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Posted on 11/05/2011 9:47:04 AM PDT by neverdem
For a while, there has been a strain of center-left American commentary that has viewed China's leaders as some kind of technocratic super-geniuses who have done a much better job of guiding their society than the loons and hacks who would actually, you know, be voted for. Call this the Tom Friedman school of thought.
In reality, China's leaders have a tendency to fall for a lot of the same economic fads that fascinate the Western center-left elites. Thus, the Chinese have been suckered into investing untold billions in high-speed rail and "green energy," endeavors that are not economically viable (even with higher population density and cheaper labor costs) and which are starting to come apart. And behind those boondoggles is one big idea China's leaders have accepted uncritically from the West: Keynesian stimulus.
Maybe this is why our center-left elites like China's rulers so much. The Chinese get to do what our elites would like to do but can't, because all those pesky voters keep getting in the way.
But it is precisely this latitude to commit fully to bad ideas that is starting to cause China big...
--snip--
This is not a violation of the principles of Keynesian economics. He and his followers have endorsed much more wasteful spending: digging and re-filling holes, building pyramids, and in Paul Krugman's case, everything from real terrorist attacks to a fictional alien invasion. And what is their biggest alleged example of a successful Keynesian stimulus? World War II. Wars might be justified or necessary. But from an economic standpoint they are a violent, deadly version of digging holes and filling them back in: a huge portion of the economy is diverted to the task of building things that will get blown up. Wars represent the destruction, not the creation, of wealth...
(Excerpt) Read more at realclearmarkets.com ...
China has an awful lot of cheap labor so very many people all across the political spectrum view it as a competitor, and for many people it's a dangerous one.
That's true of business people as well as of the center and further left. Emphasizing the danger, it's also true of many on the right as well.
China's leaders could be incredibly inept economically and we could all know it and that perception really wouldn't change.
I think the author hits on some good points. Krugman, Obama, et al do seem a bit envious of the “freedom” Chinese autocrats have in bringing their pipedreams to fruition. Also, Keynes needs to be written out of the economic lexicon. Enough of his theories have been disproven to justify discarding the body of his work. Hard sciences progress over time. Why is the field of economics seemingly still so invested in propping up a crackpot like Keynes as the last word?
The lib Thomas Fredman sure does in this "enlightened" essay on the oxymoronically titled "One Party Democracy" in the NYTimes.
One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century.
>Why is the field of economics seemingly still so invested in propping up a crackpot like Keynes as the last word?
It’s because Keynesian economics suits the ideology of a lot of people, and also is the gift to politicians which keeps on giving. I grant it is somewhat amazing that such a house of cards model can survive in what ought to be a reasonably serious field, but outside of economists, I have no trouble understanding support for Keynesian-ism. Keynesian economics gives a tidy academic veneer to government profligacy and economic meddling. There’s plenty of people who want that legitimacy for things they would do anyway.
I understand full well why our overlords are still willing to entertain Keynes notions.
But why the academics? Why so many supposedly serious economists and people with their hands on the levers? How does a 21st century educator keep a straight face while teaching nonsense about “animal spirits” as valid theory? Should med schools go back to teaching humors and leeching?
Maybe some things bother me more than they should.
In academia often ideology trumps common sense. Otherwise such nonsense as deconstructionism would not be so popular.
But as the article mentions, the modern Keynesians have managed to put a new coat of paint on the theory with nonsense about pump priming and whatnot. They generally get heavily into mathematical models which are supposed to predict things, but never really do because the basic assumptions are bogus. However because they are focused on the models, they can argue points of technical minutiae without having to face the underlying nonsense at the foundation of their work.
“How does a 21st century educator keep a straight face while teaching nonsense about “animal spirits” as valid theory? “
I don’t think “animal spirits” is all that controversial in any school of economics. Keynes certainly didn’t invent the idea. It’s a commonplace that emotion affects investment and spending and you’ll hear variations on that theme all day every day in market news.
When people fear losing their jobs, fear that the economy is going to get worse, then they hang on to their money rather than spend it. This results in lower revenues for the businesses they patronize, lower revenues result in businesses cutting back on their spending. It feeds on itself. It’s the background to our current economy.
The bubble years were just the opposite. People believed the good times would never end and spent with abandon. They borrowed on their home equity took on debt without a thought. Businesses expanded to match all the money flowing through the economy. Unchecked optimism ruled the day. You don’t have follow Keynes to be able to observe this and its effect on the GNP.
I’d argue it’s less a matter of emotion, or “animal spirits”, and more a matter of the markets not being fully informed and so trading off guesswork of prognosticators or fantasy numbers supplied by government accounting bureaus.
IMO, the bubble was driven by lax regulation and underwriting combined with dishonest metrics being reported to the public - not emotion. The inevitable collapse afterward was the result of the old maxim “what can’t go on forever, won’t.” No amount of optimism would have prevented it, and it’s more than pessimism preventing a recovery.
Maybe my hard science education is getting the better of me, but I think it’s intellectually lazy of economists to write-off business cycles or movements in macro indicators to fuzzy things like emotion. That’s just not the way sciences pose or seek to answer questions.
“I’d argue it’s less a matter of emotion, or “animal spirits”, and more a matter of the markets not being fully informed and so trading off guesswork of prognosticators or fantasy numbers supplied by government accounting bureaus.”
Markets are never fully informed. Traders use all sorts of ways to collect data to try to anticipate price movements. Government data gets reported by the news media so it appears to be more significant than it is. Big traders will use their own sources.
“Maybe my hard science education is getting the better of me, but I think it’s intellectually lazy of economists to write-off business cycles or movements in macro indicators to fuzzy things like emotion. That’s just not the way sciences pose or seek to answer questions.”
In economics we aren’t dealing with a hard science where experiments can be replicated. In some ways it is one of the most complicated of studies because the number of factors involved is large and hard to quantify, when measurement is possible at all.
‘Animal spirits’ is just one of the factors economic historians use to analyze market cycles. The classic work on crowd emotion and its impact on economic cycles is Charles McKay’s “Extraordinary Popular Delusions and the Madness of Crowds”, first published in 1841 and still in print.
“IMO, the bubble was driven by lax regulation and underwriting combined with dishonest metrics being reported to the public - not emotion. The inevitable collapse afterward was the result of the old maxim “what can’t go on forever, won’t.” No amount of optimism would have prevented it, and it’s more than pessimism preventing a recovery.”
Oh, there was plenty of emotion involved in the bubble. Fear of being left behind and greed at the seeming ease of effortless wealth was driving it, particularly here in California. Euphoria and optimism blinded the players to that old maxim you cite.
I tried telling my friends that housing looked ominously like the NASDAQ had in 1999 but with many it was like telling addicts to put away the crack pipe. They were convinced that real estate never goes down. One friend went from ‘owning’ a $2 million house with a couple of Maseratis in the garage to renting a room from a friend. A tough lesson teaching that equity is fleeting but debt is forever.
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