Another conservative paradox

FDRoosevelt

FDRoosevelt (Photo credit: Wikipedia)

Politicians who are the champions of private businesses as the only motor of the American (or any) economy and the best social organizers (forget F.D. Roosevelt, the 4 term “socialist” president who saved and refunded the country) always blame the government for not doing better in the economy. That is why they want to take the government over. So, why do they never blame private business when they permanently fail to be successful enough.

 

Another conservative paradox

Recently released: US GDP grew 1,5 % in the second quarter, the 12th growth in a row after G.W. Bush historic recession. From a narrow “econometric” point of view, it is not that bad, if we consider all the crises, deep recessions and slow dawns around the word.

However, what is quite interesting is that the right-wing politicians are happy with this seeming “Obama’s failure”. Well, they say, Mitt Romney will do it better. The politicians who are the champions of private businesses as the only engine of the American (or any) economy and as the best social organizers (forget F.D. Roosevelt, the 4 term “socialist” president who saved and refunded the country) always blame the government for not doing better in the economy. That is why they want to take the government over. So, why do they never blame private business when they permanently fail to be successful enough. Perhaps they know that even the most successful cases have been subsidized by the government (that is, by taxpayers) as IBM, Microsoft, etc. (who did actually invest in computer research for decades?), and now GM, etc?

So, guys, if the economy is not doing better, perhaps you have to blame billionaire private business, bank inefficiency and corruption, corporate greed, some crazy speculators, and so on and so forth… at least once in history. Are they ideologically untouchable? Are they responsible only when thing are ok? We know that the governments are always bad. But based on facts, private empires are much more populist and responsible for almost every social chaos than the government that is just preventing the population to do something that the big guys wouldn’t like to experience.

Boom vs Doom: is Nouriel Roubini right on China?

April 21, 2011 7:00 am by Jamil Anderlini

It probably comes as no surprise that Nouriel Roubini – also known as Dr Doom – is bearish on China and its current growth model. Based on “two trips” to China recently the good doctor has come up with a devastating prognosis.

So is the man famous for predicting the downfall of the US housing market and subsequent global credit crisis about to notch up a second nostradamus award?

Here’s a taste of his views on China, as first published on Project Syndicate:

“China is rife with overinvestment in physical capital, infrastructure and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns and brand-new aluminium smelters kept closed to prevent global prices from plunging.”

“Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990s – have ended with a financial crisis and/or a long period of slow growth.”

Mr Roubini is a brave soul to put a date on the great China collapse. Many have tried and failed miserably to do the same thing over the last two decades. He cleverly leaves the exact timing open and if you rephrased his comments they would actually say he thinks China will not suffer a hard landing in the next two years.

Some people counter his grim analysis by pointing out China has been over-building and over-investing for well over a decade and every time it looks like there is too much investment or infrastructure, growth catches up and spare capacity disappears. There are a lot of people in China after all.

Others might also argue that the poor quality of much of the construction also means that within a decade or two all the old infrastructure will have to be torn down and rebuilt.

But Mr Roubini may well be right and makes a convincing argument that China’s addiction to over-investment will eventually cause massive waste and much slower growth down the road.

“No country can be productive enough to reinvest half of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem.”

“Continuing down the investment-led growth path will exacerbate the visible glut of capacity in manufacturing, property and infrastructure, and thus will intensify the coming economic slowdown once further fixed-investment growth becomes impossible. Until the change of political leadership in 2012-13, China’s policymakers may be able to maintain high growth rates, but at a very high foreseeable cost.”

His assessment of the government’s latest five-year plan (2011-2015) is equally gloomy.

He points out, correctly, that the latest five-year plan looks remarkably similar to the last one, with its rhetoric on rebalancing the economy and increasing the share of consumption in GDP, both goals where the government failed miserably.

Mr Roubini is also right when he says the plan’s details reveal continued reliance on investment, especially public housing to boost growth.

His prescription is a mix of reforms including: faster currency appreciation, substantial fiscal transfers to households, taxation and/or privatisation of state-owned enterprises, liberalisation of the household registration, or hukou, system, and an easing of financial repression.

The Mandarins in Beijing are certainly aware of and probably agree with many of the points Mr Roubini is making, but because of the difficulties in implementing any of these reforms they are unlikely to pay much attention to his advice.

Related reading:
China’s Bad Growth Bet, Nouriel Roubini on Project Syndicate
Why Roubini is wrong on China, Shaun Rein on CNBC.com
China: booming with a frown, beyondbrics
Copper imports: tea leaves for reading China’s growth?, beyondbrics
China: the end of cheap, Foxconn edition, beyondbrics

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