Good article by Janan Ganesh, but while I agree that governance is what democracies are supposed to do best, I would also argue that democracies, as Churchill is supposed to have said about the US, do end up usually doing the right thing, but...
only after having tried out the alternatives. While non-democracies often go to their graves sticking rigidly to their institutions, healthy democracies are pragmatic and flexible, trying first one thing and, when that fails, trying something else.
3/7
This adjustment process may seem uglier and more dispiriting than the steadfastness of countries that don’t adjust as quickly, but for that reason, ironically, it most undermines the credibility of democracies just as they are proving their greatest worth.
4/7
All political systems make bad mistakes, but the ones that deliver the most in the long run, and that outlast their rivals, are the ones in which mistakes are identified and self-correcting, and of all political systems democracies seem the least bad at doing that.
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After all it was in the 1930s and 1970s, both periods of huge structural change in the world, when the prestige of democracy was at its lowest, but it was also the democracies who adjusted and ultimately managed best.
6/7
Over the next 10-15 years I suspect (assuming we get though our ecological crisis) the most important test of our various political systems will have to do with which does a better job of reversing the extreme levels of income inequality that afflict all the major...
7/7
countries of the world, and so resolves the social, political and economic consequences of extreme income inequality. Obviously the jury is still out, but I know how I would bet.
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Very interesting piece on the gradual and imperfect transition (“GDP adoption in China was an experimental – and ultimately unsuccessful – process of translation”) in China from the Soviet-invented Material Product System (MPS) of accounting for...
the size of the economy and its rate of growth to the more widely used System of National Accounts (SNA). For the latter the GDP calculation is the main indicator of aggregate economic production, whereas for the former it is NMP (net material production).
3/7
At the heart of these methods are different ways of measuring what counts as productive activity with, among other things, NMP reporting physical output numbers rather than the value of income flows. More output, not necessarily more value, increases the size of the economy.
It’s pretty well-known that while the balance sheets of China’s biggest banks, which account for just under 50% of total lending, combine questionable assets with cheap and stable funding, most of the other, smaller banks in China have...
terrible assets and very risky funding. This Bloomberg article does a very good job of explaining just how bad these can be, and how difficult it is for the regulators to solve a problem that has been festering for well over a decade.
3/7
Among other things the article points out that Chinese regulators lack a coherent strategy for dealing with the banks, and as a result have resorted to a crazy patchwork of one-off solutions for each of the at-least five banks that have been intervened since Baoshang, in...
The PBoC yesterday asked banks to suspend the counter-cyclical factor in yuan fixing, which was introduced in 2017 as a way to limit further depreciation. This initially caused the offshore markets to weaken.
Three weeks ago the PBoC announced it would reduce to zero the reserve requirement ratio, established in 2018, for financial institutions conducting foreign exchange forward trading. This was also established to limit depreciation in the RMB, and the announcement caused...
3/5
the currency again to weaken. There were also reports last week that SAFE would be issuing new quotas under QDII and other outbound investment schemes to allow greater outflows.
While straight-line projections may be inviting, they are really questionable even in the best of circumstances. Bloomberg says that if China’s economy can stick to the growth trajectory of recent years, it’ll surpass the U.S. within the next decade.
This is true if it is just a statement about arithmetic. For China’s GDP to match that of the US in ten years requires that Chinese GDP grow annually by roughly 3.4 percentage points more than the US. In the past five years, China grew by 4.3 percentage points faster.
3/8
Can China grow by 3.4 percentage points faster over the next ten years? Perhaps, but at the rate Chinese growth has been slowing, that would be pretty extraordinary – and historically unprecedented: no investment-driven “miracle” economy in history has been able to avoid...
While I've always expected that after 2020 Beijing would target growth rates between 5% and 6%, there is simply no way that sustainable consumption, exports and productive private investment can contribute enough growth to get even halfway there.
This means that the only way to achieve these levels of growth will require a further expansion of the share of public-sector investment and real-estate development in the economy, and, with it, continued rapid growth in China's debt burden.
3/4
I estimate that if China's reported GDP continues to grow by 5-6% a year over the next three years, the official debt-to-GDP ratio will climb from 254% at the end of 2019 to at least 360-390% of GDP by the end of 2023. We don't know where debt capacity limits lie, but we...
Although I sympathize with Stephen King’s frustration at some of the sillier things proposed in the name of MMT, I think it is deceptive to suggest that government borrowing today represents “borrowing from our collective economic futures”.
The fact is that everything we produce today will be consumed or invested by ourselves today, and, likewise, everything we produce in the future will be consumed or invested by ourselves in the future. Borrowing does not increase consumption today at the expense of future...
3/8
consumption. Instead it transfers spending power today from one group to another and then transfers it again in the future as the debt is repaid (although not necessarily from the former to the latter, as taxes and inflation can change the relationship between money...