Fool me twice, shame on me

First we have this in The Age this morning:

SENIOR Chinese government policy advisers have said Beijing is unlikely to have the appetite for the new round of massive spending to boost its slowing economy, casting a shadow over Australian miners’ hopes of a near-term rebound in the giant economy.

Doubts are also growing within China as to whether banks are willing to finance a planned $US156 billion ($150 billion) infrastructure spending spree ranging from railways to roads as many local governments in China are still nursing a three-year-old debt hangover.

And then on The Age website there is something else:

Weak Chinese trade data has underlined the likelihood of more Beijing-backed spending to deal with the damage done to the domestic economy by firms cutting production, inventories and imports in the face of anaemic global demand.

Imports fell 2.6 per cent on the year in August, confounding expectations of a 3.5 per cent rise. Exports grew 2.7 per cent, below forecasts for a 3 per cent rise.

Such weak data is grim news in a country where exports generate 25 per cent of gross domestic product, support an estimated 200 million jobs and where analysts already expect the economy to have its weakest year of expansion since 1999.

Here is how it is with Keynesian policy. Fool me once, shame on you. Fool me twice, shame on me. Everywhere you look, there are debt and derangement, direct consequences of the Keynesian expenditure of the past three years. No one with any sense will repeat this experiment again.

Economic theory hasn’t kept up with policy so most textbooks still peddle C+I+G and teach about the importance of aggregate demand. But if anyone thinks we are heading for another stimulus even as economic conditions are getting worse, they are just not paying attention. Policy is now going to follow pre-Keynesian classical prescriptions with a shift towards the private sector and some actual reductions in public sector spending. It is value adding production that creates growth and employment, not increased spending on anything. Most people are too polite to say it, but macroeconomic theory is now about as flat earth as it could possibly be.

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31 Responses to Fool me twice, shame on me

  1. WhaleHunt Fun

    No, no, a thousand times, no. In this country the inmates are running the asylum. They sadly have no capacity for learning. They will repeat the same arrogant cretinacy until they are excised. No real world fact will dissuade them of the religious fervour for pissing away your money.

  2. JamesK

    No one with any sense will repeat this experiment again.

    With any sense?

    Aye, there’s the rub.

    Any one with any sense didn’t want to do it in the first place except spending relatively modest amounts to keep social cohesion and to keep the MSM at bay.

    Nobel laureates in economics still believe in it and advance it as a solution.

    It will be repeated as long as people are happy to buy government debt.

  3. WhaleHunt Fun

    Never ascribe any facet of intelligent behaviour to the schooled from childhood leftwing nutters. They are incapable of dispassionate assessment of the outcomes of their actions. So they can never see the outcomes as being bad. They will always blame “externalities” or the evil misogynist (? mis-spelled?) Abbott. Such people cannot be reasoned with. These people are the prliamentary equivalents of Trolls. Do not feed them.

  4. kingsley

    This is what I find amazing about Obama’s current line of attack – that Romney/Ryan are prescribing the same solutions they used for last 30 years.
    Meanwhile what’s Obama offering – borrowing to spend on stimulus packages. As if this is some wonderful innovation no one has thought of before. John Maynard Keynes was never born.
    He needs to be getting called out on this and pointing out the Chinese are now backing away from this crap and for god’s sake look at Japan since it went down that path, as close to an economic zombie as you’ll get. Let alone the Europeans .. anyway preaching to the converted.

  5. brc

    Policy is now going to follow pre-Keynesian classical prescriptions with a shift towards the private sector and some actual reductions in public sector spending.

    This sounds great but I see zero evidence of this happening.

    The only remotest piece of evidence I have seen of people understanding there are no free lunches is Barnaby Joyce’s brief tenure as shadow finance minister. He was collectively hounded off stage for even bringing up the merest hint of a suggestion that the USA could not continue to borrow indefinitely.

    Whatever minor improvements in public spending created by the likes of Campbell Newman will all be given back when it comes election time, and the Labor party will get up, thump the table, look at the camera and say ‘these guys owe you all this stuff- new computers, solar panels, free broadband, dentistry and other endless goodies’.

    No, it’s just not going to happen.

  6. Alex Robson

    “Economic theory hasn’t kept up with policy so most textbooks still peddle C+I+G and teach about the importance of aggregate demand.”

    I think this statement confuses economic theory with what is in the textbooks.

    This was all dealt with in the 1980s in the literature. But most textbooks, except a few good ones, did not pick it up. The interesting question is why.

  7. Steve Kates

    Alex – an interesting distinction but I wonder how valid it is. Even now I worry about how little theoretical disagreement there is amongst economists about the need to raise the level of aggregate demand. Where would I go to find the theories of the 1980s that had transcended Keynes?

  8. Token

    No one with any sense will repeat this experiment again.

    No matter how noble and sensible your sentiment, sadly history will prove you wrong.

  9. Eyrie

    JamesK

    “It will be repeated as long as people are happy to buy government debt.”

    Lending money to governments is about as sensible as lending money to your local motorcycle gang and you have about as much chance of getting back the value you loaned.

  10. Alex Robson

    Barro, Lucas, and Sargent.

  11. hzh

    and is lending money to Banks just as sensible?

  12. SENIOR Chinese government policy advisers have said Beijing is unlikely to have the appetite for the new round of massive spending

    That’s just the party bagmen’s way of asking for bigger bribes. Freight volumes are down so the rate has to go up. How will they pay for the kid’s Ferraris at the rate they’re crashing them?

    The place is full of spoilt fat boys with little relief other than Mrs Palmer’s 5 daughters.

    With a 1.4 replacement fertility rate the future looks grim.

  13. Hanyu

    All of the Chinese factories with which I deal on a regular basis are experiencing fewer and smaller orders than that 2.7%-rise-in-export-figures suggests. Where are the factories taking all these increased orders? Okay, some obviously are (iPhone 5 is about to hit the shelves so someone is cleaning up there, but on reduced margins), but they are surely the exceptions.

    I drive around the Shenzhen, Dongguan, Guangzhou, Foshan, Zhuhai area regularly (China’s manufacturing heartland). I see more empty factories with each passing month. I visit more suppliers who are operating at 50%, 40% and even 30% operating capacity (when at this time of the year they should be squeezing out more than 100%). I was at a factory last week where over 60% of the workforce has been let go with those remaining – whilst occupied – are by no means working hard (many are being kept on just in case there is a last minute rush of orders). These are not pathetic factories that should have died years ago; some of these are among the best managed factories in the region.

    I have been hearing many factories talking about how the government will step in to prop them up if things get worse. With 15 million-plus migrant workers in the Pearl Rive Delta alone, the government better have something up its sleeve, because not very many of them have any intention of going home.

    Perhaps they could all come to Hong Kong and work in the booming tourist industry.

  14. Modern open-economy macroeconomics has abandoned activist fiscal policy for small open economies with floating exchange rates. This is even more true if they have an inflation-targeting central bank.

    It’s just that nobody has told the politicians.

  15. Eyrie

    hzh, the banks are unlikely to send the boys around to beat you up if you want your money back on time. The government has so much force at its disposal you don’t even get to ask for it.

  16. Alice

    What really gets me is that all our mining and pentrepreneurs (Twiggy, Gina and Clive) are saying and praying how much they “want to see the chinese stimulus package”.

    Yeah Im sure they do, so they can shovel coal and iron ore into it.

    But woe betide if we dare to mention a “stimulus package” being carried out at home in Oz. Thats fiscal irresponsibility according to them.
    Anyone else see the bloody minded one eyed hypocrisy of our mining execs?

  17. Twodogs

    I was shocked this morning to hear that the QLD public service had increased 30% since 2005. Not at the fact itself, mind you, but that channel 7 said it. That’s precisely the sort of information the MSM chooses not to tell us, preferring to only speak about the evil Newman making 15,000 poor overpaid public servants destitute, not that getting a fat redundancy payout would usually make one destitute.

    But who am I to complain about the glorious magnificence of the all-wise, all-knowing Labor flunkies?

  18. Twodogs

    Our mining execs are driven by money. I’m a pragmatist, but not to the extent that I have no principles. Besides, most of our growth and innovation comes from SMEs trying to move up the food chain. They are just liabilities politically.

  19. .

    But woe betide if we dare to mention a “stimulus package” being carried out at home in Oz. Thats fiscal irresponsibility according to them.

    That’s because they pay taxes to the Australian Government.

    China is the second largest economy and is our largest trading partner.

    Read what John said again. The result is the idiot Chinese Government gifts the mining industry, the owners, the workers, the shareholders and even the Commonwealth and State Treasuries. Basically China is gifting us billions of dollars because of macroeconomic leakage.

  20. .

    Alice – they have a 160 bn AUD stimulus package. They also might play with reserve ratios.

    We cannot afford to do even one tenth of that, and our monetary policy is a touch on the loose side. We make up 4.6% of their imports. Remember that most of the stimulus is in capital goods which require raw materials. The benefits of the stimulus will flow disproportionally and beneficially to Australia.

    Also remember that services to mining have a multiplier effect here.

  21. Uber

    Chinese exports account for only 5% of expenditure. The majority is tied up with residential construction. The imminent change to a new generation of government has caused a reduction in expenditure. Accordingly, only a portion of budgets have been ‘spent’. The pickup in expenditure will occur as the new government settles in some time next year. None of which has a lot to do with a battle of ideologies over economic theory.

  22. Alice

    equal (saccharine) says

    “That’s because they (the big miners) pay taxes to the Australian Government.”:

    ha ha ha. You have to be joking. As little as they can and the bulk of what they should pay ends up in tax havens but I suppose thats Ok for low tax liberals. The rest of us will just cop the bill for what the big three escape. Seems Clive even delays paying his speeding fines as long as he can.

  23. Dangph

    Courrier Mail:

    Again, says who? On that logic all public servants are bludgers, with incompetent managers to boot.

    This is true. Most workers and managers in private industry are bludgers or incompetent to some degree too. The difference is that private industry is subject to market pressures. If a company becomes too crap and stops delivering value, it disappears. That doesn’t happen in government.

  24. Jannie

    Alice people of the Left do not grasp the concept of hypocrisy, not at all.

    Australian mining companies would benefit significantly from a Chinese stimulus package, we sell them stuff and for that reason Australian miners think its a good idea for their businesses and for Australia.

    A stimulus package in Australia would create debt and long term damage to the Australian economy. Chinese producers may benefit, in the short term anyway, from the increased demand for plasma TVs and other gadgets demanded by stimulated Oz consumers.

    It is not hypocritical to mind your own business, but it is hypocritical to expect from others what you would not yourself offer to them.

  25. .

    As little as they can and the bulk of what they should pay ends up in tax havens but I suppose thats Ok for low tax liberals.

    Yet they still pay shitloads of tax despite minimising their taxes to boot.

    The Chinese stimulus is a gift to the miners, the shareholders, the directors, workers and woners of services to mining, consultants, eastern staters looking for a break and State and Federal Government.

    The Chinese are kicking up to everyone on the food chain.

    Just because the Chinese have a reputation for thrift doesn’t mean it is true. They are like a degenerate gambler and we collectively are the house.

    Why on earth would you complain about this? Their currency manipulation over the past two decades is probably worse than any resulting cycles caused by stimulus spending.

  26. Pingback: Where are the factories taking all these increased orders? at Catallaxy Files

  27. Damn right there, dot.
    The Chinese rarely honour the contracts they sign at a political level.
    The whole trade surplus piggy bank they filled up because none of our politicians would call them on the issue should have been grounds for chucking them out of the worlds trading system.

  28. Alice

    Oh my goodness saccharine

    “The Chinese stimulus is a gift to the miners, the shareholders, the directors, workers and woners of services to mining, consultants, eastern staters looking for a break and State and Federal Government.”

    Imagine that! A fiscal stimulus being a boost.

    Never thought Id hear you say it.

    Shame you dont want to see two cents worth of fiscal stimulus at home. Hypocrite.

  29. Alice

    As for currency manipulation being the province of the chinese saccharine,

    try the darling US with all its quantitative easings causing the arse to fall out of its own dollar.
    No this isnt currency manipulation. No they arent trying to make their own exports cheaper in a beggar thy neighbour policy are they?

    Not only do you give stupid arguments equal but you cant see when your heroes are debasing their own currency and playing the currency games you accuse the chinese of.

    There are none so blind…

  30. .

    Imagine that! A fiscal stimulus being a boost.

    For spending. Because of leakages in China.

    Shame you dont want to see two cents worth of fiscal stimulus at home. Hypocrite

    Because I want the Chinese to fund it, not future taxpayers in Australia?

    That doesn’t make me a hypocrite. It means I don’t despise a free lunch.

    Not only do you give stupid arguments equal but you cant see when your heroes are debasing their own currency and playing the currency games you accuse the chinese of.

    The Chinese manipulate their currency way more than America. The Americans are on a floating exchange. Forget QE – Americans previously wanted a strong dollar. Sure they engage in inflationary money supply – but they can never actually fix their price. They cannot mandate reserve ratios go up from say 15% to 25%. China can. The bottom line is: it is up to the market to take it or leave it.

    The Chinese are on a peg which looks more and more like a managed float. Everyone else’s currency floats relative to theirs. They choose the peg.

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