Where Chickens Roost


Households, in other words, typically clean up banking messes.

That’s Michael Pettis with another great post. Some more great bits (all on China):

For years China bulls have been arguing that because the Chinese save so extraordinarily much money, there is plenty of room to stimulate consumption – just get them to save a little less.  The problem with this reasoning is that consumption is not low because Chinese households save a lot (they save in line with other Asian countries as a share of their income, and less than some).  It is low because household income is such a low share of GDP.

The only way to boost household consumption is either to redistribute income from the low-consuming rich to the high consuming poor, or, better yet, to redistribute wealth from the state to households. 

Earlier he pointed out a paper that discusses the waste inherent in infrastructure projects.

In the paper Flyvbjerg looks at infrastructure projects in a number of countries (not in China, though, because he needed decent data) and shows how the benefits of these projects are systematically overstated and the costs systematically understated. More important, he shows how these terrible results are simply the expected outcomes of the way infrastructure projects are typically designed and implemented.

It is not a very happy paper in general, but I am pretty sure that many people who read it probably had a thought similar to mine: if infrastructure spending can be so seriously mismanaged in relatively transparent systems with greater political accountability, what might happen in a country with a huge infrastructure boom stretching over decades, much less transparency, and very little political accountability? Isn’t the potential for waste vast?

This is one of those depressing pieces that makes you wonder how on earth anything can go right in the world. I’m reminded of a stat I once heard somewhere that something like 60% of all investment is completely wasted. On the one hand, you might think: “wow, that’s a lot of waste, how do we make any progress”. On the other hand, you can look around and realize the power of that 40%.

On the third hand, pause a moment and appreciate the magnitude of the mismanagement that goes into a REAL crisis. Waste is the norm in an economy (an ironic label if there ever was one, I suppose) so sufficient waste to blow away a substantial portion of NGDP in a year or two is staggering. And probably has a multitude of contributing factors.

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