And that's why you can't have truly capitalist systems with authoritarian, corrupt government. China and Russia both learning this lessons the hard ways as we speak. The core requirement for "free markets" to work is to have transparent, leveled playing field.
And while a lot of criticism against US financial system is completely valid (of course HN is bashing US first — because HN readers live there and it makes more sense to criticize something that you're more familiar with), it's 10s, 100s times healthier, just because the political competition between a multitude of actors guarantees that power will not be centralized in single hands.
My (completely idiotic and unprofessional) prognosis for the next decade: global financial system will repeat the same mistakes with India boom.
The one difference between China and India is that of Democracy. Even though both the nations boast of a corrupt governance system, yet the fact that in India, a non functioning government is more likely to get kicked out by an increasingly well aware population, makes it a safer bet in the long term I guess.
To Quote Thomas Friedman[0]:
"If India and China were both highways, the Chinese highway would be a six-lane, perfectly paved road, but with a huge speed bump off in the distance labeled "Political reform: how in the world do we get from Communism to a more open society?" When 1.3 billion people going 80 miles an hour hit a speed bump, one of two things happens: Either the car flies into the air and slams down, and all the parts hold together and it keeps on moving -- or the car flies into the air, slams down and all the wheels fall off. Which it will be with China, I don't know. India, by contrast, is like a highway full of potholes, with no sidewalks and half the streetlamps broken. But off in the distance, the road seems to smooth out, and if it does, this country will be a dynamo. The question is: Is that smoother road in the distance a mirage or the real thing?"
I agree completely. Personally, I'm really optimistic about India and excited to see the progress that they had lately.
But at the same time, investor's optimism has a positive feedback right until the crash, so investors will inevitably get _more_ optimistic about India than they should.
Modi, the current prime minister of India got into power with big majority as the coalition govt(UPA coalition) at the was too corrupt. Modi promised big reforms, like Obama when he got first elected, but nothing positive yet for the majority of population. He is some what pro business, but not enough pro business or pro masses to worth any applause. I don't think pro business and pro masses policy is mutually exclusive. So far it looks like his election campaign was just a marketing campaign to get elected.
See gas price, crude oil price and rupee/dollar rate over last few years. *sorry about the formatting as this is html doesn't care about white spaces and <pre> tags doesn't work here
year 10 11 12 13 14 15 today
$ Crude 74 109 90 99 108 61 33
Rs.gas 51 63 71 63 71 66 64
$ vs Rs 46.2 44.7 57.1 59.2 60.2 63.4 66.8
The prices are deregulated. But still even though crude prices has fallen so much, govt keeps retail gas prices costlier by increasing taxes. Taxes form the majority of retail gas price.
Taxes vary between states, which is detrimental for business due to the amount of paperwork. Unified tax rate named GST was to be introduced(its not a law yet). The outrageous statement made by someone was that even though GST will charge uniform tax rate somewhere in the range of 14-18% gas prices will be kept out of its purview for the time being. The horror!
But things are bright for India in the long term as youth have high education. All most all have college degree. There are press or internet censorship.
I don't understand how keeping taxes on gas prices meant that he is all marketing gimmicks? Did he promise that he'll keep gas prices low? Gas is neither cheap nor costly with the current price in India[1]. It's midway compared to most of the countries and almost the same as China. India is not a oil producing country and keeping it cheap will hurt its economy. Btw INR/USD in 2010 was way stronger than today.
What I hate about the guy is the increasing religious intolerance that is happening because of this party, and him doing not much about it. He gained a lot of votes by promising to fix corruption and telling "good days are coming". People are actually frustrated as "good days are not coming".
India imports majority of crude and refines all petroleum within the country. Business aren't paying international wages for their refinery workers, they get paid normal wages like for any other Indian. Yet when it comes to selling the petroleum products refined within the country, oil marketing companies used to say they were selling at loss. Not real loss, but hypothetical loss if they weren't selling at international prices -the companies were always making profit. These are listed companies and their annual reports are public.
Now Modi may have not promised he'll keep gas prices low, but is keeping it artificially high what he should do?
Keeping it cheap will not hurt economy as it has a direct impact on prices of food and transportation. People would've been able to save more.
Keeping gas prices high isn't a bad thing. It helps India not fall into the trap of consumption increasing when prices are low and crying for subsidies when they go back up.
India used to have subsidies on retail gas prices. Now it doesn't since complete price deregulation and so whenever global crude price changes those was supposed to reflect on retail prices. As expected prices increase whenever crude price increases, but whenever crude prices decreases central govt is increasing taxes. Current govt has raised taxes on gas/diesel almost every two weeks and yet again last week.
I wrote a script to calculate what the prices should be, factoring in the exchange rate and crude price prevailing at the time and these are the results I got.
Month/Year [retail_price vs would_be_price(if taxes were not increased) ]
June 2014 (Rs 71.51 vs Rs 71.51) - taxes when he got into power
June 2015 (Rs 66.93 vs Rs 39.89)
Jan 11, 2016 (Rs 64 vs 36.27)
Also the tax on gas prices are really complicated.
Oil marketing companies refines and their selling price includes their markup. On that selling price there are a couple of central govt taxes. Now on that price(including the central govt taxes), there are couple of state taxes. Current cost of petrol/gasoline including markup of refineries is around Rs.25 Rest are taxes.
India has a long ways to go before it catches up to China. Have you ever been? The differences in development are pretty stark.... even more so when you compare secondary cities. It's really night and day... not at all even comparable. Many Indian cities still lack decent plumbing. Westerners seem to equate India with China, some even seem to think that India is more developed on account of the english language skills and the growth of their services based economy. Couldn't be further from the truth.
Indians I know that have been to both are always surprised by how developed China is.
Westerners should travel more. It'll really open your eyes...
I've heard this view echoed by friends who've visited China (I'm Indian). A major reason for this difference might be the fact that China opened up its markets in the late 1970's while India's market liberalization happened only in 1991.
Agreed. Have visited both and driven all over India and across southern / SE China.
China is cleaner, more developed, more organised, things work, better roads / facilities and generally less chaotic with less signs of extreme poverty.
I have not been to China, have been to india. Something gives me hope for india: http://forum.hindivichar.com
Looks like the Hindi speaking part of the country is finally discovering the internet.
Let me know when China prints a few trillion dollars in currency and does not have to pay a dime for doing so and we'll discuss free markets and leveled playing fields... and corruption.
You have a very optimistic view on the US. Not one I can share unfortunately. The system is broken everywhere. The sooner we can accept that the better for everyone but if nothing changed after 2008 there is little hope.
I think the right thing to do is to discuss the issues with system(applies for all countries) with your peers on a regular basis. It will increase awareness about the problems and things will eventually get better. Taking it silently will only cause things to get worse.
The problem with that is that Americans are so irrational and polarized that you can't discuss anything with anyone. If you try discussing issues with one person, they'll start ranting about FEMA concentration camps and mass graves and how Obama is going to declare martial law any day now, but with another person they'll rant about microagressions and safe spaces.
Not that I believe the Russian economy to be better-run than the American, but right now the US does have the big advantage over just about everyone else of being able to print the world's reserve currency, which makes it easier to make the rest of the world pay to solve its problems, and I think the US did use that trick a lot after 2008 (QE being debt monetization, and the Fed's balance sheet having grown with no clear date when it'll shrink back.) So it's a bit hard to compare the US to others.
As to how well markets functioned wrt the 2008 crisis - one question concerns credit rating agencies. If you believe that they didn't do their jobs well, then it should be troubling that they didn't go out of business, quite the contrary, it's the same small number of firms which still operate in this business. If you believe that they did do their jobs well, because the government bail-out resulted in most junk debt being repaid to creditors, then you essentially don't believe that markets function very well, as they seem to have made a correct calculation that they can extract money out of taxpayers through this junk paper, and that is not what any economist would praise as markets functioning for the benefit of society.
(Two counterarguments to the above that I heard are, the government caused the housing bubble in the first place, or alternatively the government helped smooth/stabilize asset prices, including housing prices, which is a proper use of monetary policy, and the paper was never "really" junk since housing prices rebounded later. Dean Baker argues against the latter based essentially on buying homes getting costlier relatively to renting them in bubble years. The former counterargument is voiced more rarely which is perhaps why I haven't heard a counter-counterargument. Anyway, I think this whole thing is a bit muddy...)
> as they seem to have made a correct calculation that they can extract money out of taxpayers through this junk paper, and that is not what any economist would praise as markets functioning for the benefit of society.
Well, it's not like the credit agencies bailed out the banks themselves. The version of the criticism I have heard was that the banks (and credit agencies) knew that the taxpayers will bail them out if they fail, and therefore they took unnecessary risk - making investments just as useless as the nails made by Soviet nail factories.
Well, even if that's true, we can't pretend that 2008 wasn't caused by unlevel playing field, intransparent markets, faulty regulation, corruption and great concentration of power (in the hands of banks and rating agencies).
Was it caused by those things? Or was it just a speculative bubble popping, which has happened countless times in the history of the republic, long before the modern regulatory state and modern banks ever existed?
"The East Asians' troubles, votaries argue, derive from their heretical deviation from free-market orthodoxy -- they were practitioners of "crony capitalism," of "ethnocapitalism," of "statist capitalism," not of the one true faith."
Very much speculative bubbles being popped. One of the most interesting things was what Dr. Michael Burry (one of the main characters in Michael Lewis' The Big Short) noted in a recent interview:
"The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic."
Huge amounts of fraud too. Wall street is basically a pyramid scheme at this point where everyone thinks they'll get out on time to get rich.... mirroring symptoms of a serious gambling addiction.
Would agree, but I think greed doesn't fully capture the culture. Incompetence plays a large part in this, on the part of the regulators and the actual banks.
The regulators refused to downgrade the credit ratings of products as the banks would go to their competitors if they did, and they would lose money. Corruption, greed, incompetence... call it what you like, it still falls under fraud. If there is one snapshot of behaviour in a capitalist system that highlights the flaw of the system it has to be this. Why do regulators need to make money? An absurd conflict of interest.
>Compare a US problem that caused global recession
Its an extreme oversimplification to say that 2008 was a US problem. It was a problem of international finance, the bulk of which (maybe unwisely) is done via US financial institutions and with US financial products. That a problem with international finance was linked to recessions globally is not surprising.
Similarly, if some systematic problem in international manufacturing appeared, the bulk of which (perhaps unwisely) is done in China, we would expect it to also have global ramifications.
It turns out that a financial problem in China is currently contained because it is not a major player in international finance (yet).
It's not quite that simple. The law of gravity will not be permitted to apply to you if doing so will cause too much damage to too many people.
But several times the "bailout" kept the institution alive, but wiped out the shareholders. I thought that was at least somewhat reasonable. Wipe out the senior management too (which I don't recall whether that was done), and that might be about as good as can be achieved.
Well it has been proven over and over, government managed economies are not a good idea. You can hide problems longer by working the numbers but eventually it catches up with them.
China likely has earned itself a buffer because of its growth and development of many good businesses but the danger is all the propped up businesses that are state owned or owned by cronies
China has a history of inflating economic performance indicators. Massive overestimation of grain yields was one of the key factors contributing to the Great Chinese Famine [0] [1]. It wouldn't be surprising if this would still be the case.
I think comparing the state of China during and after Maoism, especially after the advent of Deng Xiaoping as head of state during the 70s, is a completely unfair comparison. It really speaks a lot to the understanding us westerners have of actual Chinese politics.
The system (capitalist or communist) determines to a great extent all kinds of curious behavior in people.
Like reporting numbers.
In communism, people are incentivized to inflate the positive numbers and deflate the negative numbers, because the primary goal is to maintain a good and submissive relationship with the higher-up party chief. The higher-up has the same incentive before his higher-up.
If you fall from grace with your higher-up (by not being able to achieve the numbers planned by the party), then your career is over (and possibly that of your family and business partners too).
So you have to give him those numbers. If you do, he will take care of you and with time, you will grow.
Then there's another property of communism: people steal.
Not only you have to report higher productivity than the set goal, you also have to cover up for all the stealing that took place below you and the "favors" you make to the higher-ups.
Of course this is illegal, but when people start doing this, they become partners in crime and now it's about life an death.
Falling from grace can actually mean doing hard time in jail or even getting the capital punishment.
This system works well when the economy grows - the pressure to perform beyond expectations is increased with each layer of bureaucracy and is more than just about "job security" - it's about survival - so people have to produce those numbers.. even if it means lying.
Of course the hard work is done by the same oppressed "working class" that the system was supposed to help in the first place.
Now, I have no idea what's going on in China and if these properties apply to their particular flavor of communism, but I suspect they do, because this is how human beings have to behave in that game to win.
And that means that the numbers reported by the government are probably off by quite a bit and it's possible that even they have no idea what the real situation is.
You can probably replace communism by capitalism in most sentence of your post. Regarding the incentive to inflate numbers, think about quarter report, or of things like Enron, Volkswagen or Autonomy (which was sold as an inflated price).
The main difference is that in an autocratic system, it is easier to not get caught by using force to silence oppositions or whistle blowers. In a working democracy with some kind of transparency and regulation, you can't lie for ever. (But then you can still say you are flabbergasted by what the auditors have found and you will do everything in your power to find out why such shocking activity took place and restore the public confidence in your company)
Corporations have a bigger principal agent problem. But in capitalism you also have privately owned businesses which doesn't have as much bloat. And the corporations have to compete with these.
I don't quite follow, why would a communist society have more incentive to lie about statistics? This seems like quite a big leap. As somebody else noted, during the beginning of great leap forward, there were huge misrepresentations about crop yields and similar things -- but this was _not_ due to a one-party system per se, it was because the farmers had promised bigger yields due to the now "modern" communist methods of planting crops and similar things. Everybody bought into the idea, and when it failed to come through, nobody wanted to take blame.
I don't think that communist societies have more incentive to lie about statistics. But they have less incentive to catch lies about statistics, because there is less competition. If the government collectively manages all the means of production, then all the routes to power go through the government. If the government chooses to lie about statistics, who else has the power or opportunity to challenge it?
In a capitalist system, it's possible for private citizens to achieve financial success without going through the government, collect and publish their own information, and in doing so, challenge and influence the government.
Debt is actually growing at a moderate rate, as it tends to do in most growing economies. The United States took on enormous amounts of debt leading up to and following World War II, but the postwar economic boom and ensuing inflation (which is fine in a healthy and growing economy) reduced the unprecedented debt "crisis" to barely a footnote in American financial history.
Inflation is good for debt holders, because they can pay off their debts with devalued money. Inflation is bad for those that save and invest because they have to earn a higher rate of return to offset inflation. Traditional economics tells the right story that inflation is not a good thing. Political economics (which is why economics is nowadays) tells you what fits the situation, so don’t work about it, eh?
Look at deflation pre-WW1 and not that not only was this a period of growth, but also one where downturns were sometimes severe but over very quickly. You have the Panics of 18xx, but not any panics that last years.
I pretty in doubt the American economy will be booming in an observable future. And debt is growing faster than GDP: http://www.wolframalpha.com/input/?i=us+government+debt+vs+u... , so I'm still in question how economy will survive without debt money supply.
Huge baby boom? From where? Just because they've relaxed the one child policy doesn't mean everyone is in a rush to have kids. A more common phenomenon is men saving every penny to someday afford a house, because the few single women refuse to date a man with anything less.
Every single economy that transitions from agriculture to industry experiences the same fall in birth rates. Having a lot of kids goes from being an insurance against elderly poverty to an insurmountable burden on your focus and finance. Most of the Chinese couples who have one child are happy to leave it from that.
How will China experience a baby boom any time soon? Why 3 years? Where's your evidence?
I have no evidence I can't see into the future and no one else in this thread can. It's pure speculation, all I know for sure is the official birthrate will go up and I'd bet any amount of money on that. I picked 3 years because if you didn't know it takes 9 months to have a baby so that'd be a good time frame to see the rate up. Any other questions?
Yes, why will the birth rate go up if the cost of raising children remains high and China's economy appears to be slowing down? These are macroeconomic signs of lower birth rates, not higher.
Naysayers have been predicting the demise of China for the past thirty years. See Gordon Chang, idiot extraordinaire.
The reality is that growth, in the long-run, is now in Asia (think of the hundreds of millions of Chinese still living in the countryside...).
This round of modernization (the third wave, after England, America+Western Europe) involves 4BN people led by India and China and they're just getting started. Take a pause and think of what that means. Four billion. BILLION.
We're entering the age of Asia. Just wait and see.
I think the bigger fear in China (at least amongst the leadership) is some crazy environmental disaster. Think of the hundreds of millions that live on the Yangtze... a massive flooding event that wipes up power/clean water is much more likely cause of revolution than an economic meltdown.
The US can barely handle Katrina... China is 10x more dense. Something like that would be death knell for CCP control.
Naysayers have been predicting the demise of everything for the whole of human history. They've been almost entirely wrong, because even when they happen to be correct about the date they're almost always wrong about the specific details.
Nevertheless, most institutions that have existed through human history no longer exist.
Naysayers being wrong isn't a data point. It's barely even noise.
There's no realistic world where China rises smoothly with no setbacks along the way. It's all but mathematically impossible by the nature of complex systems. It is reasonable to be concerned that their rise up to this point has also been unrealistically smooth. Communism has a track record of producing this apparent growth curve, after all.
> Nevertheless, most institutions that have existed through human history no longer exist.
Interesting that you say that. I believe the China is the longest surviving political entity. It's been around for two thousand years...
>There's no realistic world where China rises smoothly with no setbacks along the way. It's all but mathematically impossible by the nature of complex systems. It is reasonable to be concerned that their rise up to this point has also been unrealistically smooth. Communism has a track record of producing this apparent growth curve, after all.
Very true. My point is simply that growth is now in Asia. This is merely a bump in the road. The economic tide has changed in favor of the east. As an American its sad to state this, but its the truth.
Just look at tech. China has caught up in many many ways and starting to out innovate even the US. And they're just getting started.
"I believe the China is the longest surviving political entity."
By my standards, what we today call China dates to the 1949 Communist revolution. For China to be able to claim continuity, the other side would have had to have won. "Polities located vaguely in the Chinese landmass area" is not an institution.
"China has caught up in many many ways and starting to out innovate even the US. And they're just getting started."
I'm not seeing a lot of evidence of innovation. What I see is a Communist country doing what Communist countries do, living off of the innovation of others while pouring a lot of effort into PR that confuses credulous Westerners who really want to believe. I believe the Chinese people are capable of innovating, but until they structure their society differently, it isn't going to happen. It is an interesting question as to whether the Chinese people could tolerate and/or adjust to a truly high-innovation culture, but that's a PhD-thesis-sized topic.
Correct me if I'm wrong, and not to downplay China's incredible advances in the last few decades or so but hasn't a lot of China's "tech advancement" been copying, sending their citizens abroad to learn and hoping they come back, and in many instances down right espionage?
To be fair, whenever I try to learn something new, I generally have to do a decent amount of "copying" in a sense to get started before I can improve and make my own contributions to whatever it is that I'm doing and learning so I suppose that's to be expected and is even a sensical approach at a societal level. Why invent a touch screen when several implementations exist? Reverse engineer or find research papers and build the same one. From there you can have the experience to tweak and make your own contributions to the touch screen world, etc, etc, etc ad nauseum until you're making contributions all over the place.
Don't worry, Americans will make sure to get a piece of the pie. Either that or we will find a way to screw the country unti they will let us have a piece of the pie.
They're living the environmental disaster every day by the looks of the air pollution in their cities (and also soil contamination). I really hope they sort that out quickly or it could have seriously far reaching effects globally.
Well, 1999 just called, and wants its New Economy religion back.
Most economists have never placed a foot inside a datacenter. It's easy to understand how they imagine music (or books, software, etc) does not involve a physical process.
Do you think its more likely that all economists are shills who don't understand that datacenters consume power, or that economists model things on a shorter time scale than physicists?
By this time, the current relevance of those inputs they ignore is big enough that their predictions' time horizon is somewhere on the last decades of the last century.
China is not likely to experience "demise" because it is a huge region of the world, an ethnicity, and a culture all at once.
However, its path toward growth can be interrupted and slowed. It has happened at least twice in the few hundred years: first by the late Qing dynasty, and then again in the Great Leap Forward.
That's what people are worried about with China: that the tension between its "communist" government and its growth-pacified population will not be resolved without serious interruption to its progress.
In the U.S. there are mechanisms to relieve such tension. George W Bush mismanaged Katrina and Iraq, and the Republicans got booted from office shortly thereafter. If the Chinese leadership starts to lose the populations' confidence, how do the people pick new leadership?
As for booting the Republicans, the American people have now happily elected the GOP into power in both houses of Congress, and they've sent a bill to the White House repealing ObamaCara/ACA. Of course, it was vetoed by Obama, but given that the GOP controls most state legislatures and governorships and Congress, I fully expect a Republican to win in the 2016 election, so we can look forward to more Bush-style mismanagement.
Over 200%. That number is China's debt relative to its GDP, and its an unsustainably high number. In 10 to 15 years China's debt will be insurmountable unless painful steps are taken now to rebalance the Chinese economy. The possibility of demise for China is the intersection between those painful steps, and the CCP's fear those steps will threaten its hold on power - the entire political system actually. Great disparity in China has always led to great upheaval, which I suppose is what is really meant when people use the word "Demise".
> Naysayers have been predicting the demise of China for the past thirty years.
Yes. They even use the same sentence and arguments every six months since 30 years. I live in China and keep my eyes open, and what I see here is that people go to work, big trucks deliver bunches of new cars from the factories to the cities, universities produce an increasing number of highly skilled engineers, et cetera.
I've yet to not be astonished by the pace of development and change in China, despite my frequent trips there since the mid-90s.
Especially in the hinterland... it's really night and day. Literally in a year you go from farms to skyscrapers. Crazy fast development.
The world is starting to notice though... now you see more Chinese middle-class tourists, more Chinese students (not the smart ones who just goto the ivies, but the rich mediocre students in community / for-profit / tertiary colleges), and real estate investors (which is starting to be a huge problem in Cali, PNW, etc.).
This is nothing but a road bump for China. The Chinese are hungry as hell. I don't really think the west fully appreciates their cultural drive.
The bigger story I don't see much mention of in the press is the growing dilemma facing Europe. Do they ally themselves with America or the growing East. This will grow to become a key political concern for the EU in the next 10-20-30 years.
Yes it's a road bump, yes China is back in the front row, yes they're hungry. But once the U.S. has accepted this reality that its not a solo play anymore, there should be no need for Europe to choose, because the battle we will have to fight is against a big chunk of the planet sinking back in the dark, and we can win this battle only if we go together, U.S., Europe and China.
Expanding on the battle we civilized humans (US + EU + China) need to fight together: this is not a battle for tanks, drones and helicopters (if it was, the US would do it well enopugh), it is a fight where the weapons are words, values and time.
>The bigger story I don't see much mention of in the press is the growing dilemma facing Europe. Do they ally themselves with America or the growing East.
From what I see, it looks like they're going to ally themselves with the middle east/north Africa and adopt the culture from there.
So you are saying that this time things really are different? I would be surprised if it really is. USA couldn't prevent a crash what makes you think China can?
And while a lot of criticism against US financial system is completely valid (of course HN is bashing US first — because HN readers live there and it makes more sense to criticize something that you're more familiar with), it's 10s, 100s times healthier, just because the political competition between a multitude of actors guarantees that power will not be centralized in single hands.
My (completely idiotic and unprofessional) prognosis for the next decade: global financial system will repeat the same mistakes with India boom.