Friday, July 31, 2015

The Chinese economy and the panic of political leadership


This Salon article gives at bit of insight, provided by Paul Krugman, into why the Chinese government is doing exactly the wrong thing to avoid making things worse for their economy. The problem, of course, is that not only does "rapid growth" look good to the rest of the world, it makes most of the elites there very rich. Turning that situation off risks losing the apparent solidarity of those in power, and the confidence that unification is supposed to display to the masses, as well as the rest of the world.

Then there's the reality of the markets themselves, and the fact that those that have aren't spending much, and raising the wages of the masses, so they could spend more, takes away the cheap labor that was much of the foundation for the growth in the first place. Sound familiar?

Supply side economics over here results in a similar situation. The rich don't want to risk the ability to accumulate, as well as keep, increased holdings, so they advocate little taxation, and every kind of investment incentive the mind can conceive. There's also a world competitive market at play, given all of those wonderful tree trade agreements, so the other incentive is to keep our wages low as well. Which all serves to create an ever dwindling middle class, and a growing "the rest of us" who simply cannot afford to buy much of anything, any more, either.

The problem with the usual remedies, however, is that Capitalism simply doesn't work very well with them; especially now that it has been electrified. The bottom line is to somehow control the troika of profits, prices and wages, while still having an environment where innovation and market responsiveness can flourish. Given that such control necessarily requires a bureaucracy of significant magnitude you create a process mesh that is essentially an oxymoron.

Given all of this I am left perplexed, to say the least, at how intelligent people, like Mr Krugman, can criticise the panic of misinformed politicians, while they continue to refuse to acknowledge that the model itself is no longer viable. To see that it is long past it's use by date and that it is now time to redefine requirements, and then how best to address them. Something a software person understands or simply doesn't prosper if not.

Paul Krugman: The dangerous "delusions of competence"

Paul Krugman: The dangerous “delusions of competence”