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The problem with listening to economists is that if your only tool is interest rates everything looks like a loan. No sovereign nation should be borrowing from

The problem with listening to economists is that if your only tool is interest rates everything looks like a loan. No sovereign nation should be borrowing from anywhere other than itself. Instead firms should be selling equity denominated in the local currency for foreign currency - where they need foreign imported capital equipment. If nobody wants to invest on those terms then you have to build the equipment yourself. For a nation to develop successfully it needs patient money, not hot money.

nradov 3y ago
Small, poor countries have no practical way to bootstrap and build equipment themselves. That might have worked in the 18th century but not today. Loans are patient money. As long as the borrower pays as agreed then they can do as they please. Whether the original lender holds the asset to maturity or sells it on to another investor makes no difference. Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that.
- paxys 3y ago
  It didn't work in the 18th century either. Poor nations mostly entered the industrial age through colonialism rather than indigenous enterprise. The moment powerful nations could build ships and cross oceans, it was game over for the rest of the world.
- anon84873628 3y ago
  >Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that. It could change who gets left holding the bag, though. Presumably if Chinese firms held equity in the hydroelectric plants, they would care about whether they were built correctly and won't collapse. As it stands they get paid either way (according to the article).
- neilwilson 3y ago
  "As long as the borrower pays as agreed then they can do as they please. " That's not patient money then is it. That's money that requires regular service - mostly in a foreign currency. Patient money gets paid as and when there is profit to service it.
  - nradov 3y ago
    That's meaningless. No capitalist is so patient as to wait indefinitely. The time value of money is key here. What you're talking about essentially amounts to a donation, not a real investment.
mplewis 3y ago
When everyone else is growing faster than you are, patient money is losing money.
dash2 3y ago
The problem with not listening to economists is that you then suggest policies which economic history reveals are seriously flawed. Why are foreign investors likely to accept shares in your business denominated in, say, Rupiyah? Especially if it can't be "hot money", which implies they won't be able to resell it. As for building the equipment yourself: are you kidding? This kind of import-substitution failed spectacularly all over the developing world in the 1950s. I find it weird. Nobody would listen to me pontificating about how to design a microkernel and talking about "the problem with programmers".
- neilwilson 3y ago
  "Why are foreign investors likely to accept shares in your business denominated in, say, Rupiyah?" Because if that country wants to sell their stuff to you, that would their only option - other than taking Rupiyah directly. And if your country doesn't do it, then some other country will - because new sources of demand don't come by every day. That's how you avoid a 'debt trap' and the debt prison that comes from countries not being able to go bankrupt. And as Steve Keen regularly says you are better off studying System Dynamics than economics. It has more application to the real world.
  - dash2 3y ago
    I predict to you that demand for shares in emerging country currency in exchange for real goods will be low, and that no country will ever get rich by this method, because none ever has. As for system dynamics, I don't know about it - maybe it's great. But I do know a little economics, and a glance at NBER reveals very many deeply practical applications from unemployment to inequality to supply chains to sexual harassment: https://www.nber.org/papers?page=1&perPage=50&sortBy=public_date https://www.nber.org/papers?page=1&perPage=50&sortBy=public_.... So I'll repeat my point: do you know economics? If not, what makes you so confident to pontificate about it?
littlestymaar 3y ago
> listening to economists Noah Smith isn't even an economist, he's just some know-it-all internet pundit who happened to have graduated in economics a decade ago.
- local_crmdgeon 3y ago
  That's the definition of an economist
- davidsawyer 3y ago
  Not sure where you're getting this. He has a PhD in Econ...
  - littlestymaar 3y ago
    Having a Math degree doesn't make you a mathematician if you've stopped doing Math since then… That's even more true if, as Noah Smith, you got your diploma in order to become a pundit. From his own words[1]: > Back in 2006, the original reason I thought of getting an econ PhD was actually to become an econ pundit and writer. If anything, he's a former economist (until 2016) who's now a pundit discussing many topics going way beyond his academic expertise (hence my “know-it all” moniker above). [1]: http://noahpinionblog.blogspot.com/2016/04/life-update-leaving-stony-brook-joining.html http://noahpinionblog.blogspot.com/2016/04/life-update-leavi...
    - aragonite 3y ago
      Hey, don't knock Noah Smith. He's as much of an economist as Lex Fridman is a computer scientist. Check out his publications. ;)
kiba 3y ago
The problem with listening to economists is that if your only tool is interest rates everything looks like a loan. Economists don't only study interest rate and banking?

nradov 3y ago

Small, poor countries have no practical way to bootstrap and build equipment themselves. That might have worked in the 18th century but not today. Loans are patient money. As long as the borrower pays as agreed then they can do as they please. Whether the original lender holds the asset to maturity or sells it on to another investor makes no difference. Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that.

paxys 3y ago
It didn't work in the 18th century either. Poor nations mostly entered the industrial age through colonialism rather than indigenous enterprise. The moment powerful nations could build ships and cross oceans, it was game over for the rest of the world.
anon84873628 3y ago
>Most of the high profile failures with foreign investment stem from corruption and incompetence. Switching from debt to equity won't cure that. It could change who gets left holding the bag, though. Presumably if Chinese firms held equity in the hydroelectric plants, they would care about whether they were built correctly and won't collapse. As it stands they get paid either way (according to the article).
neilwilson 3y ago
"As long as the borrower pays as agreed then they can do as they please. " That's not patient money then is it. That's money that requires regular service - mostly in a foreign currency. Patient money gets paid as and when there is profit to service it.
- nradov 3y ago
  That's meaningless. No capitalist is so patient as to wait indefinitely. The time value of money is key here. What you're talking about essentially amounts to a donation, not a real investment.

mplewis 3y ago

When everyone else is growing faster than you are, patient money is losing money.

dash2 3y ago

The problem with not listening to economists is that you then suggest policies which economic history reveals are seriously flawed. Why are foreign investors likely to accept shares in your business denominated in, say, Rupiyah? Especially if it can't be "hot money", which implies they won't be able to resell it. As for building the equipment yourself: are you kidding? This kind of import-substitution failed spectacularly all over the developing world in the 1950s. I find it weird. Nobody would listen to me pontificating about how to design a microkernel and talking about "the problem with programmers".

neilwilson 3y ago
"Why are foreign investors likely to accept shares in your business denominated in, say, Rupiyah?" Because if that country wants to sell their stuff to you, that would their only option - other than taking Rupiyah directly. And if your country doesn't do it, then some other country will - because new sources of demand don't come by every day. That's how you avoid a 'debt trap' and the debt prison that comes from countries not being able to go bankrupt. And as Steve Keen regularly says you are better off studying System Dynamics than economics. It has more application to the real world.
- dash2 3y ago
  I predict to you that demand for shares in emerging country currency in exchange for real goods will be low, and that no country will ever get rich by this method, because none ever has. As for system dynamics, I don't know about it - maybe it's great. But I do know a little economics, and a glance at NBER reveals very many deeply practical applications from unemployment to inequality to supply chains to sexual harassment: https://www.nber.org/papers?page=1&perPage=50&sortBy=public_date https://www.nber.org/papers?page=1&perPage=50&sortBy=public_.... So I'll repeat my point: do you know economics? If not, what makes you so confident to pontificate about it?

littlestymaar 3y ago

> listening to economists Noah Smith isn't even an economist, he's just some know-it-all internet pundit who happened to have graduated in economics a decade ago.

local_crmdgeon 3y ago
That's the definition of an economist
davidsawyer 3y ago
Not sure where you're getting this. He has a PhD in Econ...
- littlestymaar 3y ago
  Having a Math degree doesn't make you a mathematician if you've stopped doing Math since then… That's even more true if, as Noah Smith, you got your diploma in order to become a pundit. From his own words[1]: > Back in 2006, the original reason I thought of getting an econ PhD was actually to become an econ pundit and writer. If anything, he's a former economist (until 2016) who's now a pundit discussing many topics going way beyond his academic expertise (hence my “know-it all” moniker above). [1]: http://noahpinionblog.blogspot.com/2016/04/life-update-leaving-stony-brook-joining.html http://noahpinionblog.blogspot.com/2016/04/life-update-leavi...
  - aragonite 3y ago
    Hey, don't knock Noah Smith. He's as much of an economist as Lex Fridman is a computer scientist. Check out his publications. ;)

kiba 3y ago

The problem with listening to economists is that if your only tool is interest rates everything looks like a loan. Economists don't only study interest rate and banking?