Why I changed my Opinion on China

The only entity that can treat debt that way is the Federal Government. It can keep borrowing and borrowing because it can create the money that it needs to buy the bonds. That’s African nations Zimbabwe do, and it takes a “billion dollar note” to buy a loaf of bread. The government sells the bonds to the Federal Reserve Bank which has to power to pay for them out of thin air.

When I was undergraduate school in the late 1960s, I had a Keynesian economics professor who said that would never happen. He has long since passed away, but what he said would not become public policy has come to pass.

Our economy has been big enough to avoid paying the piper. We have also had a decrease in the velocity of money (the number of times a dollar is spent in a year), which has limited the effects of inflation. Still the day will come when the “MMP” (AOC speak, “Modern Monetary Policy”) will catch up with us, and the fix will not be pretty. You can reference what Germany had to do with its currency in the 1920s and France in the early 1960s. Your $1,000 bill could suddenly becomes a $1 bill.

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And devalue the currency. Eventually, they’ll have all the money, and it won’t be worth squat. I gather that’s more or less what happened to the Soviets.

What happens is that the money supply gets so high that price inflation can be the only result. The only thing the Fed can do is sell the bonds to soak up the extra cash. (People pay money for the bonds which takes money of circulation and out of the money supply, known as M-1 or MS-2) The trouble is all of this monetary disruption destabilizes the markets for goods and services.

The Soviet Union fell apart because it could not maintain control over the state run industries that produced virtually all of the goods services the country produced. The workers stopped producing for slave wages, and the corrupt officials at the top who were cream skimming the best of what goods there were, finally pushed to system to the brink.

It also didn’t help when the citizens behind the Iron Curtain saw how much better things were in the west. Despite having a secret police and detention camps, the political pressure blew up and brought the East European and Russians governments down.

What if supply keeps pace with demand, why would there be inflation? I mean, I’m not saying that money creation can’t result in inflation, just that, as a rule, creating money does not cause inflation unless there is some limitation on supply.

For example. The economy needs widgets. Widgets are made with some combination of raw materials, equipment and labor.

If in the widget economy more money is introduced, do widget makers charge more?

Assuming there is competition in the widget market, let’s say that the government creates and spends money for more widgets. This not only results in demand driven by government, but the profits from selling widgets is earned by those that own and work at widget factories.

So demand for widgets has increased 10%. Does the widget factory increase prices or make more widgets?

That really depends on the supply chain for raw materials, the availability of labor and excess capacity of the widget factories to increase output without having to purchase more machines or lease new floor space.

So the next questions, can additional raw materials be sourced without reaching some real limit? Is there people who need jobs and can they be trained in a reasonable amount of time (or are there skilled widget makers at home looking for work?)? If machines and floor space are needed, are they available?

If the answer to all of these questions is yes, then any increases in price will be short term as the widget companies hire and train people, and the raw material suppliers increase output and widget making machines are delivered.

All of this is a good thing as it creates jobs assuming the economy needs more jobs.

Why might an economy need jobs?

Two main reasons.

  1. The population of the nation in question is increasing meaning more people are competing for jobs.

  2. Technology is making the creation of widgets more effective increasing output with less people needed to make the same quantity.

(or both).

Most instances of run away inflation occur when those creating the money don’t pay attention to the REAL limitations on money creation, i.e. the real economies capacity to meet higher levels of demand.

If you double the money supply and double output, long term there will be little inflation and higher nominal employment.

All that said, we need to add wages in here.

Wages are a cost to business and when prices increase, so do wages. Wages have increased over 6000% in the last 100 years while relative dollar value has declined 95%, Of course, wages usually lag behind price increases but if the increases are small enough and people can save and invest, they can more than offset any losses due to inflation.

So to be clear, no one who understands the economy as I do would ever say that the government can spend as much money as it wants without consequences. Just that spending isn’t constrained by borrowing. Inflation is the constraint and I’ve just described how the constraint works.

There are

Creating more widgets is not a virtue. The widgets themselves have to create value equal or in excess to the wealth utilized in their creation. Otherwise wealth is destroyed.

Make work is no virtue. Government supporting bubbles helps no one long term.

The implicit assumption of this example is that widgets are a stand-in for goods and services people need and demand.

That said, I would agree that creating money to create buggy whips is less efficient than paying for something that has greater tangible value (like repairing roads and bridges), but even money spent on something of questionable value has second-order effects that are entirely negative. That said, it always makes sense to be as efficient as possible relative to some goal and there-in lies the rub. What economic goals should society achieve/ prioritize?

Which the Government is terrible at assessing, partly, because it can never extract itself from political incentives which are not about creating value but courting favor. Rent seeking.

And partly again, because of the Economic Calculation problem that make all quasi-socialist endevours fraught with peril.

To include the Military industrial complex.

Even roads can be overbuilt and wasteful.

See Detroit, which brags about the large roads that are hardly used.

Or any of the dozens of cities in China, with roads and bridges galore leading around the 63 million empty apartments.

White elephants indeed.

What the economy itself decides. It does not need direction. The most directed portion of the Hong Kong economy is the portion that functions least well; land ownership.

I take all of your comments with a grain of salt. There is truth and I believe there is error, but I think it’s really all tied up in the question of what goals as a society we should we pursue.

Saying that we should leave it up to the economy isn’t a statement without goals, purpose, and moral and ethical ramifications. In fact, the number of assertions and assumptions made in your comment is astounding.

That said, I think there can thousands of was to accomplish a goal as complex as what we think makes a good society, but there are almost infinite ways to do it wrong.

A lot of it depends on what rights and privileges we extend to one another. Perhaps the question isn’t who is right, but under what circumstance?

I make it because I understand what economies are and I embrace them.

It is a ground up phenomenon, a complex system of emergent order. Like language or music it needs rules but it does not need direction.

Claiming what you have here is privileging cognition. Economics meanwhile is pre-cognitive.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.

– F.A. Hayek.

I respectfully disagree and while I recognize Hayek and his contributions to the field of economics I think his fundamental conclusions are wrong.

Fact, if you believe that market forces are emergent and should be “decentralized”, what you’ll end up with, is control by the few. Monopolies and/ or Oligopolies are likely results, and the same government you malign as being incapable of directing the nation economically because of incentives, you’re now going to trust to ensure ultra-powerful corporations don’t corner markets and create unfair competition. We still need a government made of representatives to make decisions and how are they any less incentivized in the world you advocate?

And while I’m not a Socialist, you can’t ignore that on average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same…, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.

The Nordic countries maintain their dynamism despite high taxation (I’m not in favor of high taxation on the majority of people)… Most important, they spend lavishly on research and development and higher education. All of them, but especially Sweden and Finland, have taken to the sweeping revolution in information and communications technology and leveraged it to gain global competitiveness. …

The Nordic states have also worked to keep social expenditures compatible with an open, competitive, market-based economic system. Tax rates on capital are relatively low. Labor market policies pay low-skilled and otherwise difficult-to-employ individuals to work in the service sector, in key quality-of-life areas such as child care, health, and support for the elderly and disabled.

The results for the households at the bottom of the income distribution are astoundingly good, especially in contrast to the mean-spirited neglect that now passes for American social policy. The U.S. spends less than almost all rich countries on social services for the poor and disabled, and it gets what it pays for: the highest poverty rate among the rich countries and an exploding prison population. Actually, by shunning public spending on health, the U.S. gets much less than it pays for, because its dependence on private health care has led to a ramshackle system that yields mediocre results at very high costs.

While I acknowledge that you can trot out some facts and figures that show the weakness of Social democracies, clearly it’s not a clear cut as you’d allege.

That said, I believe that market forces are essential in achieving the best result, it’s important that those forces are constrained by people who represent voters.

Of course, part of the problem is that economics is hard and the fundamentals should be thought of as a class right alongside math and English. Asking the average person to understand Econ is like asking a first grader to do calculus. It takes years of learning and building up to be able to understand calculus and Econ is no different. Fundamentally, this nation and most of its people are complete dunces when it comes to understanding econ and our representatives are an extension of that.

The world I envision and advocate for requires that people be taught econ starting in grade school.

Nope; natural monopolies are rare, and tenuous. Most actual examples are Government supported.

Myth 1 debunked.

Nope, the market place. The struggle in-between.

Rules, yes, not direction.

Direction is decided by emergence, aggregated actions of people in the marketplace.

The ones who rank above us in economic freedom you mean?

And I mean far above?

Norberg pretty much liquefies this argument. Have you honestly never watched him talk about this?
Seriously CS, I need an answer to this. It sounds like you don’t know he or what he talks about exists.

As an aside Anglo saxxon countries like New Zealand and Australia are pretty neck and neck with them. And Singapore and Hong Kong are well above.

Ireland is debatabley Anglo-saxxon, but I’ll throw them in too.

None of these countries guide their economies with their Government, they’re more free than us.

Go look at it.

Oh, BS, CSB…again! Poverty level is RELATIVE. What passes for “poverty” in the U.S. is often middle class in most other world nations–including the “Nordic” ones. It’s a FACT that in Sweden, for example, those in the LOWER 1/3rd of income earners pay close to 60% of their income in TAXES. In the US, the lowest quarter pay NO INCOME TAXES at all…period. Oh, taxes are taken out of their salaries and sent to the government, but every April 15th, they get it ALL back–100%, generally PLUS some of someone else’s taxes, too in the form of that idiotic “earned income” allowance. Lots of people regard their tax refund as a sort of “savings account”, forgetting that it’s generally interest free.

And they get free child care, health care, paid maternity leave, elder care, unemployment, pensions, school lunches and school all the way though college (undergrad is free), so if you are a “poor” Swede you’re better off than a poor american because even if you can keep every dollar here, you can’t afford all the things “poor” Swedes get.

Oh, and poor Swede only pay 29% in tax, you need to make over $40k US to pay between 29-60%

No minimum wage and their students are more in debt than ours on a per wage basis from paying for everything else:

Healthcare system is being steadily privatized because Universal care wasn’t sustainable. Just like Socialism in the 1990s.

And equally, none of this is directing their economy.

They are not lead by Government projects, or incentives, or grants. The market decides what their leading industries are.

They’re not following 5 years plans, they’re not favoring one industry over another. The market decides.

Are you REALLY stupid enough to still cling to the phony “free” stuff meme, CSB? NOTHING is “free” and poor Swedes pay 29% in INCOME tax, but 25% in VAT taxes on everything they buy and an additional 5% in local sales taxes and fees. YOU do the math. They had to sell off the rights to their automobile manufacturing (to CHINESE, BTW) and their “pensions” were lowered drastically. (Their version of Social Security.)

Disingenuous given the fact that Swedes get more services, which if you placed a value on them, Swedes are still much better off.

For all your stats the one you miss is disposable income between the US and Sweden is about the same AND Swedes get more services for the money they spend. Even after all of the higher prices they pay, they still have about the same in terms of disposable income AND get much better services, especially for the people at the lower end.

As far as Sweden’s combination of government private enterprise, I don’t deny that at all. But there system of private enterprise is one I embrace.

Economic Freedom: Size Versus Intrusiveness of Government

Could the United States benefit from a more socialistic economy, as the economies of Sweden and Denmark are often described (Krugman)? The description of the Swedish and Danish economies as socialist is seriously misleading about the way the governments relate to the private sector. They are more socialistic than the US in the sense of having larger government budgets and larger taxation relative to GDP. However, in their regulation of the private sector, the governments of Sweden and Denmark are less socialistic or intrusive than the US government. This distinction between a large government budget and a government that allows substantial economic freedom in the private economy can be seen in the well-known Index of Economic Freedom Index (Heritage). All three countries rank high in total Economic Freedom out of 178 countries. In the 2016 Index, the US ranked 11th, Denmark 12th, and Sweden ranked 26th. The Index decomposes Economic Freedom into four categories, and in the three categories that reflect government regulation, both Sweden and Denmark have greater freedom than the United States. This characteristic indicates that they are better described as market economies, rather than socialist economies (Andersen et al).

Not that I disagree with you, but tell us, what is the cost?

Meaningless outside of a full context of what Swedes get for their taxes.

It’s not, it’s pointing out not only are swedes still going into extreme debt to go to school, but as Mikaela Alermud points out in the video the ROI is worse.

Making college free, didn’t solve the problem.

No disagreement, and it’s because of their economic freedom. Which is far above ours.

Social safety net programs are no guarantee of success; Uruguay’s experience shows us that.

Sweden had the seriously curtail it’s socialist government and sell off Government corporations in the 90s to keep any semblance of it’s safety net afloat.

Monopolies are tenous, rare, and typically the product of government.

Let’s see you admit the truth on this. Economists have known this truth since at least the 1970s.

This is a topic I know you’ve haven’t looked into, and your likely just quoting whatever you heard in high school.

You can’t criticize markets if you invoke made up ideas about how they behave.

When I said that Sweden is socialist, I wasn’t talking to you, you are more sophisticated then most of the people here when discussing Sweden, most here would just call Sweden a socialist nation. Yes I totally agree that Sweden isn’t socialist. What they are and what we are not is culturally socialistic. Of course that’s much easier in a largely homogeneous nation of just 10 million people, but I would argue that their culture and mindset is more responsible for their capitalistic success than the invisible forces that lead privatization.