I THOUGHT THIS WOULD HAPPEN FOUR YEARS AGO Just ruminating. Turning bearish on c

http://blogs.wsj.com/economics/2014/02/21/even-chinas-economists-are-singing-the-blues/?mod=WSJBlogCHINA – I THOUGHT THIS WOULD HAPPEN FOUR YEARS AGO

Just ruminating.

Turning bearish on china is all well and good. But you know, I can’t make heads or tales out of what’s coming out of that country. Not sure how anyone else does. I’m not as good at the data as I am the interpretation of the logic of those that are.

I can tell you other than the vague feeling that ‘something isn’t looking good here’ no one is very sure what’s going on.

So, I still don’t feel confident one way or the other. I mean, China is an example of Keynes’ suggestion that we just dig holes and bury money in it. Except they make cities instead of holes. I mean, the really bad part about overbuilding is that infrastructure like that is more expensive to maintain than it is to build, and if it’s built at the same time (American roads) it fails at the same time (like light bulbs).

So at this point, I’m just confused. The one figure that bothers me most is actually the degree to which China’s economy is managed by foreign entities (70-80%). That means that they aren’t actually adapting at all. And I don’t understand the economy well enough to judge what kind of distortions are in place. I think, from what I see, they are buying density (transition from farming) in exchange for distortion. This actually makes sense believe it or not. And that’s a pretty good use of a command economy. I guess that if they get far enough with the population shift to cities, then they can use consumer credit after that – but only if enough people and institutions develop the skills for trustworthy transactions. And I just don’t see evidence of that yet.

I don’t underestimate the intelligence of the political class over there.

So they might be fine with it. But I don’t see how that internal ‘bad’ command-economy run by the state, translates into converting the ‘good’ economy run by foreigners. I just don’t see that. If they go long enough then the natural evolution of people in the cities might take care of it. I suppose that makes some sense. But the rapid personal wealth increases just won’t be there.

WE ALL CANNOT BE MIDDLE CLASS because not enough of us are productive enough to reach it. We can generate false middle classes for periods (British colonialism, american expansion, postwar america, petro-dollar america, post-communist-credit china). But you can’t ‘fake it’ forever. (No matter what Krugmans of the world like to pretend.)