Lessons Unlearned
Lynette Ong on China’s Potemkin skyscrapers:
Underwriting the impressive facade, however, is an incredibly risky strategy. Governments borrow money using land as collateral and repay the interest on their loans using funds they earn from selling or leasing the same land. All this means that the Chinese economy depends on a buoyant real estate market to keep grinding. If housing and land prices fall dramatically, a fiscal or banking crisis would likely soon follow. Meanwhile, local officials’ hunger for land has displaced millions of farmers, leading to 120,000 land-related protests each year.
The recklessness can be traced to two things: First, local Chinese officials are evaluated for promotions and other rewards based on how well the economy they manage performs. Construction and real estate activities are among the most straightforward ways to stimulate growth. White-elephant construction projects thus offer eager officials a perfect opportunity to impress their political superiors, even if massive developments do not necessarily make any economic sense. Take, for example, the city of Ordos in Inner Mongolia: Its elaborate urban infrastructure and its sea of new flats and office blocks are nearly all unoccupied, making it China’s largest ghost city.
I’m reminded of a lesson learned years ago reading Austin Bay and James Dunnigan. Third World leaders (and I include the old Soviet Politburo in that definition) always loved to buy or build lots and lots of missiles and tanks, and then put them on display.
It’s comparatively easy to own a lot of impressive-looking equipment, and to march around lots of young men in smart uniforms. You count the tanks, you range the missiles, you raise the divisions — and on paper you have what looks like a fearsome military.
Of course, then that military goes to war and you find it doesn’t actually, you know, fight very well. Or maybe you never have to go to war, but you find that building all those missiles and raising all those divisions have devastated what little economy you ever had.
Exhibit A for the former is the Iraqi Army circa 1990. Exhibit A for the latter is the entire Soviet Union just one year later.
What’s hard — what’s really, really hard — is training all those young men to fight. It’s hard on the equipment, which will need extra maintenance or earlier replacement — or forces you to build your stuff up to Western milspec. All that training costs money you don’t have for fuel and bullets, and tears up the countryside. And it keeps the men from doing typical Third World army tasks like helping to bring in the crops. But in the end, you get an army that can fight. You’ll also end up with a smaller military that might not look as impressive on paper.
China is putting up entire new cities like a teenage boy pours on the Drakkar Noir before his first date. Neither is likely to end with a big score.
Why do the economically ignorant (willfully, it seems) always get to be the ones that run economies?
Because absolutely nobody is qualified to “run” an economy. Therefore, anyone who tries is not only unqualified, they are to ignorant to know that they are unqualified.
Yeah, Steven.
Belenko’s book “Mig Pilot” indicated fully 1/4 of Soviet forces were suffering from dysentery at any given time. Big strong divisions don’t work well if they’re spending half their time wiping their asses, and the other half wishing they could just take a bullet.
It’s gonna fall apart, ’cause we don’t have the political discipline to fix it.
So let’s get it over with already…
How ’bout another HUGE stimulus package, PLEASE.
That only means they spent their “stimulus” on building ghost towns, providing jobs to their workers; our Dear Leader spent our “stimulus” to reward his sugar daddies, eg. Kaiser of Solyndra, closing down the damned place, sending workers to the unemployment line, and millions of our money to his donors’ pocket.
Seems we should look at our Potemkin industries first before we laugh at the Chinese.
They’re paving over farmland to build airports and skyscrapers?
That seems unwise, it’s not like China has very much farmland to begin with. And they have quite a lot of mouths to feed.
Ah, but land always holds value – just ask midwesterners about the ’80 to ’82 time or Japan coming out of the ’80s!! (for those that don’t know, land prices in the midwest collapsed in that time, leaving many farm mortages under water, with many farmers going bankrupt; and Japan – real estate values collapsed, leading to the 90′s being the first of the Japanese “lost decade”s).
Japan had a massive real estate bubble back in the 1980s. I remember reading at the time that the real estate in Tokyo was valued higher than all of the land in the US combined. When the bubble popped, Japan tried many stimulus programs. Their national debt is now around 200% of GDP and their economy still hasn’t recovered.
“like a teenage boy pours on the Drakkar Noir before his first date”
Ah, painful memories of the teen years.
So, let’s see:
South America is hopelessly corrupt.
The EU is going to be taken down by Greece, Spain, Italy, and France.
China is headed for a big bust, with a real estate crash whose effects will make our crash look like an afternoon tea party.
Russia is corrupt, drunk, and incompetent.
Japan is in their second lost decade.
North Korea is trying hard to explode (taking South Korea with it), rather than merely implode.
The US is fighting hard to replicate Greece on a larger scale (thanks Democrat voters!).
The Moslem world is, well, pathological.
Who ISN’T going to hell in a hand basket? Canada and India?
God, it’s going to be a sucky next few decades.