3 ms·

Centralization of power can do impressive things. Like conquering the boom/bust cycle, or mass imprisonment and ideological reprogramming of entire ethnic popul

Centralization of power can do impressive things. Like conquering the boom/bust cycle, or mass imprisonment and ideological reprogramming of entire ethnic populations. I don't find it "impressive", just a consequence of different first principles.

chmod600 5y ago
If boom/bust is conquered, does that mean that there is no more boom either? What economic function does a boom or bust perform, and why doesn't China need those functions? I guess you can smooth them out a lot and limit the human impact. To a large extent, that's been done many places. People in the US don't normally starve because of a recession.
- jbay808 5y ago
  Growth happens through people's hard work building useful things; there's no reason that has to have a periodic boom/bust nature to it; it could just be a slow, steady upward trend. The fact that it does have oscillations in practice is mostly an artifact of collective psychology (and perhaps underpricing of debt). To a controls engineer, oscillations are indicative of bad feedback tuning.
  - chmod600 5y ago
    Let's say it's 2000 years ago and building boats is the next big thing, and you are a boat builder. It's exciting, and you and everyone else are building a lot of boats. It seems very productive, until one day there are just too many boats and nobody needs them. Someone will eventually tell you "You're a good boat builder, but stop building boats, go learn to make fishing nets instead". That's a bust, even though growth is still happening. If you are using western accounting methods, it might look like things stopped growing and reversed (negative gdp growth), because you thought last year that the boats were more valuable than they actually are, but there are still more boats, it's not like the accountant destroyed them. So a bust doesn't mean destruction, it's just a realignment of resources and a realization that what you had wasn't as great as you hoped. The oscillations are related to feedback delays and how conservative you are about overbuilding. Basically, debt is what feeds a boom/bust. If you wait for your previous boat to be sold before you build a new one, and if buyers wait for the last boat to pay for itself before they buy a new one, then there is no boom/bust. You can tune the feedback, and that's badically what lenders are supposed to try to do. In practice, policymakers need to be involved as well, because lenders won't do that great a job because they aren't lending their money. Maybe China has a different way of tuning. But basically, debt is the mechanism of boom/bust, and China has a lot of it, so it's hard for me to believe that it is somehow conquered. Good for them if they are better at tuning it, but it's not clear that they are better, and certainly not so good that they've eliminated all the oscillations.
    - jbay808 5y ago
      I agree with you! Part of the issue is that cheap debt lets a company like Evergrande, or even an entire sector, pretend that it's growing even when it's no longer producing things of value. When debt is cheap, I can keep building boats by borrowing money, and even when they fail to sell, I can point to my growing inventory of unsold boats and borrow more money against that to build even more boats. This can basically keep going until someone asks for their money back and nobody else will lend me more. That's when we find out whether the boats are truly worth what I say, and whether the growth was real. Until that point, the fact that the boats are worthless can be disguised. It's even worse if I'm selling the boats to customers who buy up my inventory at rising prices but never sail them, just because they're so confident in the trend of their future value going up. Then even I might not realize that my boat factory is no longer building useful items. I agree that a bust doesn't mean destruction. The waste already happened, in the long stretch of time where I kept building unnecessary boats. But smoothing out the cycle (and accurately pricing debt) may mean that discovery happens sooner, the pivot to nets happens earlier, and the roller coaster ride is avoided. Right now I'm watching this happen, not in China, but in Canada where cheap debt is blowing a monstrously huge bubble in the housing market. An absurdly wasteful amount of capital is getting redirected into shuffling land titles back and forth, based on loans and valuations that continue to increase. Canada is on a path to eventual heartbreak of one sort or another, and to the extent that monetary policy can influence it, the choice is either a large collapse now or an even larger collapse later. I can see that China is in a similar position, and they've chosen a large collapse now rather than procrastinating. In a feedback controller, we cannot completely eliminate sensitivity to disturbances, but we can move it from one band to another, like a pile of dirt. It's clear that China has not eliminated the oscillations in their economy, but this is one good example of scooping the summit off of a future mountain of pain, and paving it into the valley of the present. Debt is one mechanism of boom/bust; another is moral hazard. If lenders are confident that their "risky" loans are de facto guaranteed, they won't price their debt accurately. Here we have government ministers saying that even a 10% correction in the price of housing must not be allowed to happen because innocent homeowners would lose their shirts, and you can bet they'll see to it that we can take on more debt to keep bidding up those boats. In times like this, I do respect the CCP's willingness to look past the short term pain.
- imtringued 5y ago
  >What economic function does a boom or bust perform, and why doesn't China need those functions? Boom and busts do not perform a function. They are a symptom of a rigid money system. If you put a thermostat on a heater that can only go on or off then it will overshoot or undershoot the target temperature in a cycle. If the heater is perfectly flexible and instantly responds to the current temperature then no cycles will occur. If China doesn't experience any booms or busts then it either means their economy is in a range that suits their existing money system well or they simply are better at managing their money system.

chmod600 5y ago

If boom/bust is conquered, does that mean that there is no more boom either? What economic function does a boom or bust perform, and why doesn't China need those functions? I guess you can smooth them out a lot and limit the human impact. To a large extent, that's been done many places. People in the US don't normally starve because of a recession.

jbay808 5y ago
Growth happens through people's hard work building useful things; there's no reason that has to have a periodic boom/bust nature to it; it could just be a slow, steady upward trend. The fact that it does have oscillations in practice is mostly an artifact of collective psychology (and perhaps underpricing of debt). To a controls engineer, oscillations are indicative of bad feedback tuning.
- chmod600 5y ago
  Let's say it's 2000 years ago and building boats is the next big thing, and you are a boat builder. It's exciting, and you and everyone else are building a lot of boats. It seems very productive, until one day there are just too many boats and nobody needs them. Someone will eventually tell you "You're a good boat builder, but stop building boats, go learn to make fishing nets instead". That's a bust, even though growth is still happening. If you are using western accounting methods, it might look like things stopped growing and reversed (negative gdp growth), because you thought last year that the boats were more valuable than they actually are, but there are still more boats, it's not like the accountant destroyed them. So a bust doesn't mean destruction, it's just a realignment of resources and a realization that what you had wasn't as great as you hoped. The oscillations are related to feedback delays and how conservative you are about overbuilding. Basically, debt is what feeds a boom/bust. If you wait for your previous boat to be sold before you build a new one, and if buyers wait for the last boat to pay for itself before they buy a new one, then there is no boom/bust. You can tune the feedback, and that's badically what lenders are supposed to try to do. In practice, policymakers need to be involved as well, because lenders won't do that great a job because they aren't lending their money. Maybe China has a different way of tuning. But basically, debt is the mechanism of boom/bust, and China has a lot of it, so it's hard for me to believe that it is somehow conquered. Good for them if they are better at tuning it, but it's not clear that they are better, and certainly not so good that they've eliminated all the oscillations.
  - jbay808 5y ago
    I agree with you! Part of the issue is that cheap debt lets a company like Evergrande, or even an entire sector, pretend that it's growing even when it's no longer producing things of value. When debt is cheap, I can keep building boats by borrowing money, and even when they fail to sell, I can point to my growing inventory of unsold boats and borrow more money against that to build even more boats. This can basically keep going until someone asks for their money back and nobody else will lend me more. That's when we find out whether the boats are truly worth what I say, and whether the growth was real. Until that point, the fact that the boats are worthless can be disguised. It's even worse if I'm selling the boats to customers who buy up my inventory at rising prices but never sail them, just because they're so confident in the trend of their future value going up. Then even I might not realize that my boat factory is no longer building useful items. I agree that a bust doesn't mean destruction. The waste already happened, in the long stretch of time where I kept building unnecessary boats. But smoothing out the cycle (and accurately pricing debt) may mean that discovery happens sooner, the pivot to nets happens earlier, and the roller coaster ride is avoided. Right now I'm watching this happen, not in China, but in Canada where cheap debt is blowing a monstrously huge bubble in the housing market. An absurdly wasteful amount of capital is getting redirected into shuffling land titles back and forth, based on loans and valuations that continue to increase. Canada is on a path to eventual heartbreak of one sort or another, and to the extent that monetary policy can influence it, the choice is either a large collapse now or an even larger collapse later. I can see that China is in a similar position, and they've chosen a large collapse now rather than procrastinating. In a feedback controller, we cannot completely eliminate sensitivity to disturbances, but we can move it from one band to another, like a pile of dirt. It's clear that China has not eliminated the oscillations in their economy, but this is one good example of scooping the summit off of a future mountain of pain, and paving it into the valley of the present. Debt is one mechanism of boom/bust; another is moral hazard. If lenders are confident that their "risky" loans are de facto guaranteed, they won't price their debt accurately. Here we have government ministers saying that even a 10% correction in the price of housing must not be allowed to happen because innocent homeowners would lose their shirts, and you can bet they'll see to it that we can take on more debt to keep bidding up those boats. In times like this, I do respect the CCP's willingness to look past the short term pain.
imtringued 5y ago
>What economic function does a boom or bust perform, and why doesn't China need those functions? Boom and busts do not perform a function. They are a symptom of a rigid money system. If you put a thermostat on a heater that can only go on or off then it will overshoot or undershoot the target temperature in a cycle. If the heater is perfectly flexible and instantly responds to the current temperature then no cycles will occur. If China doesn't experience any booms or busts then it either means their economy is in a range that suits their existing money system well or they simply are better at managing their money system.