China: All that glitters…?

My friend Dror has put up an interesting post on Thomas Friedman’s controversial column that I wrote about yesterday. Dror fears that many of us, dazzled by gushing reports of China’s success a la Friedman, will get a distorted picture of a country that’s not really doing quite as spectacularly as Friedman would have us believe.

As Ian Buruma points out in a recent article, ‘China’s economic success is convincing too many leaders that citizens… want to be treated like children’. This ideological shift is already showing itself in the calls for increased government planning in the US, as well as the shift of geopolitical power towards China. Taiwan, for example, recently announced that it will not apply for a UN seat this year, for the first time in 17 years. We can expect to see more and more political and ideological deferral to Chinese interests as we progress deeper into the crisis.

All this has happened before. In 1929, American pundits were mourning the failure of capitalism and listing the achievements of central planning in other countries. Back then, commentators were impressed by the Soviet Union’s high employment rate, and its incredible environmental and infrastructure initiatives. These included the Dnieprostroy hydroelectric plant (the largest of its kind in Europe), the 950 mile Siberian-Turkestan railway, and the Volga-Don water canal. Other achievements of that period included Nazi Germany’s 100% employment rate, Hitler’s autobahn (highway) projects, and Fascist Italy’s train system and efficient cooperation between government and business.

(Go to Dror’s post for the many links he incudes to back up is argument.)

Dror and I have had an ongoing argument for months about how strong China’s economy actually is, and how it stands up to America’s. I tend to think China is in better shape than he does. If you are watching its behind the scenes maneuverings, like shoring up its natural resources by cutting deals with Iran, Iraq and African countries, or its nearly silent investment in gold, you can’t help but see that they do have a blueprint for wielding the kind of global influence that for decades we imagined only the US could. China and the US are both pulling out of their recessions, but the US is going to get pulverized by the next wave of home foreclosures and the ticking time bomb of CDOs, all of which must (not might) pull down the dollar and weaken our financial system. China, while faced with its own staggering problems, is relatively unaffected by America’s mess, especially as it quietly moves away from the dollar.

China’s economy is so fragile, making predictions about it is dicey at best. I do think it’s safe to say that its global influence will continue to expand as America’s contracts, and it will be increasingly better poised than we are to cut deals, win friends and influence people. And yes, I know the huge problems China faces. But it’s faced many of these problems for the past 30 years (and some for far longer) and has continued to move ahead, or at least to plod along. And China has what we don’t – money in the bank. And nothing else talks like money. Maybe they will screw it all up and go crashing down. But for now, I see them as having the upper hand. Which, considering how America’s fallen, doesn’t really say very much, but still….

The Discussion: 65 Comments

However, America has the ability to feed itself. China does not. America has a far greater bounty of natural resources and a relatively clean environment. Most importantly, America does not have more than a billion people to somehow support.

I’m not downplaying either US problems or China’s achievements – both are considerable.

September 11, 2009 @ 1:19 pm | Comment

All true. Although I do think China is generally able to feed itself.

September 11, 2009 @ 1:24 pm | Comment

I think the economy in China works well, as there are still many hundreds of million people who need to work for 10 Yuan a day to make products that can be sold cheaply to more rich Chinese and the rest of the world. The system works by exploiting poor people.

What do you do, with 800 million people who are not skilled, who never will be skilled? Today the system works, as they can do simple jobs. But tomorrow automatization makes them redundant.

Once the current system faces hugh difficulties, I think we are in for World War 3 or at least a new revolution. This will not happen in 5 or 10 years, but eventually it will happen.

If the gap between rich and poor becomes to great, things will get nasty….

The Western economies are much better equipped to deal with problems. E.g. Obama can be thrown out of the office in 3 1/4 years….or he can be reelected, he must prove that he is doing a good job. People will decide…

September 11, 2009 @ 1:54 pm | Comment

The problem for CH is how to provide decent job for its masses of skilled and unskilled workers without boosting even more its production overcapacity.

Modern affordable, even dead cheap, electronics and other technology products has been possible thanks to CH excess production capacity. A hard deal for CH workers from western point of view, but what other option was available?

But now many markets are saturated, even contracting due to the economic crisis. How to keep growing and producing more jobs for the masses coming out of the CH universities and farming towns?

A stimulus infrastucture package will not be enough, neither spurring CH local. Without a strong social security protection network better to keep money at home, just in case.
Besides increasing consumption in CH would also increase environmental problems. If a majority of CH consumed just a fraction of what a US or EU citizens consumes, I think the resources of the country will not be enough. At least with current technologies.

CH would be very glad to have US or EU problems. For US/EU, CH problems are beyond their worst nightmares. Only the situation in postwar EU comes close, and not by much.

How to solve the problem? I have no idea. Hope new technologies can bring improvements with time. New efficient ways to manage a modern society, less wasteful.
Here is were CH could play a great innovative role. They have the most needs, and need is the mother of all inventions.

September 11, 2009 @ 2:58 pm | Comment

Thanks, Richard.

A few things to clarify: the point of my article is not about the state of China’s economy. Even if at this point in time China’s economy is doing better than that of the US or any other liberal democracy, there is still no doubt that free markets and liberal democracy are the way to go, as far as long term prosperity and stability are concerned.

That said, I do think that China’s economy is much more fragile than most people imagine, and that many of China’s current domestic policies are alleviating short-term pain by setting the scene for long-term pain. China, like America, is fighting the crisis by doing more of the same things that created it: inflating a real estate stock bubble, currency manipulation, expansion of the public sector, and free-for-all bank lending.

As I have noted elsewhere, on top of the government stimulus, China’s banks gave away more than 1 billion US (25% of China’s GDP) during the first half of 2009. A large chunk of the money found its was to the stock and property markets, and to Macau’s casino table. Another large chunk was lent to real project, but ones developed in the wrong places by the wrong people. Can a poor country afford to be so wasteful? Perhaps for a while. But these kind of things always catch up with you.

China is also doing plenty of good things – like purchasing commodities at bargain prices, but I don’t think these can offset the massive misallocation of resources that is taking place due to other policies.

So, nothing that is currently happening in China surprises me, and they indeed suffered a major blow, and are on track to receive a worse one during the next phase of this crisis, whether it is in two months or five years down the line.

My biggest surprise is America. As I told you on FB, my key mistake going into this crisis was underestimating America’s ability to self-destruct. I was never a fan of Obama, but I did not expect him to make such an effort to make things worse – more bailouts, more more to the banks, more Bernanke, more war, and further expansion of the public sector. And now a severe 24 month crisis is exacerbated to become a full on depression.

That said, I still think America has more hope than China, even though things might get real ugly before we can see traces of it. In the mean time, China can enjoy its day in the sun (in those few areas when you can actually see the sun…).

September 11, 2009 @ 4:26 pm | Comment


25% of China’s gdp is 1.1 trillion not billion. If China gave away 1.1 trillion, someone wouldn’t more people would’ve noticed instead of some article on the backpage in cnn?

2nd, the article where you based the information from Jerry Lou, China strategist for Morgan Stanley at cnn. Where does he get those figures from? Is there any information from the Chinese government to back those figures up? Does he work for the Chinese government?

3rd, how can you compare PRC 2009 = USSR 1929? The economies of Italy, Germany and Russia would be pretty good if Hitler didn’t go on his global conquest during WWII. You didn’t take that fact into account. It is not like PRC is going to war with any other countries anytime soon.

September 11, 2009 @ 11:19 pm | Comment

I live and work in Guangzhou,China. I follow your blog and find it interesting. I will not comment further as I am scared to!

September 12, 2009 @ 12:25 am | Comment


Russia not so sure. Italy and specially Germany were having a strong economy growth, but they were spending money that they did not have.
The war was supposed to pay for those debts. They almost were succesful… specially Germany.

Is the situation today in CH similar to Italy and Germany in the 30’s? Hhhmmm…, CH has a lot of cash in the bank now…

But CH is in a strange situation, if there is a collapse the money it has may not be of much use.

Even now, they cannot spend the money they have to increase living standards significantly. If they tried the demand for resources would trigger an hyperinflation.

Instead they lend money to US so consumers so (US)americans can pump up their consumption of goods mostly made in China (but not necessarily CH brands)
which allows new factories to be build in CH….
which provides more jobs to Chinese workers…
which produce more goods that have to be sold…
which make CH lend more money to the US….
which allow use consumers to buy more made in CH products…
which allows new factories to be build….

But it seems that cycle is reaching its end. What now?

September 12, 2009 @ 12:39 am | Comment

Dror, I agree about America. The strategy of printing money and, worst of all, treating toxic debt as though it actually has value could be America’s undoing. Not forever, but it could lead to a complete collapse of the dollar and a resurgence of inflation. I know you are watching the price of gold. I took a lot of heat a couple of years ago when I strongly recommended gold to readers here, and it’s gone up and up, especially over the past few weeks as people start to wise up to the trainwreck ahead. Dr. Doom explains this more clearly than I can:

Necessary as the stimulus has been, it cannot go on indefinitely. Governments cannot run deficits of 10% or more of GDP, and they cannot go on doubling the monetary base, without eventually stoking inflation expectations, pushing up long-term interest rates and eventually eroding their very viability as sovereign borrowers. Not even the U.S. can do that.

The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%–that’s an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.

In other words, we are trapping ourselves in a death spiral.

We’ll have to agree to disagree on China’s strengths. I think a lot of their success has been built on sand, but I also think it won’t catch up with them for years, and if they improve things along the way, it may never catch up. Here’s a smart observation from one of the smartest journalists in China:

We are still in the midst of historic shifts in the global economy that we don’t fully understand, and nobody really knows anything for sure about how it will all look in a few years or in a decade from now. If you ran everything you think you know about the Chinese economy through the Monte Carlo machine, the machine would choke on the contradictions.

Even if seemingly smart people think they know what’s going to happen in the long run–and quite a few are worried–the problem with predictions is that the short run can last for quite a long time. Maybe this new China bubble will outlast the global slowdown. Maybe China can outrun its problems long enough to confront them.

No one knows. But I agree with that last statement. China may well just move along for years before the bubble bursts, and by the time it does it may have found a way to soften the blow. They can do that more easily than we can simply because they have the cash.

Eco, there’s an ongoing argument about what role exports will play in China’s recovery. In an earlier thread, for example, financial analyst ferin pointed to this story as proof that doesn’t depend on exports to the extent we believe.

If exports are measured correctly, however, they account for a surprisingly modest share of China’s economic growth.

And that’s from The Economist, not People’s Daily. Maybe China will just keep on surprising us.

September 12, 2009 @ 2:10 am | Comment


All that is Gold does not glitter
Not all those who wander are Lost.
The old that is strong does not wither
Deep roots are not reached by the frost.

But they will have to run fast
and don’t trip along the way.

September 12, 2009 @ 3:00 am | Comment

there is still no doubt that free markets and liberal democracy are the way to go, as far as long term prosperity and stability are concerned.

No doubt? The doubt is as big as US national debt.

September 12, 2009 @ 4:25 am | Comment

– It is 1 trillion. The number is not based just on someone’s estimate. It was widely published by major Chinese publications, and is based on information from local banks. Here, for example, a translation of an article from Caijing. So, Chinese banks did give away loans equal to roughly 25% of China’s GDP during the first half of 2009.

– Your claim that if Hitler and Mousoloini (and Stalin and Tojo?) would not go on a rampage then their economy would have reached greater levels of prosperity is missing the whole point. One of the key problems of totalitarianism is that it necessarily requires the subjugation of individual freedoms to the “common” interest and brings about an expansion of the public sector, including the military. Based on the historical information we have, once a country’s government grows beyond a certain size and its military expenditure goes beyond a certain level, things start to get ugly, both internally and externally. The common denominator between Hitler’s Germany, Hirohito’s Japan, Mussolini’s Italy, and Stalin’s Russia is Government control of/involvement in all parts of the economy (as well as militarism, a common component of big government).

There is a very strong correlation between violence, oppression, militarism, and big government. That’s a fact. So, based on what we know, you can’t have one without the other. Claiming that Nazism would be a great system if it would only avoid killing a few million people is like claiming that slave labor would be very efficient if it would only avoid forcing people to work.

@Richard: Saying that maybe China will surprise us by becoming something completely different is always a nice thought. I talk about what I know and see. At the moment, things are not going in the right direction. Using evidence from the future to argue about the present carries little weight. 🙂

As for the Economist, their coverage of the crisis, including China, has been sub-standard. I stopped reading it a few months ago. They have been pushing their agenda of “decoupling” before the crisis, and despite being proved wrong, they keep trying to convince us that only America is in trouble, but everyone else is doing fine. It’s pathetic. The only decoupling that has been happening this year is the decoupling between real and virtual value, with both China and America pushing their GDP up by pouring new money into circulation.

As for the specific point about export – China today depends more and more on capital investment, mostly from the government. It might depend slightly less on exports, but it also depends much less on private consumption which means it is exactly in the opposite direction of where it should be going. So, both in the US and in China, the “solution” we get to the crisis is more government, more usage of public money for political purposes, more artificially cheap money, and more lies. The crisis did not even begin. Brace yourselves.

September 12, 2009 @ 7:59 am | Comment

@ Zhaloeban: “No doubt? The doubt is as big as US national debt.”
The national debt is a result of the fact that the US does not have a free market, and has less democracy due to increased government control on all aspects of life, not the other way around.

September 12, 2009 @ 8:02 am | Comment

@Richard: Saying that maybe China will surprise us by becoming something completely different is always a nice thought.

Did I say that? I don’t think so, but if I did, I didn’t mean it. What I meant was that China might be able to fix things before their bubble bursts simply because, as Gaddy Epstein of Forbes says, it might take years before the big burst.

Dror, the national debt is due in large part to our spectacularly huge bailout of the free-market Wall Street robber baronsgeniuses who got us into a crisis – mainly due to lack of regulation, the laissez-faire markets-fix-everything mentality of Ronald Reagan and other conservatives. You and I agree on much, but here there is a sea of difference between us. We are FUBAR due to the relaxation of control of ferociously greedy free market MF’ers who were allowed to turn our economy into a Ponzi scheme. More regulation, not less is called for.

September 12, 2009 @ 8:11 am | Comment

@Richard: The money quote you put forward was “Maybe this new China bubble will outlast the global slowdown. Maybe China can outrun its problems long enough to confront them.”

It talks about hope. And does not deny the fact that the current state of affairs is not good. All it does is suggest that things might change.

As for America’s National Debt, last time I checked the crisis was cause by Sub-Prime loans and loose monetary policy. 25-50% of Sub-Prime loans were given directly by Fannie and Freddie (Government institutions…), and the loose monetary policy was administered by the Federal Reserve (a Government-sanctioned banking cartel). No free market in sight.

The general rise of the financial industry and the America’s down-spiral into debt started before Reagan took power. In 1971 Nixon took the US off the Gold Standard (to finance the Vietnam war, and other adventures). Since then, the banking cartel and government had a license to create money out of thin air, thus generating unprecedented levels of debt. The fruits we reap today were sowed and nurtured since then, under Liberal and Democratic government. Bush expanded the government more than anyone before him in recent history, and Obama already managed to spend more than Bush ever did.

The issue is beyond the traditional left/right paradigm. It has to do with the basic structure of America’s monetary policy.

September 12, 2009 @ 3:00 pm | Comment

If government has no control of the market, it cannot be captured by the interests of this or that company/industry. Giving the government more control will only cause more damage. In a free market, companies keep each other in check. It’s called competition. Can you name one longstanding monopoly that is not government-owned, government-sanctioned, or otherwise protected by government through licensing/regulation?

September 12, 2009 @ 3:03 pm | Comment


I believe we live in an oligarchy that manipulates a sort of Disneyland version of democracy. The game is rigged to favor the most wealthy and powerful players. After a point, true competition does not exist because too much power has accumulated in too few hands. It’s too late and I’m too tired to articulate this very well, but see “path dependency” for a more non-conspiratorial explanation of what I’m talking about.

September 12, 2009 @ 4:13 pm | Comment

Lisa: We are not arguing about the existence of an oligarchy, we are arguing about what keeps it in power. From where I am standing, the facts point towards government, both Republican and Democrat. History is also full of example of the cooperation between big business and government, and the bigger the government, the bigger the business (see Italy, Germany, Japan, for example).

So – taking away power from individuals and giving it to government inevitably leads to more entrenched business elites. At least this is how it has been in modern history.

Schumpeter, one of the prophets of contemporary capitalism, predicted that capitalism will indeed collapse and be replaced by some type of socialism (which he did not endorse). He predicted that this would not happen through ideological evolution or revolution, but simply through the influence of business on government, which would lead government to take more power in order to be able to serve business interests. This is very similar to what has been happening in the US for most of the 20th century, but it goes hand in hand with the expansion of government. So, supporting a stronger government is a natural instinct, but it might be lethal.

Note that before 1913, the US did not have a central bank or even a federal income tax. Since the establishment of the Fed (an alliance between the business elites and the US Gov), both government and the financial industry have grown by leaps and bounds. The process was exacerbated when the dollar was untied from Gold and left government and the banks free to print as much money as they want. By doing so, they basically accumulated the right to tax the publicly in a covert manner at will.

These are all (scary) facts. You can look at the ownership structure of the Federal Reserve, the people behind its establishment, historical government expenditure as % of US GDP, the relation between fiat money and all the major wars in US history… and connect the dots. No conspiracy – I am not talking about motives and secret motives, just about accurate and publicly available information.

I am familiar with the concept of path dependency, but would be happy to hear how you relate it to the topic under discussion.

September 12, 2009 @ 5:54 pm | Comment

“In an earlier thread, for example, financial analyst ferin pointed to this story as proof that doesn’t depend on exports to the extent we believe.”

In which case you’ve got to ask why Beijing have been complaining so bitterly today about Obama’s new tariffs on tyres from China.

Good to see the site back up to speed, btw.

September 12, 2009 @ 8:06 pm | Comment

Could China or the world let the US “fail”?

September 12, 2009 @ 10:15 pm | Comment

Dror, I completely agree with you that the government largely serves a wealthy elite. But I can’t agree that less regulation is the answer. I think the last 8 years – and the last 30 for that matter – present the best argument against that. In one way I’m an idealist, in that I think the primary function of government is to serve the people and to serve as an expression and a vehicle to “promote the general welfare” – to promote our common interests. It’s why I believe that government has a role in things like universal healthcare and social security, regulating environmental protection, and at times using its purchasing power to advance certain goals (like cleaner technology, for example). I just don’t believe that capitalism and competition will always produce the best results or the most enlightened ones. In fact I think a lot of the really negative things you see in China are the result of a sort of “turbo-capitalism” where the more powerful simply do what they want without any regulatory restraints.

Regarding path dependency, there was a wonderful article years ago applying it to economics – they used the case of Beta versus VHS as one example. I’ll see if I can dig it up, because it’s one of those things that when I read it made absolute sense, but I’m nowhere near expert enough to regurgitate it well.

September 13, 2009 @ 3:05 am | Comment

as a p.s., somewhere in there I should have mentioned “checks and balances” – that’s what makes our system work, when it does work. But things have gotten severely out of whack, and until the connection between big money and politics is somehow severed or at least mitigated, I don’t know how we can get back on track. Having mass media outlets that blatantly serve specific political agendas isn’t helping either. I shudder to think what will happen with the campaign finance case before the Supreme Court right now…

September 13, 2009 @ 3:08 am | Comment

Fannie and Freddie were just contributors to a larger breakdown that can be traced to deregulation and the abandonment of Glass-Steagall, giving banks free license to create all sorts of fancy loans and investments with federally insured money. The theme of regulation permeates the entire mess. The most dramatic example was the rating services, designed to protect us (and something they did very well for many decades), giving triple-A ratings to blatantly toxic debt, which then got bought up by buyers who actually believed the ratings meant something. But due to deregulation, the raters, the lenders, the “regulators” were all part of the same racket, all owned by the investment bank oligarchy, with the Fed blessing the exotic loans – it was quite comparable to what Lisa labels “turbo-capitalism” as practiced in China. (I agree with everything Lisa says, across the board.)

The Fannie/Freddie argument is hopelessly narrow-focused and fails to take into account the big picture that formed over many years, starting with Reagan’s ominous call to “get the government off the backs of the people.” Well, that mission was accomplished and banks were allowed to do as they please. We will pay a huge price for generations. Power must be regulated, whether we’re talking about China or the US. The deregulation strategy opened a pandora’s box that clear, rather simple rules managed to keep shut ever since the Depression. It was under Bush that the deregulation craze went absolutely haywire with the advent of CDO’s – worthless, toxic debt, blessed by Morningstar as “triple-A investments,” and sold by greed-crazed investment banks as safe (triple-A!) – the entire chain of regulation had been smashed. And the rest is history. The victims are you and me. Should individual investors have been smarter? Probably. But most of us can’t make sense out of the fine print of today’s mortgages, and the people we thought were protecting us – the mortgage companies – were actually hoodwinking us. We go to them to help us navigate the maze of rules and legal mumbo jumbo. And they did that just fine, until lack of regulation made it a free for all.

September 13, 2009 @ 3:46 am | Comment

“We are FUBAR due to the relaxation of control of ferociously greedy free market MF’ers who were allowed to turn our economy into a Ponzi scheme. More regulation, not less is called for.”

Nailed it. Who knew Charles Ponzi was such a role model for our economy. I personally am all for capitalism, all for free markets, that natural motivation that sparks productivity. Unfortunately one part of the equation that Adam Smith seemed to leave out is that a large percentage of humans will sacrifice doing the right thing in order to have more than the other guy.

“In 1971 Nixon took the US off the Gold Standard (to finance the Vietnam war, and other adventures). Since then, the banking cartel and government had a license to create money out of thin air, thus generating unprecedented levels of debt. The fruits we reap today were sowed and nurtured since then, under Liberal and Democratic government. Bush expanded the government more than anyone before him in recent history, and Obama already managed to spend more than Bush ever did.”

You had me until “the fruits we reap today”. What fruits? I have heard the argument before that Obama has already spent more than Bush. Are we not including the Iraq war? Are we not including the $700 billion bailout under Bush? How is it possible? I have yet to see these figures actually laid out side by side.

I think we can all trace the collapse of this false economy to the sub-prime loan debacle and all its related derivatives. Those in that industry (see the excellent CNBC documentary “House of Cards”) agreed that the lack of regulation was the single reason for the sub-prime loan crisis. They were allowed to create their own standards of what constituted a healthy loan, and if you didn’t lower your standards, you were going to be eaten alive by the competition. And thus the cycle began.

I’ve seen you pose the question several times regarding naming one monopoly not backed or supported by government. Can you name me one multi-billion dollar industry that is not under some form of regulation? The only one I could think of was the mortgage-generation industry (A term they used in “House of Cards”, not one I am creating).

September 13, 2009 @ 3:49 am | Comment

1. China is not going to war anytime soon? China has massed 50,000 troops along the border of India’s Anaruchal Pradesh, with another 100k in reserve. India is stocking its border, bringing in troops by plane and train. The US has a joint ops center a few hundred miles away. Why? China is out of clean water and is running out of water period.

2. Lack of water and arable land is why China cannot feed itself. It imports food from State invested farms around Asia, Africa and Latin America. The US has enough arable land and water within its own borders to feed itself.

3. Gold’s value is being questioned. Everyone now knows about China’s hording of rare earth metals for the alternative energy and electronic good industry. Europe, Russia, the US and S. America are now firing up closed mines that also have reserves of rare metals. Denmark is opening up more mining in Greenland as well (it is %100 Danish territory). Gold is not the currency it used to be. Paladium, platinum, vanadium, neobdynum, etc. are the new gold.

4. Much of China’s currency reserves are invested in global financial markets, including the soon to collapse global commercial property market.

5. US health insurance companies are bankrupting the US.

6. Tariffs on crappy Chinese tires is a good thing.

September 13, 2009 @ 8:04 am | Comment


But I can’t agree that less regulation is the answer. I think the last 8 years – and the last 30 for that matter – present the best argument against that.

My knowledge of regulation in the American system is somewhat limited, but I know that in the UK (which to be honest was not especially heavily regulated in the world) our problem was not that there was insufficient regulation but that the regulators simply didn’t do their jobs properly.

It’s a bit like when the crime rate goes up. Most people will say things like “we need mandatory jail sentences” or “life should mean life”. Saying “we need more regulation” is the financial equivalent of this – it’s the easy answer. Of course some countries might need more regulation, but I think quality, not quantity is the answer. Regulate in a “smart” way, with better mechanisms.

Also sometimes regulation doesn’t provide an answer. No amount of regulation will stop interest rates being kept low to fuel growth and allow people to buy the houses of their dreams. I would prefer politicians and officials to do their jobs properly. Once they’re doing that we can be sure of what regulations are needed.

Of course that’s in regards to the UK.

September 13, 2009 @ 8:22 am | Comment

@ Lisa: the difference between us is that you assume that big business and big government are opposite forces. In reality, they are both on the same team. Give one more power necessarily strengthens the other. History is full of examples of this process, including in the US. During the last 9 years, the US government expanded dramatically. I know that you would say that it expanded the wrong way (and I agree), but you also assume that it is possible for government to expand without becoming corrupt and inefficient. Unfortunately, I am not familiar of any examples that support this view.

@ Richard:
– Fannie and Freddie were not ‘just contributors to a larger breakdown’. They were responsible for a large part (again 25-50%!) of all sub-prime loan. Read this sentence again, and again, and think about what it means. On top of that, once you have one government provider, you are already destroying the dynamics of the market, even if it is only a smaller provider (which is not the case here). Imagine that you have a huge shop for candies, and you sell each one for 5$. Then, the government opens a shop next doors and sells candies for 2$. The candies sold at the government store also happen to be slightly toxic (hard to keep them clean when you’re making them this cheap). How long would it take before you go out of business or otherwise forced to fall in line with your competitor?

– The rating agencies are indeed an issue. But again, as you said yourself, they became so powerful because they had (and still have) a government-protected cartel. On this basis, I have no reason to assume why giving the government more power would serve any of my interests. If anything, I would want to abolish the rating agencies and let people do some research when they make investment decisions, just like people do in fields that are not regulated. Does it make sense to you that people spend weeks researching a purchase of a flat screen TV, and do not spend any time researching a purchase of financial instruments?

– Again, many of the things you attribute to Reagan started before he took power. Power must be regulated is a nice thing to say. But in practice, you ask to give more power to those that already have it. As I have told Lisa above, you assume that government and business are competing forces. In reality they are not, and history showed us that they only grow together. The only way to regulate business is through competition, and through nurturing a society made of people who take responsibility for their own choices.

The most urgent and useful step on the way to regulating power would be to take away the right to control the cost and supply of money from the banking cartel. This is by far that most important issue currently at stake. When was the last time you sent Obama an email on this issue?

@Hopfrog: It is natural for the banks to call for more regulation, since their power is derived from that regulation. The Fed is owned by the banks, and is protected by the government. That is a fact. These banks made mistakes and were supposed to go bankrupt, but the government took your money in order to save them. And you think government should do even more? I can’t understand the logic. Of course, if there was one good person in the right place in the right time, he could have saved us from this or that specific issue, but as a general rule, government intervention in every field breeds monopolies, rigidity of prices, and Too Big to Fail.

As for your second question, in the mortgage industry, the government is one of the main providers. So, I am not clear on what you were trying to prove, but I think you just shot yourself in the leg.

As for Obama’s spending: I highly recommend that you do some research on Obama’s budget (that was Feb I think) and all the money given out by the Fed under his watch.

As a final word to all three of you: I am not a Republican or a Democrat. Please try to think beyond your partisan instincts. So far, Obama’s deferral to elite interests has been unprecedented. He already allowed the banks to steal more money than they even did in history, and rewarded them by reappointing Helicopter Ben Bernanke (and appointing Geitner, Rubin, and the rest of the old gang).

September 13, 2009 @ 8:25 am | Comment

Nanhe, gold is going up not for its industrial applications, which is what makes rare earth metals so valuable, but because it is the safe haven investment during times of economic uncertainty in general and inflation in particular. This has nothing to do with industrial applications. It has to do with gold’s historic role since nearly the start of recorded history, and it is true now more than ever. Hence the recent jump in gold, and its steady rise over the past few years as the dollar’s value has decreased.

Dror, we just don’t see it the same way. Regulation WORKED. Banks were conservative, frugal and cautious. Then government lifted the restraints. You may say they work together – business and government – but that isn’t always the case. Maybe you remember the antitrust hearings against Microsoft, which would have had a very different ending if Gore had won (which he really did) instead of Bush in 2000. (The government had won its case against Microsoft, and Bush then threw the whole thing out.) Or Standard Oil and Ma Bell? Glass-Steagall forced banks to be prudent. The law, the government, kept businesses in check. This system worked just fine. Well, not perfectly, but it worked well enough. Then government and corporations became increasingly indistinguishable, the lines between them blurring.

The most urgent and useful step on the way to regulating power would be to take away the right to control the cost and supply of money from the banking cartel. This is by far that most important issue currently at stake. When was the last time you sent Obama an email on this issue?

I haven’t sent Obama emails on any issues at all. I am hoping, however, that he reads my blog.

September 13, 2009 @ 9:20 am | Comment

Raj, I don’t think we should over-regulate. Just put back in place the systems that used to work. Responsible regulation of financial instruments isn’t equivalent to mandatory jail sentences. The latter has always failed, the former has worked quite well in the past and is in no way extreme. It was, as Lisa said, a matter of checks and balances and accountabiity. Those aren’t radical ideas, like mandatory jail sentences or America’s disastrous “three strikes and you’re out” laws. They are common sense, time-tested and effective.

September 13, 2009 @ 9:35 am | Comment

Richard – all financial crises during the last century were caused due to government-backed cartels controlling the supply and cost of money. This is also the mechanism that facilitated all of the wonderful wars had during the last 100 years. You are taking a very narrow (and partisan) view of things by starting to keep score at the moment that best supports our existing political views. Try to look at the whole picture. Financial crises were invented in the 1980s? Did America not have a few of them previously? Were they not all caused by excessive spending on the wrong things?

Do not mistake the symptoms for the disease.

Ma Bell and Standard Oil? Were these two not government-backed monopolies? What is your point?

As for MSFT – as you see, the main threat to them comes from private competitors. Regardless of the government’s better efforts.

September 13, 2009 @ 9:48 am | Comment


September 13, 2009 @ 9:50 am | Comment

We had only two financial crises that were truly life-threatening. Excessive spending was indeed part of them – one part. The one constant and most serious cause of the worst crises, however, was lack of regulation. We all know about 1929, the roaring 20’s when it was a circus on Wall Street, with plunderers like Joe Kennedy making money hand over fist. They called him in as SEC chief regulator precisely because he knew better than anyone else how people were cheating. Safeguards were put in place that, for all their faults, have worked reasonably well since then. Next was the Savings & Loan crisis, caused specifically by the lifting of regulations over a sector of the banking industry. Next was armageddon, our current crisis. As I patiently explained above, the roots to the specific regulations that were abandoned can be traced back to Reagan. Clinton didn’t help much, and Greenspan gave the wild wild west atmosphere of the housing bubble its blessing, endorsing the notion that everyone in America should be able to buy a home. I am not at all partisan about this; I blame Clinton, but not nearly as much as Bush II. Look, we are never going to agree on this. Just face the fact that I am completely right, and you need to do some homework.

Ma Bell and Standard Oil were broken up by the government as monopolies. Microsoft was facing something similar. My sole point is that government and big business are not always one and the same, on each other’s sides. (I know, often or even usually they are, because politicians know where their bread is buttered.)

September 13, 2009 @ 10:35 am | Comment

But how did Ma Bell and Standard Oil become monopolies to begin with?!
Of course, the government does every now and then respond to consumer’s needs, but this is the exception to the rule and usually happens after the fact when new free market alternatives are already threatening these monopolies, thus making them lose money.

As for 1929 – I think you should study that crisis and the ones before and after it more carefully. In the buildup to that crisis there was massive government intervention in the economy, huge infrastructure projects, war spending, and – of course – the first decade and a half of the newly established Fed money printing machine. In addition, the government response turned a cyclical bust into a terrible depression that was resolved only through another world war. In the 1920s, there was another crisis that started the same way (and for very similar reasons). The government let it run its course, the public took the pain, and 2 years later it was over.

You are talking about symptoms – what was done with all this cheap money. But where did the cheap money come from? Who manipulated the supply and price of it? And for what purpose? It was government in collusion with the banking cartel and the purpose was short-term political profit. Say it ain’t so!

It is very rich of the government to create a tsunami and then tell us we need to more lifeguards. Sure, you can bring individual examples of how a lifeguard saved someone’s life… but where the hell did all the water come from?
You are treating these boom and bust cycles as if they were part of nature. They are not. Dig deeper.

Don’t just look for justifications for political views. Look at the bigger picture. Both sides of US politics are wrong, and both of them sustain the current status quo.

September 13, 2009 @ 11:07 am | Comment

Richard, I just published a new short story to help you understand my point. Would be happy to hear what you think.

September 13, 2009 @ 12:48 pm | Comment

@Dror, “As for your second question, in the mortgage industry, the government is one of the main providers. So, I am not clear on what you were trying to prove”

Providers not regulators. I thought my point was clear, deregulation does not work. My leg is fine.

As for Obama’s spending, I have done the research and couldn’t find totals showing that Obama has spent more in 6 months than Bush did in 8 years. Again, I have yet to see figures back up this claim.

September 13, 2009 @ 1:37 pm | Comment

Hopfrog: Fannie and Freddie are the government. Once there is a government provider, it is much more powerful than mere regulation. The provider can drive prices up/down, set the standard for various services, and drive other out of the market.

As I pointed out to Richard earlier: Imagine that you have a large candy shop, selling each candy for 5$. One day, the government – worried that some kids can’t afford candy – open a small store up the road and starts selling candy for 2$. The candy sold by the government is of inferior quality, of course, since it is impossible to produce good candy for 2$. How long will it take before you start selling inferior-quality candy or otherwise go out of business?

September 13, 2009 @ 8:38 pm | Comment

@Dror, I agree with your candy story argument and this is one of my main concerns about the public option included in healthcare reform. However, I just feel its a risk that needs to be taken when there are so many people suffering under our current system. Off tangent I know.

I realize Fannie and Freddie are the government. My resume’ may not be as impressive as yours, but I do hold a Bachelor’s in Finance and I worked for a bit as a financial analyst.

Fannie/Freddie weren’t providers in the traditional sense. They purchased home loans. Mortgage originators were not regulated by anyone, but of course, Fannie/Freddie weren’t required to purchase the loans they generated. So if the loan wasn’t good enough for Freddie/Fannie, repackage it and sell it to an unregulated Wall Street. The lack of regulation over the multi-billion dollar mortgage generation industry coupled with an unregulated Wall Street illustrated quite clearly how dangerous deregulation is. Human greed makes regulation needed.

I can’t think of another trillion dollar industry that is unregulated. So the one single unregulated trillion dollar industry coupled with an unregulated Wall Street was the catalyst for the biggest economic collapse since the Great Depression. I couldn’t craft a better case study to illustrate why regulation is needed and it drives me nuts that fiscal conservatives cling to ancient ideals, invisible hands, and lemonade stands that operate in a vacuum and refuse to recognize the dangers of deregulation.

In the documentary I link at the end of this comment, Bill Dallas, a 30 year veteran in the mortgage-origination industry provides some great insight at 55 minutes. Also, check out Kyle Bass at 64 minutes. I would highly recommend this program in its entirety to anyone, but you can just skip ahead to those segments if you don’t have the time. Here is the link:

September 14, 2009 @ 12:13 am | Comment

I’ll consider all the evidence – I am always willing to learn. But I can’t stress my main point enough: banks were safe when they were restricted and regulated, forced by law to do what they were created to do – banking. Plain, boring banking with the old bankbooks and savings accounts. These accounts should never be put in danger, because they are federally insured. They must be regulated.

And Hop, I watched the House of Cards series on CNBC (I was surprised they produced such an industry-critical program on the network that more than any other cheered to housing bubble along). Dror, you really should watch it.

September 14, 2009 @ 1:41 am | Comment

Just follow your instinct, and go where you know you have to go.

Don’t question it.

The House of Cards is Already Falling Apart.

Time is of the essence.

September 14, 2009 @ 4:47 am | Comment

Lack of ethic + lack of regulation is the worst combination you may have.

September 14, 2009 @ 5:47 am | Comment

@Richard: “banks were safe when they were restricted and regulated”. I cannot fully agree with this, since banks have been causing (and reaping the benefits from) Financial Crises for at least 95 years, so, again – trying to attribute it to this or that political change in the last 10,20,30 years is incorrect. The main shifts in powers towards banks were in 1913, 1933, 1971, and in 2009. None of these shifts had to do with regulation per se, but with (i) giving the bank a government-backing for their cartel, (ii) giving banks the license to issue money on behalf of the government, at debt (you realize that the government ‘owes’ the Fed a % on every dollar it creates; (iii) decoupling the US Dollar from gold or any other mechanism that limits banker’s ability to create new money; (iv) Too Big to Fail; (v) and more. So, the most urgent thing is to reverse the above. The blame is across the Board (with Obama making his way quickly to the top of the list); trying to hang it on this or that president based on your politics is missing the point.

In any case, I think we’ve exhausted this for now. I have a few posts in the pipeline on related issues. We can continue the discussion in a week or two.

@hopfrog: Nothing impressive in my resume. I am not an economist. Just trying to learn all I can about this mess. I will watch the video.

September 14, 2009 @ 6:21 am | Comment

Dror, there are obviously different interpretations of banking history. I refer to one of my more trusted sources (who is also one of the few economists who agrees with you about China’s share of blame for the global financial meltdown). Here’s what the Nobel-prize winning economist says:

Before 1930, banking was an exciting industry featuring a number of larger-than-life figures, who built giant financial empires (some of which later turned out to have been based on fraud). This highflying finance sector presided over a rapid increase in debt: Household debt as a percentage of G.D.P. almost doubled between World War I and 1929.

During this first era of high finance, bankers were, on average, paid much more than their counterparts in other industries. But finance lost its glamour when the banking system collapsed during the Great Depression.

The banking industry that emerged from that collapse was tightly regulated, far less colorful than it had been before the Depression, and far less lucrative for those who ran it. Banking became boring, partly because bankers were so conservative about lending: Household debt, which had fallen sharply as a percentage of G.D.P. during the Depression and World War II, stayed far below pre-1930s levels.

Strange to say, this era of boring banking was also an era of spectacular economic progress for most Americans.

After 1980, however, as the political winds shifted, many of the regulations on banks were lifted — and banking became exciting again. Debt began rising rapidly, eventually reaching just about the same level relative to G.D.P. as in 1929. And the financial industry exploded in size. By the middle of this decade, it accounted for a third of corporate profits.

As these changes took place, finance again became a high-paying career — spectacularly high-paying for those who built new financial empires. Indeed, soaring incomes in finance played a large role in creating America’s second Gilded Age.
Needless to say, the new superstars believed that they had earned their wealth. “I think that the results our company had, which is where the great majority of my wealth came from, justified what I got,” said Sanford Weill in 2007, a year after he had retired from Citigroup. And many economists agreed.

Only a few people warned that this supercharged financial system might come to a bad end. Perhaps the most notable Cassandra was Raghuram Rajan of the University of Chicago, a former chief economist at the International Monetary Fund, who argued at a 2005 conference that the rapid growth of finance had increased the risk of a “catastrophic meltdown.” But other participants in the conference, including Lawrence Summers, now the head of the National Economic Council, ridiculed Mr. Rajan’s concerns.

…Part of the problem is that boring banking would mean poorer bankers, and the financial industry still has a lot of friends in high places. But it’s also a matter of ideology: Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress.

1980. Ring any bells? There was a seismic shift around that time, when deregulation was touted as a magic wand that would make companies competitive and bring fabulous savings to consumers. Exactly the opposite happened. It was the lack of regulation that allowed the current cartels to form. That’s why I pay $9 a month for broadband in China and $40 in the US. Cable TV is the other spectacular example; anyone who’s paid for cable in Asia and then returned to the US knows exactly what I mean. Regulation helps protect us from cartels. It is what we have government for – to keep the robber barons in check. It’s what Obama is trying to to for healthcare, to offer an alternative to the insurance cartel. He probably will fail, but the cartel should never have been allowed to get to this point to begin with. Someone should have been regulating those ads telling we can buy a prescription to cure anything under the sun – feeling sad, feeling guilty, forgetting what you did yesterday, etc. Lifestyle medicines most of us do not need and that the human race did pretty well without for a long time. It should never have come to the point where they could bombard us like this. And just a few years ago, it was not legal. Doctors had to told us about these medications if they felt we needed them. (Sorry for going off on a tangent, but this is n example of deregulation that especially irks me.)

I don’t hang this on Reagan only. But like Krugman, I point out the fact that the shift away from tight and responsible government regulation began when Reagan got elected. And I agree, Obama is probably making it worse with his bailout package (something I am, I admit, ambivalent about).

September 14, 2009 @ 8:02 am | Comment

@Richard: Krugman is a disgrace and has been a partisan political commentator for most of the last 20 years. He also happens to be an economist, but this has nothing to do with his political punditry and he has not published any meaningful economic work in more than a decade.

I am working on a longer post regarding the (shameful) article you cited. For now – let me just say that banks get their power from the license government gives them to control the supply and price of money, create/lend money to government at interest, the FDIC and Too Big to Fail. In 1933 FDR also gave the banking industry incredible new powers that they never had before. To focus on this or that “regulation” is to follow a red herring. It’s like saying that kids played in the kindergarten and then FDR gave each one of them an M-16 and put a nanny in the next room to make sure they don’t cause any damage, and the Reagan came and took moved the Nanny’s room 30 feet away. You’re missing the point. Krugman is a hack. I strongly encourage you to educate yourself on what happened in 1929/1933 (and and 2008-2009) through a variety of sources.

Don’t trust Krugman’s hazy exclamations. Do your own homework. For example, household debt rose more between 1949 to 1979 than it did during the following 30 years. It also grew much faster between 2000 and 2007 than at any other time since WWII (to remind you, that’s when Krugman was calling on Greenspan to “create a housing bubble in order to offset the deflated tech bubble”).

And, again, I am not a fan of Reagan. Starting to keep score when he took power may compliment your pre-existing political inclination, but it will give you a distorted picture of reality.

September 14, 2009 @ 8:40 am | Comment

Dror, I like Krugman. He earned my trust, being right on so many issues, from Iraq to the housing bubble. I think how you see this depends on which sources you trust, as you can find a source to back up just about every argument.

September 14, 2009 @ 9:11 am | Comment

Richard – I did not counter Krugman with an op-ed piece from my favorite journal. I countered him with a basic fact, from a Democratic party source (an adviser to Joe Biden, no less). My points – get the data and read your own conclusion. Oppinions and feelings are irrelevant here.

Krugman is becoming some sort of Left-wing Rush Limbaugh. I don’t base my opinion on either of the two.

September 14, 2009 @ 10:25 am | Comment

“Someone should have been regulating those ads telling we can buy a prescription to cure anything under the sun – feeling sad, feeling guilty, forgetting what you did yesterday, etc”… ROFL, my favorite is the one for Restless Leg Syndrome. Yes, its apparently a legitimate condition (not sure about the legitimacy of the wonder pill though), but when I saw the commercial I remember having the same reaction as when I saw the first commercial introducing a razor with 5 blades… yep, P.T. Barnum was right.

“I pay $9 a month for broadband in China and $40 in the US”… but how much would two identical jobs pay in the U.S. and China in those same dollars? Say for instance, factory worker… doh! thats not fair… How about we use these figures:

China average yearly disposable income per capita: $3,029.
U.S. average yearly disposable income per capita: $19,776.

Ok, before anyone argues that unemployment would unfairly skew this. China’s unemployment rate is about 9% and the U.S. stands at about 9.7%.

(Sorry I didn’t have time to track down numbers from .gov sites, Wikipedia will have to suffice.)

Looks like that Chinese broadband isn’t a great deal after all.

September 15, 2009 @ 1:26 am | Comment

Broadband doesn’t come from a factory, nor is it highly labor-intensive, and it is relatively cheap in HK and Taiwan and Singapore as well. It should be much cheaper here, but it’s been price-fixed. Americans pay too much for broadband and cable TV. For a long time, we also paid too much for mobile phone calls, being forced to buy exotic plans we didn’t understand very well, as opposed to much simpler solutions I found in Asia. (America seems to be improving in this regard, finally.) And the cable TV packages for CNN, BBC, HBO and other foreign programs – they are dirt cheap in China compared to the US, though their purchasers are often expats. And it costs about the same in developed Singapore and HK as well. It is not related to low PRC wages. Ordering and paying for these services seems far simpler, faster and cheaper in Asia. Whether this is directly related to government intervention to stop price fixing I don’t know. What I do know is the prices are fixed in the US, and there is no excuse for the obscene costs of broadband here.

Dror, I wouldn’t call Krugman a left-wing Limbaugh unless you can back it up. Limbaugh is a clown and a conscious, persistent, relentless falsifier of fact. Krugman has been consistently correct on key issues and as I said, he won my trust, despite my disagreeing with his flawed logic on China’s role in the financial crisis. (Everyone makes mistakes.) I’ll check out your site to see what you have to say about it.

September 15, 2009 @ 1:49 am | Comment

Richard your a great debater, but I don’t know how you are gonna carry water for this argument, though I am sure you will try and find a way.

Singapore internet at 10MBPS unlimited per month is $46.90. 6MBPS it is $35.90.

I have 10MBPS which I pay $39 for per month. Here is an ad where it is listed at $29 per month, but of course it goes up to $54 after the 4 months:

Going back to personal disposable income, Singapore’s is $9,603 per capita.

Looks like Singapore is the worst value of the bunch.

“And it costs about the same in developed Singapore”… Sorry, does not seem to be the case.

“is not related to low PRC wages”… Broadband is a service. The pricing levels of both Goods and Services are related to the income levels of their consumers. Its all relative and Services are not immune to the basic laws of economics no matter who is doing the pricing.

September 15, 2009 @ 2:43 am | Comment

I paid a lot less in Singapore, as part of a package (cable, IP phone, broadband and mobile phone). I also paid a lot for broadband in HK when I used a cable modem, then switched to DSL and paid a lot less. That was in 2001, however, and I don’t know the prices now. What I do know is that broadband in the US is not only more expensive than in many other developed countries but is also inferior in terms of speed. It was far cheaper and easier to get in Hong Kong and China, and was also faster (except during times when the CCP slowed down the entire Internet, which was quite frequently last year). In Taiwan, now that I think about it, I never paid for broadband, it came free with my apartment, so I can’t comment on how much I paid for it.

But I don’t want to get caught up in minutiae about the cost of plans in Singapore now – my one point is that there are industries in America where there is a serious lack of competition, and we pay more than most people do in other parts of the world for these services. When local governments take action and try to offer better broadband at better prices, the cartel stops them, with the help of higher strata of government:

Forget for a second that Internet users in Japan pay less than we do for the fastest Internet speeds in the world, and instead look at Wilson, North Carolina. In this town, where Time Warner Cable and Embarq refused to provide faster access for its residents, the City stepped in. Creating a service called Greenlight, Wilson set up faster service, charging less than similar, slower plans from the two companies. The story is ongoing — Embarq and TWC are predictably taking legal action to get Greenlight shut down.

There are arguments against having a government-run Internet provider. I happen to agree with a lot of them. I don’t think turning Internet access into a public utility is the answer. But what’s happening in Wilson is informative of what’s wrong with the marketplace. Existing law and this kind of corporate bullying (enabled by lax or corrupt politicians) have created a market that suffocates competition. Think about how many options you have for broadband. Compare that with those available in Tokyo: Residents can choose from NTT, OCN, J-Com, YahooBB, KDDI’s AU One Net, Fusion Gol, and others. Where does Japan rank again in Internet speeds and price? Oh yeah, No. 1.

Corporate-government collusion, the exact opposite of what we should have, enables American consumers to be raped by broadband companies. In Japan, Korea, Hong Kong, the PRC and, I suspect, many other countries around the world, you have more, better, cheaper options, period. American broadband is protected by price fixing with government cooperation ensuring a monopoly, and this is an old story, not a new one. We pay too much and get way too little, in direct contradiction to the notion of market forces – a public option is called for in the absence of meaningful competition. But when one is put into place, like Greenlight, the cartel fights to get it shut down. And the cartel makes out like a bandit, protected by government from the competition that would be of huge benefit to the people government is supposed to represent.

September 15, 2009 @ 3:15 am | Comment

That report on Singapore internet pricing was published July 2009, so you can see what they are now.

I think your too easily writing off how much the internet is costing consumers as a percentage of their incomes. Also, its not like a wire is laid in the ground and thats it. Technicians need to be paid, customer service reps need to be paid, maintenance needs to be done, repairs are made, and etc..

Its hard for me to buy your argument that we are being raped by broadband companies when broadband service as a percentage of income is much lower here than in the countries you cited. It seems you are trying to have your cake and eat it too. Incomes are higher here, the incomes of broadband employees here will be higher, the costs of materials will be higher, and thus the costs of running the business will be higher, and as such, so will your bill.

At this point I will rest my case. I think your ignoring too many variables Richard.

September 15, 2009 @ 4:22 am | Comment

Final say: I can buy dirt-cheap produce here, I can buy dirt-cheap electronics. I can buy dirt-cheap PCs and clothes, too. Even though the standard of living and wages here are among the world’s highest. Then there are certain things, specifically cable TV and broadband, where something goes haywire. I cannot buy these things at competitive prices, because there is no competition to speak of. Countless articles have been written about the relative high cost of broadband in America and its relative slowness compared even to markets where it is considerably cheaper. Anyone who has lived in Asia is aware of how much more affordable broadband is there compared to here, even while many other products and services are much closer in price, like going to a movie theater or buying a high-end digital camera. This point may seem obvious, but despite China’s far lower wages, most things foreigners are likely to buy actually cost more in China than in the US (wine, Western food, real brand-name clothing). Likewise, cable TV is not a product bought by those below middle class. And yet cable TV, especially the expat packages with HBO and CNN, etc., are wonderfully cheap – but not really. They seem cheap only because what we pay in America is so artificially inflated due to lack of competition. Unlike shopping for a PC or a car, the broadband/cable TV market in the US is rigged and offers wretched options.

But this was just one example I cited of an industry where we would be better served with more, better regulation. My simple point was that regulation can be very beneficial, and this is also an example of Dror’s scenario of a government-backed cartel that can run roughshod over the public. It’s an example of where good regulation is called for, the kind that stops price fixing and allows all sorts of competition.

September 15, 2009 @ 4:50 am | Comment

Fascinating blog from Andy Xie

Some stuff relevant to Dros Richar post fest.

“Many now argue that what’s happened in the US and in developed economies shows the bad side of market economy and, hence, China should not move further towards market. This is drawing the wrong conclusion from the current crisis. Market remains the best tool for motivating businesses to deliver the best products at the lowest possible costs. All other systems have failed in delivering prosperity. Markets, however, need regulations to function properly. For example, food safety standards need to be there for the industry to function properly. The main purpose of regulation should be to enable market to function more efficiently rather than to replace market.
Some economies like the US or UK deregulated too much a decade ago, which laid the foundation for today’s crisis. China’s economy, however, is excessively regulated and controlled by the government. The lesson from the today’s crisis has little bearing on China’s policy forward. China still has a long way to go before its market may become ‘too free’.”

More stuff can be found here.

To can subscribe with Google reader, use this

Then you can see which entries are in English. Most in Chinese.

September 15, 2009 @ 6:18 am | Comment

For lazy eyes, most interesting points.

“Market remains the best tool for motivating businesses to deliver the best products at the lowest possible costs.”

“Markets, however, need regulations to function properly. ”

“The main purpose of regulation should be to enable market to function more efficiently rather than to replace market.”

“Some economies like the US or UK deregulated too much a decade ago, which laid the foundation for today’s crisis. “

September 15, 2009 @ 6:21 am | Comment

Ecodelta, well said!! In loving memory of the 2008 GOP national convention slogan, I propose our nation’s new slogan: “Regulate, baby, regulate!”

September 15, 2009 @ 6:29 am | Comment

I lost you guys on the broadband discussion. How did we get to this topic?

@Richard: “a clown and a conscious, persistent, relentless falsifier of fact” – I know many people, including leading economists, who would say this about Paul Krugman any day. I am glad that you trust him to reinforce your existing world view on a daily basis. I am sure he has been delivering.

However, it is the same Krugman who has been preaching quantitative easing, bailouts, socialized healthcare, and deficit funding. He also has the audacity to write about the failure of America’s “free” market without mentioning – even in passing – the role of Fannie, Freddie, and the Fed in creating this crisis. Of course, he also writes about how bad it is that we are in debt, that banks do whatever they want, etc… but he fails to see how it all relates to the same policies that he has been preaching for the last 20 years.

He is great at pointing out symptoms, but the medicine he prescribes is non sequitur.

You know it’s true Richard: Krugman is dying to get a seat on Obama’s team, or to be Chairman of the Fed (Bernanke also came form Princeton…). He makes some important points, but he does not have the balls and integrity to tell it like it is, especially not when Democrats are in power.

September 15, 2009 @ 7:29 am | Comment

Dror, I just made a passing reference to it as an example of a badly regulated industry – actually, a great example of what you describe as a government-enabled cartel. Another commenter then got the thread caught in the minutiae of Singapore’s broadband pricing. Apologies.

Maybe I will someday see the light, but I have to say, I am – and am proud of being – an old-fashioned New Deal democrat, a believer in help for the workers who don’t have the advantages corporations do, a believer in government playing an active role in stimulating the economy the way Krugman does, which is based on traditional Keynesian principles. He is not two-faced about our debt – he says the country can handle the debt and that it is not unprecedented. You may not agree, but this is not radical, and i don’t find any hypocrisy there. I find him remarkably consistent, actually, in his advocacy for healthcare, Medicare and Social Security, employing consistent arguments for years about how they work better than most of us realize. Anyway, no need for us to argue each point, as we know where the other stands. Just remember the bottom line: Krugman rocks. He has shown courage from day one supporting unpopular causes and I admire him, with no embarrassment for doing so.

September 15, 2009 @ 8:07 am | Comment

How about his consistency concerning debt? How come 2 trillion for Bush is something we cannot live with and 11 trillion for Obama is not a big deal?

And the New Deal was a disaster. So much of the perceptions we have today of the Great Depression are wrong. I am writing something on this as well…. lot’s of work these days! The battle against tyranny is heating up.

September 15, 2009 @ 8:50 am | Comment


September 15, 2009 @ 8:56 am | Comment

I am not convinced debt under Bush would have been 2 trillion and that Obama somehow moved that number to 11 trillion. Under both presidents, Krugman’s position was exactly the same – a radically large program of stimulus spending.

I know that the New Deal has been romanticized and that it was WWII, not the New Deal, that put America on its feet. But I am still a New Deal Democrat, believing in government that watches out for the mass of working people, the nation’s backbone, the majority, the people government is there for.

September 15, 2009 @ 9:00 am | Comment

When Bush’s projected 10 year deficit was 1.8 trillion, Krugman said that it is a disaster and that the “the fiscal train wreck is already under way”. When Obama’s projected 10 year deficit is 9 trilliion, Krugman said that everything will be ok and it’s not a big deal.

In summary:
– Krugman 2003 [deficit at 3% of GDP, 10-year deficit projection $1.8 trillion]: “I’m terrified … we’re looking at a fiscal crisis that will drive interest rates sky-high … the conclusion is inescapable … the task is simply impossible … the fiscal train wreck, is already under way.” Or,

– Krugman 2009 [deficit at 11% of GDP, 10-year deficit projection $9 trillion]: What’s to worry? The Ozzie & Harriet era of government finance will be easy enough to bring back. Just stabilize the debt in terms of GDP and be happy!

I encourage you to read his original articles and here. Interesting, isn’t it?

Your political slogans are very nice. Now, please tell me: Is the current US government, led by a Democrat, with full control of both houses, “watching out for the mass of working people”?

Last time I checked, the Obama’s administration was overseeing the biggest heist in history. Correct me if I am wrong.

September 15, 2009 @ 10:54 am | Comment

Now, please tell me: Is the current US government, led by a Democrat, with full control of both houses, “watching out for the mass of working people”?

Not as much as I’d like, but certainly far more than his predecessor Clinton. I wish Obama were more liberal; he is a moderate verging on conservative, and ever so cautious.

About Krugman and that site you linked to: let me see what he’s basing it on.

I accidentally screwed up one of your links in the comment above when I tried to fix the URL – sorry.

September 15, 2009 @ 11:02 am | Comment

The links are:

You are being very generous with Obama. So far, he has been a true servant of all the wrong people and worked hard to exacerbate both the causes and the symptoms of America’s problem by giving more power to the banks, debasing the people’s currency, encouraging reckless spending, and discouraging choice and personal responsibility. Sad but true.

September 15, 2009 @ 11:25 am | Comment

And by the way – I am not trying to convince you to support anyone other than Obama. There are no alternatives within the current US left/right paradigm. That’s part of the problem. But before we think about alternatives, we need to get an understanding of our current state.

September 15, 2009 @ 12:10 pm | Comment

@ Richard

“but because it is the safe haven investment during times of economic uncertainty in general and inflation in particular.”

Gold has had an assumed value but is just another commodity. Its value is purely psychological, not practical.

September 15, 2009 @ 2:29 pm | Comment

Hopfrog, this is now spam. Please stop. We aren’t here to argue about Singapore’s broadband price. If it has gone up since I went there, fine. Please stick to the topic – I let it go far enough. Thanks a lot.

September 16, 2009 @ 3:02 am | Comment

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