24 Jul 2013

More Pronouncements From the Central Planning, Free Market Scott Sumner

Krugman, Scott Sumner 12 Comments

Regarding claims that China is overbuilt:

Yes, there is some infrastructure in the wrong place; Ordos, or the Binhai area of Tianjin. But for the most part it’s where it should be:

1. The subways are under the huge, densely populated cities, where they should be.

2. The high speed rail mostly connects big cities.

3. The larger ports and airports are mostly near the bigger cities.

4. The motorways mostly connect highly populated areas in eastern China.

5. The housing is mostly being built in the cities that are receiving massive rural to urban migration.

And remember, if China ever becomes developed it will need far more housing, subways, airports, roads, rail, water systems, power, etc, etc, than it has now.

China’s in a sweet spot where the inefficient SOEs [state owned enterprises] don’t do all that bad—building big things.

But, he does go on to say that China should move away from the SOE model, thereby punching a hippie.

So we’ve got Krugman claiming China is about to collapse, and Sumner saying all is well. They should make a bet! Then, when one of them loses, I will run victory laps saying, “See?! The people who think we need more Aggregate Demand need to revise their failed model in light of this horrible prediction.”

(In case you’re new around these parts, I’m just kidding. Try this.)

12 Responses to “More Pronouncements From the Central Planning, Free Market Scott Sumner”

  1. Tel says:

    Managers, designers, engineers… none of those people should be paid at all. Their jobs are so easy, even Scott Sumner can do it, and still have time for blogging.

    On an unrelated topic, ZeroHedge posted an interesting article recently about the very close correlation between tallest buildings in the world, and economic collapse in the cities where those buildings are constructed. Yes, they do cite “THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS” with a link to mises.org and they even have a bit of a chit chat about misallocated resources.

    Before anyone points it out, I’m well aware that correlation is not causation, it is entirely statistically possible that a stock market crash can send ripples back in time triggering buildings to spring up out of the ground.

  2. Brent says:

    Well, I am here in Shanghai and have seen some other parts of China. I don’t think there is as many problems with building as people think. The Central Government is clamping down on local government biilding projects, which is the biggest problem. There is also criticism of the quality of some of the building, but overall it is as good as it probably should be given it is not a Developed Country – and the quality of new building is gradually increasing as we would expect.

    • Ken P says:

      That’s what I’ve been reading in the news (primarily a local government problem). I wonder what kind of rates they are paying and how much of their funding is due to Fed loose money policy.

      • Brent says:

        One other point that is often missed is that there is much more development in so-called second- and third-tier cities, as well as projects aimed at pollution abatement. These naturally involve lower land and labor costs, but it is not necessarily true that they add less value than similar prior development in the bigger and more expensive first-tier cities. As for things like controlling pollution, again I think that is likely to have negative GDP effects, but it is not exactly a bad thing in the long run. (The same goes for many financial reforms they seem to be going forward with. )

        • Ken P says:

          “As for things like controlling pollution, again I think that is likely to have negative GDP effects, but it is not exactly a bad thing in the long run. (The same goes for many financial reforms they seem to be going forward with. )”

          On the financial reforms, I agree. It sounds like they are trying to reduce the hangover before it gets here. Drinking a glass of water before they leave the bar.

          I have a caveat on the controlling pollution point. I’m sure they make some good decisions and that they have real pollution problems over there. However, I would bet that many of their projects are quite similar to “sustainable development” planning in the US. Designed by a bunch of planners who have only rudimentary understanding of first tier effects and no real understanding of unintended consequences.

          In general, anytime you have to subsidize something to make it work, you are hiding costs. Often, a big part of those costs are energy related.

          • Brent says:

            For the most part they are not subsidizing, though. They are enforcing some environmental laws and adding a few more. While this is not the best way to get efficient results, it is probably the only way that it is going to happen. And it’s not entirely anti-market… things like not allowing chemicals or sick animals to be dumped into the water supply.

  3. Ken B says:

    They should debate. Eliminate the middle-man!

  4. valueprax (@valueprax) says:

    No one thinks its zany that Sumner thinks China has a pathetic infrastructure because it’s poor, rather than that it’s poor because it has pathetic infrastructure?

    What does poor mean besides lacking things like infrastructure?

    Would it make sense for a place to be rich while having poor infrastructure?

    Sheesh. That seems so basic and fundamentally bass backwards it makes my head hurt.

  5. Major_Freedom says:

    “Then, when one of them loses, I will run victory laps saying, “See?! The people who think we need more Aggregate Demand need to revise their failed model in light of this horrible prediction.”

    Gold Jerry, gold.

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