mainstream sees higher prices, and purely profits as wealth, the more money you have, the better. While the austrian view is that cost of living decreases, which improves the true wealth of the economy. A economy that economizes reduces cost, makes things cheaper, and increases supply while still profiting, and produces things to make things efficient.
Mostly agree, but I wouldn't get hung up on trade deficits. Maybe in a world were sound money is used they mean something but now they are largely a function of central banker policies.
However, I tend to think it can all be boiled down to one thing. Do you produce something that someone else demands? If so, you are creating wealth. As sad as it may seem, the world's demand for America's benji-bucks is what allows America to generate so much wealth. Of course, demand can be fickle and change with time. The demand for food, shelter, shiny metal, and more capable technology is fairly constant throughout history. The demand for paper promises not so much.
Everybody demands things, that point is moot. However investment is what meets that demand. Savings today is investment for future consumption tommorrow. As far as the trade deficits, well, thing is the world was comfortable exporting real stuff to the US, and the US exported paper money (digital money) to them, because as a reserve currency, it served it's purpose for international trade, & denomination to determine prices. However, with large budget deficits, trade deficits, negative current account deficits, & depreciating USD value, & increasing instability, that may not last. Remember the reason why other countries export to the US is because of profigate consumer spending & reserve currency in the US dollar. The fact that other countries supply the US consumer being productive, & the US consumer simply spending, & only creating jobs that are based around US consumption isn't is a vibrant economy at all. This is why the US economy struggles to create high end productive jobs. Instead US creates bubbles around the perception of sustainable profigate consumer spending, ie, like the housing bubble, or the internet bubble. Savings & investments is what creates wealth. Spending money is a disipation of wealth. Sure you create side effects of spending, you create jobs, but those jobs only exist because of profigate spending. For example, the housing bubble produced great economic stimulus, many people bought a home, bought materials to upgrade them, bought new flooring, new furniture etc, but all of that is consumer spending. There was demand for houses, because they were thought of as investments, but that heated up demand wasn't a result of a real productive economy, where Americans were getting wealthier that allowed them to buy so many houses, including expensive houses. There wages didn't rise, nor was there is dramatic increase of employed population either. The fundamentals of the economy didn't justify the rapid growth in the housing market, it was purely a credit expansion of debt financed consumption of homes, on top of that using homes to finance more consumption. That's not production, that's spending money. It doesn't create geniune wealth. Wealth comes from productivity, & the fruits of that productivity comes from your wages that allows you to consume things. The housing bubble simply reflected the bad distortions of the US consumer economy. When most of the population spends, you don't create a environment for investment to be adequate. Instead foreigners fulfill that role, they save & invest. They are creating higher wage jobs, not just more jobs, but becoming wealthier, while the american economy is simply squandering capital on consumption. It's not the fact that US produces low end productive jobs, it's the fact it mostly produces those jobs. Any economy with a intelligent population can create doctors, movie stars, etc, those are not high end productive jobs. Those are jobs any intelligent civilization can produce, but for capital intensive productivity, you need capital formation. Things that get the job done in enhancing productivity & geniunely improving standard of living. We have financialization revolving around consumption as well, borrowing money to spend it isn't geniune economic growth.
"So what brought us here?"
well you got part of the answer right - an orgy of advertising induced spendomania....savings rates fell as interest rates assumed their relentless declines. but the video shown the other day - debt as money - answers the other half of the answer.....debt based money sapped the productive economy - the fire economy is producing an economic ice age.....
debt based money must must must end else le deluge.
Consumption does not equal production. How can you measure GDP when we produce virtually nothing and consume everything? We need to start by calling it what it is : GDC gross domestic consumption and stop pretending like we produce anything.
If you are reading this then this warning is for you. Every word you read of this useless fine print is another second off your life. Don't you have other things to do? Is your life so empty that you honestly can't think of a better way to spend these moments? Or are you so impressed with authority that you give respect and credence to all who claim it? Do you read everything you're supposed to read? Do you think everything you're supposed to think? Buy what you're told you should want? Get out of your aparment. Meet a member of the opposite sex. Stop the excessive shopping and masterbation. Quit your job. Start a fight. Prove you're alive. If you don't claim your humanity you will become a statistic. You have been warned.... Tyler.
It's nice when the link spamming blog pimps start contributing.
Like all the other numbers published by the Government its used for manipulation and should only be looked at in that context, its about as real as the CPI or the NFP or any other number manufactured by a spreadsheet. The GDP number almost has to be contracting, jobless growth is a myth perpetrated by Governements and CBs...
The metrics published are bullshit just like everything else that comes out of the Government, but over the past several years the manipulation has gotten out of control - the numbers are basically just manufactured to support whatever position they need. Like the old Soviet Union: "Crop Yields are Best Ever Comrades"...
We've become a land of perceptions where we are literally shielded from reality by the media, prescription drugs, and the Government (and ourselves to some extent), its just taken for granted now that everything is a lie or misrepresentation of the truth. Its amazing it has come to a point where we literally can't believe anything we are told by the powers that control news and information.
How long before they shut down the internet and the last place where freedom lives? Another bill is in the congress now, already signed by the Senate (I think) and setting in the house. I read somewhere the house wants to add the XL pipeline to it...Not sure on those details other than the new bill: CISPA.
Maybe a new set of basic metrics should be built, tracked/calculated and published by ZH - a new industry standard for economic measurment metrics. I can see it now, Zero Hedge Redefines The Way the World Measures Finances...It would go on to say: "all of the central banks have decided to standardize on these new and revolutionary metrics that are painstakingly calculated by the Zero Hedge team everyday. The Central Banks said these new metrics will actually change the way we redistribute wealth...". Ben Bernanke congratulated the Zero Hedge team for being so much smarter then him and figuring out the things that actually drive the economy. Ben said in an interview, "Yes, I'm a fucking idiot but those Zero Hedge guys came up with something that I can actually look smart using and talking about, let's face it I was very quickly running out of bullshit"....
FUCKMONFUCKSONFUCKTOEFUCKYOUIFYOUDONTGROWYOUROWNFOODFROMSEED
sell 1 car for $1000000 or sell 1000000 cars for $1 each the GDP is the same but in the first case only one person is driving a new car and in the second case - 1000000 people are driving new cars
>and between the short and the long run
This line is very important, if GDP growth is not sustainable, in the long run it will become obvious, and the GDP will go down again. like what is happening in Greece.
Gravity is true for all nations on planet earth.
yet another one of my crazy ideas (that GDP is a grossly flawed method of measuring an economy) based in an uneducated view of plain and obvious facts goes mainstream
only a matter of time before the mainstream wakes up to the fact that sovereign debt is people being sold into slavery by their own governments, right?
Ronald Reagan.