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> That means a pause in privatization, which Morawiecki says contributed up to 14 billion zlotys a year to the budget, a preference for domestic over foreign bo

> That means a pause in privatization, which Morawiecki says contributed up to 14 billion zlotys a year to the budget, a preference for domestic over foreign borrowing (the share of Poland's debt owned by foreigners is down to 50 percent from about 60 percent three years ago) and a reliance on state enterprises to increase investment because private companies are too small and not boldly expansionist enough to provide the desired boost. Sad to read this. Most LatAm leftist governments tried the same formula over the past 2 decades, with disastrous consequences. Focusing public borrowing on the domestic market means that the government will compete with households and businesses for capital, which have a much harder time raising capital internationally. This will make it much harder (and raise interests) for households and businesses to secure capital for new investments (especially when the domestic savings rate is so low), restricting supply growth and possibly leading either to inflation or to an increase in imports. That, coupled with a low or nill savings rate, an over-reliance on government for retirements and a low retirement age, means an economic disaster, exactly like the one in Argentina and Brazil.

conanbatt 9y ago
Domestic borrowing is a guarantee of inflation, because the incentive to dilute the debt is too great to not use.
- ucaetano 9y ago
  Exactly! And inflation is just another form of taxes.
  - bitumen 9y ago
    A very pernicious form which disproportionately harms the middle and lower classes. I’ve never understood hard left thinks this kind of thing is a good idea. I understand wanting to change gross inequality and reject runaway capitalism, especially the rigged cronyism we see today. Choosing to change things by engaging in failed alternatives though seems crazy. I’m not being rhetorical, I don’t understand. If someone can explain it to me, or point me to some good explanations I’d appreciate it.
  - laurencerowe 9y ago
    Inflation is a tax on wealth but not income (which rises with inflation.) As such it’s a progressive tax since wealth is so unequally distributed. Close to two decades of low inflation in the US and Western Europe has greatly increased inequality. Hyperinflation is destructive and must be avoided but there’s a strong progressive case for increasing the 2% inflation targeted by most central banks.
    - giggles_giggles 9y ago
      5% of the value held in the bank account of a poor person is worth more to that person than 5% in the account of a wealthy person, even if the absolute amount is less. Inflation is one of the most regressive taxes.
      - pjc50 9y ago
        For less well off people the effect of inflation matters far more in terms of cash flow - pay and expenses - than cash holdings.
    - conanbatt 9y ago
      Grotesque. Inflation is a tax that is first spent by the government, from the government to governments interests. Its a terrible tool of wealth distribution, and to the extent that it behaves like one it redistributes from everyone into the pockets of those who get the money first.
    - lainga 9y ago
      >income (which rises with inflation) At least up here in Canada, inflation-adjusted wage growth has been negative in the past two years.
    - prostoalex 9y ago
      > Inflation is a tax on wealth Part of wealth that's stored in cash or fixed-rate debt instruments. Most other assets - real estate, equities, floating-rate debt instruments - adjust accordingly.
    - 9y ago
- skybrian 9y ago
  On the other hand, borrowing in a foreign currency risks being ruined by exchange rates if the currency collapses. As happened to businesses in many Asian countries not that long ago. Also: Iceland.
  - conanbatt 9y ago
    Only if you peg your own currency. If your neighbor devaluates their currency, your will naturally devaluate yours.
    - gumby 9y ago
      Yes but the example given was Iceland where the opposite happened: debt (and more importantly interest payments) was denominated in a currency that appreciated against the currency where the revenue to pay the debt was being generated.
    - cuchoi 9y ago
      But trade partners != lending partners
- drak0n1c 9y ago
  Japan has incredibly high levels of domestic borrowing, but has long suffered deflation. What factors make Japan the exception?
  - ucaetano 9y ago
    Japan is a developed country (low capital requirements) with a huge stock of capital which it has exported around the world. It can borrow plenty internally before there is a shortage of capital. It has $1.3 trillion in foreign reserves. Poland is a developing country (high capital requirements) with no accumulated capital and negative savings, its foreign reserves are 10% of Japan's.
  - conanbatt 9y ago
    I dont know enough about the japanese economy to answer this question :(
zombieprocesses 9y ago
> Sad to read this. Most LatAm leftist governments tried the same formula over the past 2 decades, with disastrous consequences. Korea, Taiwan, Japan and china tried it with spectacular results. Also, latin america is a especial situation because they are within the US sphere of influence. Their economic situation is far more complex because of it. > exactly like the one in Argentina and Brazil. Brazil and especially argentina's financial problems were a result of international borrowing, not domestic borrowing.
- knuththetruth 9y ago
  Yeah, it's quite interesting how the parent skirts over all the history of US involvement in Latin American during the Cold War, while at the same time ignoring any inconvenient counterexamples.
- ucaetano 9y ago
  > Brazil and especially argentina's financial problems were a result of international borrowing, not domestic borrowing. Patently false. The public debt in Brazil has been almost entirely internal for the past 10 years. Should I show you a chart to settle it? > Korea, Taiwan, Japan and china tried it with spectacular results. Quite the opposite, actually. They received massive inflows of foreign investment, and very high domestic savings rate. That's the difference you're not seeing: the Asian countries you mentioned have a history of very high savings rate, this generates a stock of capital that the government and companies can borrow at low costs to develop. Poland (and the LatAm countries I mentioned) have very low or negative savings rate, and almost no capital stock, so any increase in borrowing by the government has to be met with foreign capital or it will cause inflation and higher interest rates.
  - zombieprocesses 9y ago
    > Patently false. The public debt in Brazil has been almost entirely internal for the past 10 years. Should I show you a chart to settle it? Why not show it rather than asking for my permission? But since you asked, please do. And show me the one for argentina while you are at it. Here is brazil's external debt. Increased 250% in 10 years. https://tradingeconomics.com/brazil/external-debt https://tradingeconomics.com/brazil/external-debt > Quite the opposite, actually. They received massive inflows of foreign investment, and very high domestic savings rate. Foreign investment != external debt. So their high domestic saving rates means they had little need to borrow internationally? That was my point. > the Asian countries you mentioned have a history of very high savings rate, this generates a stock of capital that the government and companies can borrow at low costs to develop. But you wrote that it was quite the opposite just a sentence ago? I'm saying that korea, taiwan, japan and china did not depend on foreign borrowing. You conflate foreign investment with borrowing. Then you contradict yourself. > Poland (and the LatAm countries I mentioned) have very low or negative savings rate, and almost no capital stock, so any increase in borrowing by the government has to be met with foreign capital or it will cause inflation and higher interest rates. Well then they need to increase their savings rate or limit their borrowing?
dvfjsdhgfv 9y ago
I'm curious to see what happens next. Economics is quite complex and often the same policy applied in a different country gives quite different results.
mrwebmaster 9y ago
What disaster do you see in Argentina? During the last years It cancelled all of it's debt with the IMF (in one payment, and this debt was generated many years ago) and also with the Paris Club. It's Central Bank is in relative good position. A monetary issue is the high inflation rate, but I wouldn't call it an "economic disaster" since unemployment is relatively low, if we compare it with historical levels or with unemployment of other LatAm countries.
- ucaetano 9y ago
  https://www.economist.com/news/briefing/21596582-one-hundred-years-ago-argentina-was-future-what-went-wrong-century-decline https://www.economist.com/news/briefing/21596582-one-hundred... https://www.economist.com/news/americas/21704824-battle-over-utility-bills-mauricio-macris-first-big-crisis-its-cold-outside https://www.economist.com/news/americas/21704824-battle-over... https://www.economist.com/blogs/americasview/2014/06/argentinas-economy https://www.economist.com/blogs/americasview/2014/06/argenti... Almost a decade of average zero growth, declining quality of life, crumbling infrastructure. It is sad to see the state of destruction the country was left in after Christina left.
  - mrwebmaster 9y ago
    Don't agree here: - Growth has been relatively high - Infrastructure improved - Quality of life improved - The state was not left in a state of destruction.
  - tugash 9y ago
    > Almost a decade of average zero growth (...) > It is sad to see the state of destruction the country was left in after Christina left. And the state of the country when she arrived? Let's not forget what happened between 1998-2002. From your last article: >Many of Argentina’s problems are familiar. Inflation has plagued Argentina for much of the past decade; it still grew by an average of 5.6% from 2005-2013. Not a fan from Christina, but the situation is way more complex than just one (or 2 with Nestor) president.
neilwilson 9y ago
It's only sad that people still trot out the 'crowding out' thesis ten years after it proved to be false. Poland has its own currency which its banks create as required. There can be no shortage of financial capital in a country with a free floating exchange rate and no dollarised sovereign debt. There can only be a shortage of stuff.
- ucaetano 9y ago
  Yes, which means inflation, which if countered with more money printing leads to hyperinflation. Printing money won't increase the stock of capital. That is so absurd that you're not even wrong. Have you ever lived with 4000% inflation per year? I have.
  - neilwilson 9y ago
    Where's the inflation in Japan? It's the savings stupid. You forgot about them.

conanbatt 9y ago

Domestic borrowing is a guarantee of inflation, because the incentive to dilute the debt is too great to not use.

ucaetano 9y ago
Exactly! And inflation is just another form of taxes.
- bitumen 9y ago
  A very pernicious form which disproportionately harms the middle and lower classes. I’ve never understood hard left thinks this kind of thing is a good idea. I understand wanting to change gross inequality and reject runaway capitalism, especially the rigged cronyism we see today. Choosing to change things by engaging in failed alternatives though seems crazy. I’m not being rhetorical, I don’t understand. If someone can explain it to me, or point me to some good explanations I’d appreciate it.
- laurencerowe 9y ago
  Inflation is a tax on wealth but not income (which rises with inflation.) As such it’s a progressive tax since wealth is so unequally distributed. Close to two decades of low inflation in the US and Western Europe has greatly increased inequality. Hyperinflation is destructive and must be avoided but there’s a strong progressive case for increasing the 2% inflation targeted by most central banks.
  - giggles_giggles 9y ago
    5% of the value held in the bank account of a poor person is worth more to that person than 5% in the account of a wealthy person, even if the absolute amount is less. Inflation is one of the most regressive taxes.
    - pjc50 9y ago
      For less well off people the effect of inflation matters far more in terms of cash flow - pay and expenses - than cash holdings.
  - conanbatt 9y ago
    Grotesque. Inflation is a tax that is first spent by the government, from the government to governments interests. Its a terrible tool of wealth distribution, and to the extent that it behaves like one it redistributes from everyone into the pockets of those who get the money first.
  - lainga 9y ago
    >income (which rises with inflation) At least up here in Canada, inflation-adjusted wage growth has been negative in the past two years.
  - prostoalex 9y ago
    > Inflation is a tax on wealth Part of wealth that's stored in cash or fixed-rate debt instruments. Most other assets - real estate, equities, floating-rate debt instruments - adjust accordingly.
  - 9y ago
skybrian 9y ago
On the other hand, borrowing in a foreign currency risks being ruined by exchange rates if the currency collapses. As happened to businesses in many Asian countries not that long ago. Also: Iceland.
- conanbatt 9y ago
  Only if you peg your own currency. If your neighbor devaluates their currency, your will naturally devaluate yours.
  - gumby 9y ago
    Yes but the example given was Iceland where the opposite happened: debt (and more importantly interest payments) was denominated in a currency that appreciated against the currency where the revenue to pay the debt was being generated.
  - cuchoi 9y ago
    But trade partners != lending partners
drak0n1c 9y ago
Japan has incredibly high levels of domestic borrowing, but has long suffered deflation. What factors make Japan the exception?
- ucaetano 9y ago
  Japan is a developed country (low capital requirements) with a huge stock of capital which it has exported around the world. It can borrow plenty internally before there is a shortage of capital. It has $1.3 trillion in foreign reserves. Poland is a developing country (high capital requirements) with no accumulated capital and negative savings, its foreign reserves are 10% of Japan's.
- conanbatt 9y ago
  I dont know enough about the japanese economy to answer this question :(

zombieprocesses 9y ago

> Sad to read this. Most LatAm leftist governments tried the same formula over the past 2 decades, with disastrous consequences. Korea, Taiwan, Japan and china tried it with spectacular results. Also, latin america is a especial situation because they are within the US sphere of influence. Their economic situation is far more complex because of it. > exactly like the one in Argentina and Brazil. Brazil and especially argentina's financial problems were a result of international borrowing, not domestic borrowing.

knuththetruth 9y ago
Yeah, it's quite interesting how the parent skirts over all the history of US involvement in Latin American during the Cold War, while at the same time ignoring any inconvenient counterexamples.
ucaetano 9y ago
> Brazil and especially argentina's financial problems were a result of international borrowing, not domestic borrowing. Patently false. The public debt in Brazil has been almost entirely internal for the past 10 years. Should I show you a chart to settle it? > Korea, Taiwan, Japan and china tried it with spectacular results. Quite the opposite, actually. They received massive inflows of foreign investment, and very high domestic savings rate. That's the difference you're not seeing: the Asian countries you mentioned have a history of very high savings rate, this generates a stock of capital that the government and companies can borrow at low costs to develop. Poland (and the LatAm countries I mentioned) have very low or negative savings rate, and almost no capital stock, so any increase in borrowing by the government has to be met with foreign capital or it will cause inflation and higher interest rates.
- zombieprocesses 9y ago
  > Patently false. The public debt in Brazil has been almost entirely internal for the past 10 years. Should I show you a chart to settle it? Why not show it rather than asking for my permission? But since you asked, please do. And show me the one for argentina while you are at it. Here is brazil's external debt. Increased 250% in 10 years. https://tradingeconomics.com/brazil/external-debt https://tradingeconomics.com/brazil/external-debt > Quite the opposite, actually. They received massive inflows of foreign investment, and very high domestic savings rate. Foreign investment != external debt. So their high domestic saving rates means they had little need to borrow internationally? That was my point. > the Asian countries you mentioned have a history of very high savings rate, this generates a stock of capital that the government and companies can borrow at low costs to develop. But you wrote that it was quite the opposite just a sentence ago? I'm saying that korea, taiwan, japan and china did not depend on foreign borrowing. You conflate foreign investment with borrowing. Then you contradict yourself. > Poland (and the LatAm countries I mentioned) have very low or negative savings rate, and almost no capital stock, so any increase in borrowing by the government has to be met with foreign capital or it will cause inflation and higher interest rates. Well then they need to increase their savings rate or limit their borrowing?

dvfjsdhgfv 9y ago

I'm curious to see what happens next. Economics is quite complex and often the same policy applied in a different country gives quite different results.

mrwebmaster 9y ago

What disaster do you see in Argentina? During the last years It cancelled all of it's debt with the IMF (in one payment, and this debt was generated many years ago) and also with the Paris Club. It's Central Bank is in relative good position. A monetary issue is the high inflation rate, but I wouldn't call it an "economic disaster" since unemployment is relatively low, if we compare it with historical levels or with unemployment of other LatAm countries.

ucaetano 9y ago
https://www.economist.com/news/briefing/21596582-one-hundred-years-ago-argentina-was-future-what-went-wrong-century-decline https://www.economist.com/news/briefing/21596582-one-hundred... https://www.economist.com/news/americas/21704824-battle-over-utility-bills-mauricio-macris-first-big-crisis-its-cold-outside https://www.economist.com/news/americas/21704824-battle-over... https://www.economist.com/blogs/americasview/2014/06/argentinas-economy https://www.economist.com/blogs/americasview/2014/06/argenti... Almost a decade of average zero growth, declining quality of life, crumbling infrastructure. It is sad to see the state of destruction the country was left in after Christina left.
- mrwebmaster 9y ago
  Don't agree here: - Growth has been relatively high - Infrastructure improved - Quality of life improved - The state was not left in a state of destruction.
- tugash 9y ago
  > Almost a decade of average zero growth (...) > It is sad to see the state of destruction the country was left in after Christina left. And the state of the country when she arrived? Let's not forget what happened between 1998-2002. From your last article: >Many of Argentina’s problems are familiar. Inflation has plagued Argentina for much of the past decade; it still grew by an average of 5.6% from 2005-2013. Not a fan from Christina, but the situation is way more complex than just one (or 2 with Nestor) president.

neilwilson 9y ago

It's only sad that people still trot out the 'crowding out' thesis ten years after it proved to be false. Poland has its own currency which its banks create as required. There can be no shortage of financial capital in a country with a free floating exchange rate and no dollarised sovereign debt. There can only be a shortage of stuff.

ucaetano 9y ago
Yes, which means inflation, which if countered with more money printing leads to hyperinflation. Printing money won't increase the stock of capital. That is so absurd that you're not even wrong. Have you ever lived with 4000% inflation per year? I have.
- neilwilson 9y ago
  Where's the inflation in Japan? It's the savings stupid. You forgot about them.