Michael Pettis — Why market liberalisation now may hurt China more

In the end, while standard macroeconomic reforms may work in theory -- albeit under an unrealistic set of assumptions -- they’ve never worked in practice. Rather than eliminating the controls that protect China from a financial crisis, leaders should confront their debt problem head-on and begin deleveraging.

For that to happen, it would help if the decision-making process were more, not less centralised. Only forceful action from the top can overcome the tremendously powerful vested interests that are blocking the redistribution of local-government wealth.

A more liberal China may be desirable in the abstract -- but not until a more controlled China gets a handle on its debt problems.

Today
Why market liberalisation now may hurt China more

Michael Pettis | Professor of Finance at the Guanghua School of Management at Peking University in Beijing

See also

While China's government debt remains contained, at 46.9 percent of GDP as per latest figures from the Bank for International Settlements, top policymakers have recently raised concerns about a sharp build-up in household debt.

Outstanding household consumer loans have surged close to 30 percent since the middle of last year and reached 30.2 trillion yuan as of October.

Outstanding yuan-denominated property loans amount to 31.1 trillion yuan and individual mortgage loans totals to 21.1 trillion yuan as of the third quarter of 2017, data from the People's Bank of China showed.

Yet, at the same time, China's economy is said to be held back by the traditionally high level of household saving, which is supposedly holding back restructuring from an investment-based economy to a consumption-based one.

CNBC
China's debt is growing at a faster pace despite years of efforts to contain it

Reuters

Bill Mitchell — Subsidiarity – a European Union smokescreen to justify failure

One of the various smokescreens that were erected by the European Commission and the bevy of economists that it either paid or were ideologically aligned to justify the design of the monetary union around the time of the Maastricht process was the concept of subsidiarity.

In 1993, the Centre for Economic Policy Research (a European-based research confederation) published its Annual Report – Making Sense of Subsidiarity: How Much Centralization for Europe? – which attempted to justify (ex post) the decisions imported from the 1989 Delors Report into the Maastricht Treaty that eschewed the creation of a federal fiscal capacity. It was one of many reports at the time by pro-Maastricht economists that influenced the political process and pushed the European nations on their inevitable journey to the edge of the ‘plank’ – teetering on the edge of destruction and being saved only because the European Central Bank has violated the spirit of the restrictions that a misapplication of the subsidiarity principle had created. It is interesting to reflect on these earlier reports. We find that the important issues they ignored remain the central issues today and predicate against the monetary union ever being a success....

Bill Mitchell – billy blog
Subsidiarity – a European Union smokescreen to justify failure
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Perry G. Mehring — Channeling Charles Kindleberger on Brexit

What would Charlie have made of Brexit?

Charles P. Kindleberger’s very last book-length effort was the slim volume titled Centralization versus Pluralism, a historical examination of political-economic struggles and swings within some leading nations (1996). In his frame, the historical struggles and swings he recounts–in the Dutch Republic, Germany, France, Britain, Canada, The United States, Japan and China–were all driven by a fundamental contradiction between the logic of economics and the logic of politics.

From a simple-minded [economic] viewpoint, the world is the optimum economic area, with its constituent countries committed to free trade, a single international currency, and harmonised standards, whereas the optimum social area is much smaller, and based on the criterion that a social unit should be small enough for an individual to know that he or she counted.

The record of history, at least within individual nations, seems to be about swings between each of these separate logics, now one way and now the other, with no sense that one is a more fundamental force than the other.…

INET
Channeling Charles Kindleberger on Brexit
Perry G. Mehring

ht Mark Thoma at Economist's View

David Andolfatto — Why the Blockchain should be familiar to you

Today's post is more about marketing the idea of blockchain. The word sounds intimidating to many people. That's probably because attempts to explain it often make use of a highly technical trade language that few people understand. My goal here is to think of ways to communicate the idea of blockchain in a manner that will make people feel like the concept is familiar to them. Indeed, I believe that the broad conceptual idea of blockchain should be familiar to us all.

Renowned Bitcoin expert Andreas Antonopoulos writes here:It will take time for the idea of decentralized trust through computation to become a part of mainstream consciousness, and until then, the idea creates cognitive dissonance for those accustomed to centralized trust systems. With thousands of years of practical use, centralized systems of trust are accepted unconditionally and without much thought as the only model of trust.

It's an excellent article and I highly recommend you read it. What I want to do here is push back a little on the notion that decentralized trust systems should necessarily create cognitive dissonance. In particular, I should like to point out that we've had tens of thousands of years of experience with decentralized trust systems. Alright, so let's get started.….

Very worthwhile read if you don't know much about blockchain already. It's a simple explanation that David Graeber might have written. It's basically how decentralized systems based on mutual trust work and have since prehistory, and how digital networking allows this to be scaled.

Notice how the blockchain described above could serve a very useful economic purpose. In particular, notice that the act of consumption (medical services) in [1], John is effectively using [2] as currency. At least, this is how things work in what anthropologists describe as "gift-giving societies." And if you think about it for a while, you'll notice that the same principle is at work in the various groups you interact with on a daily basis (your friends, your family, coworkers, etc.). Much, quite possibly most, economic exchange occurs via such localized trust networks.

The problem with this ancient blockchain technology is that it doesn't scale very well. There's only so much data we can fit in our brains. So as populations grew and as people started forming large communities, a new type of record-keeping system was needed. The model that came to dominate is one in which databases are collected and maintained by trusted third parties. Much effort is expended in keeping these private databases secure (not always successfully). It is often difficult for these agencies to communicate and reconcile their databases (as in when you try to send money from your bank account to your friend's foreign bank account overseas).

And so enter the "new" technology, blockchain. I hope I have convinced you what is new here is not the principle of the blockchain. The new technological developments are: [1] bigger brains (increased capacity for data storage and processing via computers); [2] better communications (the Internet); and [3] computer-based algorithms to serve as communal consensus mechanisms (e.g., proof-of-work).

These innovations will permit a revolution in the truest sense of the word: we are traveling back to where we began--but with planet earth as our village.

MacroMania

Why the Blockchain should be familiar to you

David Andolfatto, Vice President, FRBSL

Izabella Kaminska — Scaling and why it matters

Not enough attention is paid to scale. Scaling is the basis of civilization. As Roger Erickson has pointed out, it is also the basis of evolution. Dizzy calls our attention to it with respect to the push for decentralization and sharing. Descaling won't work, especially in a capitalistic system in which there are economies of scale.

Dizzynomics
Scaling and why it matters
Izabella Kaminska

Don Quijones — Europe’s Existential Dilemma: Fiscal Union or Breakup (and Financial Collapse)?

The economies must be knitted even closer together, insist Emmanuel Macron, France’s Minister of the Economy, and Sigmar Gabriel, the German Vice-Chancellor, — all in the name of improving “the economic potential of EMU” and allowing “us to establish clearly which policies should be centralized, harmonized or simply coordinated.” What a perfect three-word summation of Brussels’ raison d’être: to harmonize, coordinate and centralize – above all, of course, centralize!

Centralization of power in China and Russia bad, Europe good.

Raging Bull-Shit
Europe’s Existential Dilemma: Fiscal Union or Breakup (and Financial Collapse)?
Don Quijones

Don Quijones — The Men Who Stole The Sun

Incredible.

If there’s one thing we should have learnt from this extended period of post-crisis drudgery, it is that there is no limit to how far our elected governments will go to protect the interests and privileges of oligarchs and oligopolies. In Spain, the government will even steal the sun’s rays to protect the country’s energy plutocracy.

Now the Spanish government is planning to tax homes that produce their own energy through solar power and store some of it using batteries. El País reports:

A draft decree prepared by the Industry, Energy and Tourism Ministry establishes a new fee to discourage the use of batteries or other storage systems by people who produce electricity, with solar or photovoltaic panels for instance, and who are connected to the national power grid.

This latest royal decree follows on the heels of an earlier one announced in 2013 that levied a tax solely on those who generate their own electricity. Once passed into law, intrepid small-time energy producers will be forced to pay a backup toll for the power from their solar panels, in addition to the access toll paid by everyone who consumes electricity from the conventional grid.

What’s worse, in order to figure out who is producing what level of energy (and, of course, how much to tax it), all solar panels would have to be hooked up to the grid. Energy producers who don’t connect to the grid could face a fine of up to 30 million euros (yes, seven zeros!). As Forbes reports, the intention is clear: to scare taxpayers into connecting to the grid in order to be taxed:....

Not mention that in some places gathering rain water is prohibited.

Wolf Street
The Men Who Stole The SunDon Quijones

Lars P. Syll — Solow on Good Hayek and Bad Hayek

Robert Solow:

The Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long.… 

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book.…

Lars P. Syll’s Blog
Solow on Good Hayek and Bad Hayek
Lars P. Syll | Professor, Malmo University

Brad DeLong picks it up.
Lunchtime Must-Read: Robert Solow (2012): Hayek, Friedman, and the Illusions of Conservative Economics

The source of their alarm was not the danger from Soviet communism or Nazi Germany, but rather the rash of interventionist economic policies everywhere, the New Deal here and the Labor Party there, designed to ameliorate and to reverse the ravages of falling incomes and rising unemployment…. Lionel Robbins… Friedrich von Hayek… Frank Knight… Jacob Viner… Henry Simons… [all] wanted both to propagate ideas and to change the world. (It is worth mentioning that both Knight and Viner were later privately critical of The Road to Serfdom.) What seems off-key (at least now, at least to me) is that they all felt themselves to be in a struggle between free markets and collectivism (or socialism) with no possible intermediate stopping point. That is the meaning of ‘the road to serfdom’….

This is the source of Margaret Thatcher's TINA — "there is no alternative" [to neoliberalism]. This involves the informal fallacy of the excluded middle, aka "false dilemma, black-and-white thinking, bifurcation, denying a conjunct, the either-or fallacy, false dichotomy, fallacy of exhaustive hypotheses, the fallacy of false choice, the fallacy of the false alternative" [Wikipedia]. A lot of otherwise smart people fell into this trap of illogic, known since ancient times. Ideological blinders, or class-serving motive?