“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists” - Joan Robinson
This week, you will find a number of links on China, including a very good (and long) one by Michael Pettis. As the consensus about the economic and political future of the country shifts rapidly from overly bullish to overly cautious, Michael Pettis’ writings help us to analyze in details the various paths that China may decide to take, their probability and their eventual results.
Perhaps most important is Mr. Pettis’ unusual background and unorthodox thinking: when the world was mesmerized by China’s growth, he kept on explaining that China’s economic growth was driven by distortions that would eventually need a costly rebalancing. Now, as most analysts and economists are puzzled by China’s rapid deceleration, Mr. Pettis help us in grasping the keys of rebalancing.
This is only an example of a deeper symptom: most orthodox economists actually lack an actual understanding about basic economic mechanisms and history, living in a world of fantasized rationality and perfect information. Their complex mathematics cannot hide 30 years of rising inequalities, massive economic failures when their advice were applied in various part of the world (in Asia, Greece, Latin America…), and cannot explain the state led economic growth of East Asia (vs. the market based reforms in South America and Africa).
The fact that most governments are advised by these wanna-be scientists (but in fact closer to witch doctors) is worrying. The fact that economic orthodoxy is smothering any form of alternative ideas thanks to internal patronage is worrying. The fact that officials, journalists and other opinion maker continue to listen to people that have been proven wrong time and again is also worrying. Finally, the fact that the narrative imposed by mainstream economists cannot be challenged without being immediately discredited, refusing any debates about potential alternative solutions and keeping decision makers under their influence is worrying.
As we discussed many times, rising inequalities are not the only path available for our societies, nor are reforms promoted by vested interests through corrupt economists. We previously read articles asking for the abolition of the economic profession or reclassifying economics as a social science. It may be time to get rid of the charlatans.
Science, General Knowledge & Environment
« Morningophiles », ils se lèvent à 5 heures pour vivre mieux – (Hat tip Gratoune) – “Après les poulaillers et le compost, le réveil au chant du coq : plus les Français s’urbanisent, plus la vie en campagne semble les inspirer. Voilà qu’ils redécouvrent les vertus du lever aux aurores.“
History & Geopolitics
How to Succeed at Failing, Pentagon-Style – On Iraqi army training by US forces “It may be time to admit that there is no Iraq. We presume to be creating a national army that is willing to fight for the nation of Iraq, but I don’t think it’s self-evident that Iraq exists, except in the most nominal sense. If that’s true, then further efforts — a second decade’s worth of efforts to build an Iraqi army — simply are not likely to pan out.“
Conversation: Iran After the Sanctions – [Video] – “Stratfor Deputy Editor Lynn Wise and Vice President of Global Analysis Reva Bhalla discuss how the lifting of sanctions against Iran will affect the country and the region.”
Chinese Journalist Seeking Refuge in Thailand Disappears – “Security agencies in Beijing appear determined to stamp out the idea that citizens who defy the Chinese government, including dissidents and officials charged with corruption, can find safety abroad — and the examples of secretive handovers to China from Thailand are multiplying.“
The Mexican Military and Domestic Security – [Video] – “Stratfor Latin America Analyst Reggie Thompson explains the history and challenges of Mexico’s use of the military for domestic security.“
Finance & Economics
Former BIS Chief Economist Warns of Massive Debt Defaults, Need for Debt Jubilee; Fingers Europe as First in Line – “This passage reveals the real problem: the upheaval, specifically the recognition of losses by lenders and investors, which is mistakenly perceived as a transfer to borrowers, as opposed to a coming to terms of creditor bad decisions and/or bad luck, is what the political classes have been desperately trying to avoid.“
The tiny shifts that can signal huge changes – Gillian Tett “In recent years emerging markets companies in general — and Chinese groups in particular — have dramatically increased their dollar debts. The Bank for International Settlements calculates this now stands at $4,000bn for emerging markets as a whole, four times higher than in 2008. A quarter of this debt has emanated from China.“
Will China’s new “supply-side” reforms help China? – Michael Pettis “But [the allocation of the cost of debt to households] would make rapid growth in consumption impossible. Without the ability to boost GDP with explosive growth in investment, as China did following the debt crisis of the late 1990s, this also means that GDP growth must collapse, and could even become negative.“
Are Economists in Denial About What’s Driving the Inequality Trainwreck? – “Worker exploitation and outsized business profits are factors, but even more key are the unjustified payments to the wealthy generated by our outsized financial sector. This hasn’t just “happened.” Flawed economic theory and politicians beholden to the rich lead to policies that make it happen. We can fix the problem, but it will take bold steps.“
Police de la pensée économique à l’Université – (Hat tip Lu Do) – “Cette bataille apparemment corporatiste est en réalité hautement stratégique. Les représentations et préconisations des économistes exercent une forte influence sur les politiques publiques. Or, depuis une vingtaine d’années, les chercheurs hétérodoxes, c’est-à-dire tous ceux qui ne souscrivent pas à l’école néoclassique, soit à peu près un tiers des économistes français, sont exclus des positions-clés de la profession.“
Picture of the day: Globe photos of the month, January 2016
About Carlito Riego
"Great perfection may appear imperfect, but its usefulness is inexhaustible. Great abundance may appear empty, but its usefulness cannot be exhausted. Great correctness may appear twisted, great skills appear crude, great eloquence appear awkward. Activity conquers cold; inactivity conquers heat. Clear serenity governs the world." - Lao Zi