Guest post by Azizonomics.
Our financial system is broken. Our political system is broken. Oligarchs and their cronies reap easy rewards — bailouts, crony capitalism, corporate handouts, liquidity injections, favourable “regulation” (that puts oligarchs’ competition out of a business) — while taxpayers pay the bill.
But nothing lasts forever.
Thanksgiving is very much the day of the black swan. Nassim Taleb used the example of a turkey fattened up for Thanksgiving as an example of a black swan phenomenon. The turkey sees itself being fed every day by the turkey farmer and assumes based on past behaviour that this will continued indefinitely until the day comes when the farmer kills the turkey. Nothing in the turkey’s limited experiential dataset suggested such an event.
A few thoughts by UBS’ Magnusson on the Chinese imploding miracle. Via Macro business.
One way or another, China is going to rebalance. The question is whether it occurs in an orderly fashion with the investment side of the economy slowing to a rate less than the growth in GDP, but still growing. Or whether it happens in the context of a sharp decline in investment, with more alarming economic and political consequences that will cut across the economy.
After two decades of unparalleled economic success, we believe China now needs a reform programme on a scale similar to that adopted 30 years ago. Without it, a heavily investment-centric and credit-intensive economic model could soon become unstable, and later stall in a middle income trap. There’s only so much labour transfer from rural areas to urban factories. There’s a limit to how high the investment share of GDP can go. Rapid population ageing is chipping away at Chinese growth. The exceptional impact of accession to the WTO a decade ago is fading. And the significant, direct role of the government, state banks and SOEs in the economy as agents of economic policy, and owners and providers of heavy investment and infrastructure may no longer be appropriate as the economy becomes richer, more complex, and in need of greater competition and innovation.
Biderman on poltics and the need to change the constitution.
There seems to be little doubt that we need a new constitution, or at least a new way of governing ourselves. The response to my post July 4 rant that we need a constitutional convention was mostly positive. There were several who worried that a convention could get hijacked by nutcases but almost everybody seems to agree that what we have got now is not working.
Upon reflection, I think that we most certainly will be having some sort of new constitutional convention in the future. There are two ways it will happen. The first is as a result of our paternalistic government going bust in trying to provide everything to everybody. In essence we will be forced to start over; and hopefully a convention will be peaceful.