Wednesday, February 28, 2018

Ellen Brown - Funding Infrastructure: Why China Is Running Circles Around America

China doesn't have a good public health care system although the Chinese government is looking into it. And most Chinese don't have a Western standard of living so labour is cheaper there and is this part of the reason for its success? Maybe, but it took centuries for us to go from as rural economy to a modern industrial one (but now being industrialised) whereas China is advancing in just decades. It seems their system is greatly outsmarting our one.

I wonder if  Egmont Kakarot-Handtke pure scientific economic system can compete with this, but he does say his system can work alongside social democratic systems where the government runs large parts of the economy. He says it down to each country to decide what the government wants to run. 

I remember reading an article in the guardian once written by a good a very economics correspondent who said our pensions industry was going about it all wrong. The pension fund managers were just investing in the housing market and in the boom years they made big bonuses but in the bust years they kept their money while everyone else lost out. The incentives were all wrong, he said, and government regulations were need to make the pension companies invest in new businesses and start ups. This would have created good paying jobs for young people while creating good yields for the pensions of older people. What a missed opportunity, but we decided that deregulation would provide the best pensions instead. Or was it that the ruling elite decided this, while their neoclassical economists came up with the maths required to make it look right. 

In our neoliberal-neoclassical capitalist system maximising profits is the most important thing and this gives the biggest bonuses to CEO's. So they have been borrowing money at very low interest rates to buy back their companies shares increasing their value which makes the company look more profitable than it really is to get the biggest bonuses. But investing in the company would been better for creating jobs and ensuring its survival in the future while creating better products for the customer. And the saddest part is that this investment would have yielded larger profits later on. But when you can earn a ton in just two or three years, get to own mansions with acres of grounds, a super yacht or two, and holiday homes all around the world, why should a CEO worry if his company goes out of business in a few years time? 

Predatory investors would buy into companies, like Salisbury's, and then try to convince the other shareholders to force the management to sell all their property and lease it back instead. This would have generated massive one off profits and the predatory investors could then walk away with millions while leaving the companies hugely in debt making less them competitive in the future. What type of capitalist system is that? It's not about hard work and investing, it's about stripping out all the hard work that capitalists have put in in the past. Today's capitalism seems to be working in reverse. 

Ellen Brown says that china's public banks are not too concerned if they ever get their money back; if they do, then great, but if they don't, it circulates in the economy creating jobs and prosperity instead. 

How can our capitalist system possibly compete with the Chines model?  They are leaving us in the stone age. KV

Ellen Brown

“One Belt, One Road,” China’s $1 trillion infrastructure initiative, is a massive undertaking of highways, pipelines, transmission lines, ports, power stations, fiber optics, and railroads connecting China to Central Asia, Europe and Africa. According to Dan Slane, a former advisor in President Trump’s transition team, “It is the largest infrastructure project initiated by one nation in the history of the world and is designed to enable China to become the dominant economic power in the world.” In a January 29th article titled “Trump’s Plan a Recipe for Failure, Former Infrastructure Advisor Says,” he added, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”
On Monday, February 12th, President Trump’s own infrastructure initiative was finally unveiled. Perhaps to trump China’s $1 trillion mega-project, the Administration has now upped the ante from $1 trillion to $1.5 trillion, or at least so the initiative is billed. But as Donald Cohen observes in The American Prospect, it’s really only $200 billion, the sole sum that is to come from federal funding; and it’s not even that after factoring in the billions in tax cuts in infrastructure-related projects. The rest of the $1.5 trillion is to come from cities, states, and private investors; and since city and state coffers are depleted, that chiefly means private investors. The focus of the Administration’s plan is on public-private partnerships, which as Slane notes are not suitable for many of the most critical infrastructure projects, since they lack the sort of ongoing funding stream such as a toll or fee that would attract private investors. Public-private partnerships also drive up costs compared to financing with municipal bonds.
In any case, as Yves Smith observes, private equity firms are not much interested in public assets; and to the extent that they are, they are more interested in privatizing existing infrastructure than in funding the new development that is at the heart of the president’s plan. Moreover, local officials and local businessmen are now leery of privatization deals. They know the price of quick cash is to be bled dry with user charges and profit guarantees.
The White House says its initiative is not a take-it-or-leave-it proposal but is the start of a negotiation, and that the president is “open to new sources of funding.” But no one in Congress seems to have a viable proposal. Perhaps it is time to look more closely at how China does it . . . .

China’s Secret Funding Source: The Deep Pocket of Its State-owned Banks

Ellen Brown - Funding Infrastructure: Why China Is Running Circles Around America


Tom Hickey said...

This issue is basically about finding the "sweet spot" between a pure command economy and a pure self-regulating economy given the prevailing context locally, regionally, nationally, and internationally.

The Chinese leadership seems to have more or less figured this out. The US not so much.

The competing policy theories seem to be market socialism with Chinese characteristics, Anglo-American neoliberalism, and German ordoliberalism, with Islamic economics and finance just beginning to have an influence.

AXEC / E.K-H said...

Economies are culturally different but economic laws are universal
Comment on Tom Hickey on ‘Ellen Brown ― Funding Infrastructure: Why China Is Running Circles Around America’

The economic laws for the monetary economy are the SAME under capitalism and communism or anything in between, just as the laws of aerodynamics are the same for a bird or a plane and whether one flies to the South Sea or to Antarctica.

Of course, the cultural superstructure of different economies is different. So, universal economic laws and national culture together produce the concrete historical outcome for different economies. Analytically, though, both things have to be kept apart. Economics deals with objective-systemic laws of the monetary economy and not with the sociology or history of an individual country. This is analogous to physics where the Law of Gravity is the same for different countries and for different cultures and for people with different worldviews.

The crucial point for the economist to understand is that economics deals neither primarily nor secondarily with individual human behavior or society at large. This is the realm of Psychology, Sociology, Anthropology, History, Political Science, Social Philosophy, Biology/Evolution Theory etcetera. It is high time that economists take their sticky fingers out of these pies.#1

The Employment Law and the Profit Law are the same for China, the USA, or Germany.#2 The macroeconomic profit in an economy is the same whether firms a run by owner-appointed managers or state-appointed managers and it is given by Qm=Yd+(I−Sm)+(G−T)+(X−M).#3

Obviously, the philosophy of society/state/politics is different in different national economies. In China the underlying state ethics is Confucian, in Germany it is Prussian, and in the USA it is Utilitarian. The former two have a strong social component which manifests itself in economic institutions like banking or old age assurance.

Different overall profitabilities in different countries are NOT due to cultural differences, or the ownership order, or the proficiency of workers, or the greediness of managers but uniquely and exclusively to the macroeconomic Profit Law. Put bluntly, if ‘capitalist’ American firms appear on average to be more profitable than ‘communist’ Russian firms this is because public and private deficit spending in the USA is a bit over the top. The mirror image of corporate/private financial wealth is the public debt of the US government. In other words, overall profit in the USA is for the greater part state-determined.

Therefore, in a systemic comparison, it is NOT the case that the US economic order is superior to the Chinese economic order or vice versa. Fact is that ALL monetary economies are identical with regard to the underlying systemic economic laws. The differences are in the social philosophies. But philosophy is NOT an issue for economists. All the more so, because economists have not yet understood the foundational concept of their subject matter, i.e. profit. How can they understand anything else?

Egmont Kakarot-Handtke

#1 Economics: Poor philosophy, poor psychology, poor science

#2 Full employment: thinking like the macro-boss

#3 For details of the big picture see cross-references Profit