Monday, January 18, 2010

Economic Notes

Economic Notes

Wouldn't the world economy work a lot better if there was more openness and transparency? Well yes, the world as a whole would be better, but particular individuals and groups would be worse off. In particular people and groups doing criminal, unethical, or dubious things enjoy the cover of darkness, which they like to call privacy or commercial in confidence.

If countries were isolated from each other then they would definitely do better economically if they maximized openness and transparency. But they're not. So what happens when countries want to do naughty things to improve their position relative to other countries? Darkness descends. In the campaign Obama favoured transparency, but when he became president he found out what was going on and switched. What is going on is that the American economy operates, in part, rather like a giant Ponzi scheme, depending on new sucker money flowing in from outside the US. That was ok when the world was expanding, but with growth limited by resource shortages we get in the situation where Ponzi schemes become hard to sustain. So Obama has supported the coverups. Will the Congressional FCIC (Financial Crisis Investigating Committee) actually find out much? Or will it assist the coverups? I'm guessing the latter.

Another economic issue that caught my eye is that there is a lot of talk about how China's economic stimulus is being spent unproductively and that this will cause trouble later. This isn't necessarily true. In China most of the national profit goes to the government. If the government then spends it on a road to nowhere or an empty city, then this is not different to America where the people get most of the money and often spend it on unproductive assets like a yacht they never use, etc. It seems obvious that the Chinese people would be better off if they got to waste the money instead of the government wasting it for them. But this isn't necessarily true. People like to be better off relative to other people they interact with. But once you get past the basics of life, extra wealth for everyone doesn't help, and may make everyone more miserable if it weakens community, as it seems to do in the West.

China's money in the bank gives them the option to keep consuming and expanding, taking up a lot of the world's wealth creation as it goes. The more China decides to take the less is available for others. The most obvious case is oil. If China uses its money in the bank to buy oil, then it forces the price of oil up, and this makes other oil users (like America) poorer. China could do this for a long time, even if they were in deficit, and currently they are still in surplus.