Sunday, February 06, 2011

Made in the USA

From Jeff Jacoby's column in today's Boston Globe "Made in the USA":

"There’s just one problem with all the gloom and doom about American manufacturing. It’s wrong.

Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent (see chart above). China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.

Perceptions also feed the gloom and doom. In its story on Americans’ economic anxiety, National Journal quotes a Florida teacher who says, “It seems like everything I pick up says ‘Made in China’ on it.’’ To someone shopping for toys, shoes, or sporting equipment, it often can seem that way. But that’s because Chinese factories tend to specialize in low-tech, labor-intensive goods — items that typically don’t require the more advanced and sophisticated manufacturing capabilities of modern American plants.

A vast amount of “stuff’’ is still made in the USA, albeit not the inexpensive consumer goods that fill the shelves in Target or Walgreens. American factories make fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors. Not the sort of things on your weekly shopping list? Maybe not. But that doesn’t change economic reality. They may have “closed down the textile mill across the railroad tracks.’’ But America’s manufacturing glory is far from a thing of the past."

Update: The chart above was prepared using the United Nations data on international GDP, including a breakout for manufacturing output, on an annual basis for most countries in the world from 1970-2009.  For most advanced countries, manufacturing data are provided for both: a) manufacturing, and b) total manufacturing including mining and utilities.  Total manufacturing would be a measure consistent with the Federal Reserve's (and other countries') measure of monthly "industrial production," which is for total manufacturing output including mining and manufacturing.  For China, the only measure available from the UN is for total manufacturing, including mining and utilities.  Therefore, the only way to compare manufacturing output in China to the U.S. and other countries using the UN data is to use the measure of total manufacturing (including mining and utilities). 

53 Comments:

At 2/06/2011 10:09 AM, Blogger Cordovajim said...

but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.

Doesn't that mean there's been no growth in 20+ years? What has been our population change in that time?

 
At 2/06/2011 10:30 AM, Anonymous Anonymous said...

Yahooooooo!!!!!! Go USA!!!!

 
At 2/06/2011 10:34 AM, Blogger Unknown said...

Of course US manufacturing is up. The Fed is electronically fabricating trillions of dollars, and keeping its Fed funds and window rates near zero, to create jobs and manufacturing.

America, however, does not have an economy dependent on manufacturing but consumption via debt expansion. Consumers, by the way, are not taking on more debt and not sufficiently consuming.

Promoting positive manufacturing and labor statistics with the US central bank dropping trillions into one recessionary pit after another is tantamount to the results of a neurological exam from your dentist.

Inflation is the antithesis of all human potential and productivity but the primary goal of those we've, again, foolishly entrusted with our economic prosperity and livelihoods.

When are we going to stop lying to ourselves about what is really going on in the American economy?

Oh, and about those Low-tech, labor-intensive Chinese factories? Where do you think your "i-stuff" is manufactured?

 
At 2/06/2011 10:37 AM, Blogger Jason said...

2005 dollars via CPI or 2005 dollars via DXY?

 
At 2/06/2011 10:49 AM, Blogger morganovich said...

jim-

no, that's not what it means at all.

world manufacturing grew enormously from 1990 to 2009. to keep your share constant, it means that you needed to grow a great deal.

i have a methodological question here:

why include utilities? i can even see including mining, but why utilities? once running, they are basically just inflation gauges. you don't get more productivity our of a coal boiler or a nuclear plant, they pretty much have a megawatt rating and that's that.

how is that "manufacturing"?

i have no idea how much it skews these numbers (or even in which direction), but i'd be interested to see them without it.

 
At 2/06/2011 10:55 AM, Blogger morganovich said...

jason-

that's a really interesting question.

if you look at it, there is an inflection point in that line where the slope steepens.

it's right at 1992, the year they changed the CPI calculation so that it reads much lower.

i doubt that is a coincidence.

regardless of which calculation you accept, the fact that the BLS did not go back and adjust the historical data means that you cannot make valid comparisons in real terms across 1992.

the present period will always look better compared to pre 1992 in real terms because it is an apples to oranges comparison of arithmetic mean to geometric that results in any given set of price changes resulting in lower CPI post 1992.

 
At 2/06/2011 11:04 AM, Blogger PeakTrader said...

David, when there's a lack of liquidity (or idle resources), then more liquidity will create jobs and raise output.

The U.S. economy depends, in part, on efficiencies in production and new products, which often have market power.

I stated before:

Just like the volume of output in itself will cause declining prices and induce demand, the volume of capital will in itself cause interest rates to fall and induce demand. The gains of U.S. assets increased faster than the gains of U.S. liabilities. Similarly, the increases in U.S. output exceeded the rises in U.S. inflation, which induced demand and raised living standards.

Also, I may add, if prices of half the goods rise 5%, prices of the other half of goods fall 5%, and the quality of most goods rise significantly, then what's the change in the general price level?

 
At 2/06/2011 11:30 AM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 2/06/2011 11:35 AM, Blogger PeakTrader said...

Under the Bush economy and Wall Street, the U.S. became the most efficient wealth-generating machine the world has ever seen.

It was a "black hole" in the global economy, attracting imports and capital, and was quickly progressing through the Agricultural-Industrial-Information-Biotech Revolutions, to move way ahead of the rest of the world.

The Fed overestimated inflation and maintained a restrictive stance too long when it should've eased the money supply, while most Americans still hold the belief the U.S. economy in the 2000s wasn't that great or was a poor economic period.

 
At 2/06/2011 1:27 PM, Blogger VangelV said...

I would not deny that the US still makes a lot of 'stuff' that it consumes and sells abroad. But I do not believe that the statistics as provided by the US government tell us the entire picture.

For one, it is clear that a country like China uses a lot more steel, concrete, copper, coal, and other inputs that go into real products than the US does. That means that the Chinese make many more things but that those things are not as highly priced as the US. So while China manufactures a great deal more volume the US is said to produce more 'value.'

But is this really true? Some would argue that when some segments of the economy produce goods that do not have a productive use they do not have a positive impact on the real standard of living. Because the US makes such expensive weapons systems I would argue that the lead that the US has is much smaller than the data indicates. Making tanks and helicopters that will be destroyed in Iraq or Afghanistan is not very productive. Building multi-billion dollar bombers, ships, and submarines have no real value. You might as well have taken some raw materials and created pyramids or other such structures.

I think that what Jeff Jacoby needs to do is to read some of Robert Higgs' analysis about the economy of the 1940s. If he did, he might draw a slightly different conclusion.

 
At 2/06/2011 1:44 PM, Blogger morganovich said...

v-

"For one, it is clear that a country like China uses a lot more steel, concrete, copper, coal, and other inputs that go into real products than the US does. That means that the Chinese make many more things but that those things are not as highly priced as the US. So while China manufactures a great deal more volume the US is said to produce more 'value.' "

but a great deal of that is true. an intel chip uses far less copper than a bathroom pipe, but has much more value.

i'm not sure how you could ever really validate the claim you are making.

the market decides value and does so by price.

you seem to be claiming that you might know better and that somehow inputs are the measure of value, a claim i have real doubts about. i can use the exact same food inputs as mario battali, but he's going to create much more value with them as demonstrated by the willingness of people to pay high prices to eat his pasta while mine attracts no such attention.

i just really can't see how you can use input volumes as way to measure value in the way you propose. of what value is the "bird's nest" in china that consumed so much steel and concrete and now sits empty and depreciating?

 
At 2/06/2011 2:00 PM, Blogger PeakTrader said...

VangelV: "Building multi-billion dollar bombers, ships, and submarines have no real value."

What about body-building, daily work-outs, taking boxing lessons, etc.. Do those have no real value either?

The U.S. has a world empire to defend.

"For FY 2010, Department of Defense spending amounts to 4.7% of GDP. Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, has called four percent an "absolute floor.""

In the 1960s, U.S. defense spending as a percentage of GDP was about 10% and in the 1950s was over 10%.

 
At 2/06/2011 2:28 PM, Blogger PeakTrader said...

After the Roman Empire fell, the world had a thousand years of economic stagnation called the "Dark Ages."

 
At 2/06/2011 3:38 PM, Blogger Jet Beagle said...

morganovich,

Why not include utilities? I do not understand your objection. As the global economy grows, the demand for electricity soars. Additional generating power must be created.

How is an electrical power plant different from a petroleum refinery? Both can operate at varying levels of output. Both generally run continuously. Both can be idled, intentionally or by disaster.

I could more understand the exclusion of mining. Mining generally does not imply the transformation of a natural resource into another product. IN that respect, electric power generation is similar to a steel mill or an aluminum plant. Mining is not, as I see it.

 
At 2/06/2011 4:01 PM, Blogger Jet Beagle said...

VangeIV,

First, only a tiny portion of the sophisticated equipment created by our defense industries is "destroyed in Iraq or Afghanistan". The aircraft, ships, communications equipment, radar systems, satellites, etc, are going to be available for military use for decades.

Second, just because you believe these armaments "have no value" does not mean they have no value to the American people. Voters continue to re-elect decision-makers who approve this spending.

 
At 2/06/2011 4:14 PM, Blogger Jet Beagle said...

morganovich and jason,

I'm not sure I understand the discussion about the CPI. I don't see how that is relevant to the values being discussed.

GDP is adjusted using Implicit Price Deflators. Unlike CPIs, such deflators are not dependent on the mix of goods included in the indexes.

As I understand it, the values provided by the United Nations on this chart have been adjusted using implicit price deflators. I am not aware of any 1992 change in the construction of implicit price deflators in the U.S. Are either of you guys aware of such changes?

 
At 2/06/2011 4:32 PM, Blogger Ron H. said...

David -

"Oh, and about those Low-tech, labor-intensive Chinese factories? Where do you think your "i-stuff" is manufactured?"

Well, they are assembled in China, of course, from components made in at least a dozen different countries, including the US. Did you miss this post? The Chinese contribution is indeed low-tech and labor intensive.

 
At 2/06/2011 4:46 PM, Blogger VangelV said...

the market decides value and does so by price.

But that is not true when you have the US government making purchasing decisions. Of what market value is an ICBM or a B-2 bomber? Is a B-2 really worth the $1 billion price tag? Is a Nimitz-class supercarrier really worth $5 billion? And why is an American bridge worth ten times that of a similar bridge in China? Does the extra 385% it costs to build a coal plant in the US worth anything to the market when that cost is created by layers of regulatory requirements and the need to hire unionized workers who get ten times the compensation of Chinese workers? When I look at the bigger picture I see that the Chinese are building many more miles of railway track per dollar spent, and much more infrastructure for the same budget. To me that means that they are building more things for the same dollars and that the way we measure output is not reflected in the real economic activity that is taking place.

Now I have not yet developed a strong position on this so I am more than willing to be convinced that I am wrong. But like Mark Faber, I do not see reality as the US statisticians would have us see it and expect that there is a problem with the measurement process. Instead of looking at just the dollar values involved I would rather look at gross output. Did the US build more cars, housing units, refrigerators, washing machines, air conditioners, stoves, railway cars, ships, electricity generating plants, airports, miles of highway, ports, etc., than China did last year? I would say no, it did not.

 
At 2/06/2011 5:11 PM, Blogger Jet Beagle said...

VangeIV: "Instead of looking at just the dollar values involved I would rather look at gross output."

That may sound better to you, but there is no way to meaningfully compare the mix of goods produced by a developed nation with those produced by a developing nation. The U.S. has no need to build as many highways and airports as does China. Our infrastructure was developed decades ago.

By the way, your list of goods you would compare omits American strengths such as chemicals, pharmaceuticals, aircraft, and many more important American products.

 
At 2/06/2011 7:16 PM, Blogger PeakTrader said...

The Chinese are certainly hard working.

It's unfortunate, Obama is squandering their savings, almost as fast as the communists.

 
At 2/06/2011 9:32 PM, Blogger AIG said...

"why include utilities? i can even see including mining, but why utilities? once running, they are basically just inflation gauges. you don't get more productivity our of a coal boiler or a nuclear plant, they pretty much have a megawatt rating and that's that."

Not really. Electricity production fluctuates heavily with demand. More manufacturing output means more electricity production. Nuclear might not fluctuate too much, but coal will and gas much more so.

"For one, it is clear that a country like China uses a lot more steel, concrete, copper, coal, and other inputs that go into real products than the US does. That means that the Chinese make many more things but that those things are not as highly priced as the US. So while China manufactures a great deal more volume the US is said to produce more 'value.'"

An apple is bigger than a microchip, yet that is meaningless.

"Because the US makes such expensive weapons systems I would argue that the lead that the US has is much smaller than the data indicates. Making tanks and helicopters that will be destroyed in Iraq or Afghanistan is not very productive."

Typical "Libertarian" errors. What is the total military hardware production in the US? What % of manufacturing output does that represent? half a %, maybe 1%.

And if other countries want to give billions for, what you say is useless, then can you think of a better deal? We give them useless junk, they give us money.

"Of what market value is an ICBM or a B-2 bomber? Is a B-2 really worth the $1 billion price tag? Is a Nimitz-class supercarrier really worth $5 billion?"

You guys need to get a new hobby other than beating the same dead horse all the time. No new ICBMs or B-2s have been build in over 20 years.

 
At 2/06/2011 9:34 PM, Blogger AIG said...

"And why is an American bridge worth ten times that of a similar bridge in China?"

First of all, what are you basing this "10 times" figure on?

Second, labor costs.

Third, similar according to what standard? A bridge in China =/ a bridge in the US

"Does the extra 385% it costs to build a coal plant in the US worth anything to the market "

A coal power plant in the US =/ one in China

"To me that means that they are building more things for the same dollars"

Similarly as 1 mile of roadway will not cost the same in the US as in China, 1 mile of roadway will not generate the same value in the US as in China. Nor does 1 MWh of electricity in China generate the same productivity as 1 MWh in the US.

So they don't have the same value

"Did the US build more cars, housing units, refrigerators, washing machines, air conditioners, stoves, railway cars, ships, electricity generating plants, airports, miles of highway, ports, etc., than China did last year? I would say no, it did not."

The answer to your query is: yes absolutely it did. Even if we measured it in such an abstract way. And the reason it did, is because China didn't really "produce" any of those good either. Most of them were assembled in China, out of parts produced all over the world.

But more importantly, the unit of measurement is not a "refrigerator" or a "car". A refrigerator in the US is not the same as one in China. It will typically be 30% bigger, and with many more features and options. An American car is not the same as a Chinese car. An American airplane, is not the same as a Chinese one.

So no, you can't compare units of production because they are not equivalent.

This is the error communist economies made, since they had no means of assigning value to anything.

 
At 2/06/2011 11:24 PM, Blogger VangelV said...

First, only a tiny portion of the sophisticated equipment created by our defense industries is "destroyed in Iraq or Afghanistan". The aircraft, ships, communications equipment, radar systems, satellites, etc, are going to be available for military use for decades.

But that is the problem. The use of that surviving equipment places a negative constraint on future economic growth on the US and weakens the 'empire.' While all that spending counts as a positive in the statistics it is actually a huge negative for the standard of living of the average American.

(I do not mean to imply that all defense spending is terrible or unnecessary. I am simply pointing out that the US goes way beyond what is prudent or necessary.)

Second, just because you believe these armaments "have no value" does not mean they have no value to the American people. Voters continue to re-elect decision-makers who approve this spending.

No, voters have never been given a chance to elect anyone who would be reasonable about defense spending. There are thousands of lobbyists and plenty of great jobs as rewards for the politicians who keep voting for all of that spending. But it does not matter because the US is nearly bankrupt and cannot afford all of that spending. It used to be the greatest nation in the world and in many ways it still is. But the qualities that used to make the US great are now on the wane. Unless the trends are reversed the real economy will collapse and the useless spending will be a big part of that collapse.

 
At 2/06/2011 11:57 PM, Blogger VangelV said...

By the way, your list of goods you would compare omits American strengths such as chemicals, pharmaceuticals, aircraft, and many more important American products.

Actually, I am not. (And you can add agriculture and mining to the list.) But let us go over your list.

The pharmaceutical sector is stagnating because of the massive regulatory hurdles that are holding it back. All of the major pharma companies are now very global and have R&D, manufacturing, and marketing arms all over the world. You also need to keep in mind that the US consumes more than 40% of global pharma production each year. Given the fact that Americans do not live much longer than individuals in other developed economies I am not sure how significant the benefit of the pharma sector is to the average American.

The US has a clear lead in Aircraft sales but Brazil, Europe, and Asia are producing many of the components that go into those aircraft. Of course, it is doubtful that all of the investment in tooling, design, and development will pay off as expected because many of the projected sales will not materialize. Aircraft has been a net consumer of capital, both on the manufacturing and operations side. The benefits accrue to consumers, not airlines or manufacturers.

Chemicals is more interesting and useful. The market is large and very beneficial. But if you look at production you see that the EU is a bigger player in the chemical sector than the US. So is Asia. If you look at China by itself, its production has grown rapidly and is expected to pass American production in less than five years. Of course, since China has a bigger real economy than the US it imports chemicals while chemicals account for one of the largest export components for the US.

This does not change the argument. If you take a look at total production and consumption China has a bigger real economy than the US.

 
At 2/07/2011 12:56 AM, Blogger VangelV said...

An apple is bigger than a microchip, yet that is meaningless.

But even when it comes to microchips the argument is against you because you are talking about the past and not accounting for changes that have moved the economy in another direction.

I take it that you missed Paul Otellini's comments about how the chip manufacturers have no choice but to invest in manufacturing facilities abroad. Most of the chips that are in the products that you buy were made by fabrication plants in other countries. He warned that the uncertainty and the high-tax, anti-capitalist mentality is ensuring that the biggest breakthroughs in the future will come from foreign facilities.

Typical "Libertarian" errors. What is the total military hardware production in the US? What % of manufacturing output does that represent? half a %, maybe 1%.

I think that you are looking at least 5% or so. But that 'production' sucks up resources because it requires recurring operational budgets. And as Ron Paul points out, a lot of military related production does not show up as such.

And if other countries want to give billions for, what you say is useless, then can you think of a better deal? We give them useless junk, they give us money.

It is a con game. You give them weapons systems that are used to wage wars and suppress local populations and they give you pieces of paper that can be exchanged for other things that their manufacturers make. The reverse is true when you get physical goods that you exchange for money printed by the Fed.

You guys need to get a new hobby other than beating the same dead horse all the time. No new ICBMs or B-2s have been build in over 20 years.

Lots of other weapons systems have, many of which were not even wanted by the military because they are not useful. And B-2s need replacement parts.

 
At 2/07/2011 1:15 AM, Blogger AIG said...

"But that is the problem. The use of that surviving equipment places a negative constraint on future economic growth on the US and weakens the 'empire.' While all that spending counts as a positive in the statistics it is actually a huge negative for the standard of living of the average American. "

That is completely baseless and ridiculous.

Instead of spewing random thoughts, why don't you try to put some figures on these supposed "huge negative standards of living". Come on, give us a number.

Does military equipment manufacturing break even the 1% mark of total US manufacturing output?

"The pharmaceutical sector is stagnating because of the massive regulatory hurdles that are holding it back. All of the major pharma companies are now very global and have R&D, manufacturing, and marketing arms all over the world."

First of all, why is the expansion into other markets a sign of decline of the industry in the US. Second, how can you assign one factor that cased a hugely diverse industry to stagnate, considering that this "stagnation" is a fall from a peak reached more than 12 years ago.

"Given the fact that Americans do not live much longer than individuals in other developed economies I am not sure how significant the benefit of the pharma sector is to the average American. "

Are you a doctor now? Is the only measure of health, life expectancy?

"The US has a clear lead in Aircraft sales but Brazil, Europe, and Asia are producing many of the components that go into those aircraft."

So what? How is this an argument?

"Aircraft has been a net consumer of capital, both on the manufacturing and operations side. The benefits accrue to consumers, not airlines or manufacturers."

Are manufacturers stupid in producing them?

"But if you look at production you see that the EU is a bigger player in the chemical sector than the US. So is Asia."

So to make a pointless point, you have to group the CONTINENT of Europe and the CONTINENT of Asia.

What is your point here?

"This does not change the argument. If you take a look at total production and consumption China has a bigger real economy than the US."

If you measure things in bushels of grain and in tons of steel.

 
At 2/07/2011 1:29 AM, Blogger VangelV said...

First of all, what are you basing this "10 times" figure on?

Experience. I do not know how prices are today but not very long ago it made sense to think or one RMB as one USD when buying goods in China.

Third, similar according to what standard? A bridge in China =/ a bridge in the US

I am talking about the same design using the same standards. Equivalent infrastructure costs about one tenth the price in China as it does in the US even when the same materials are used.

A coal power plant in the US =/ one in China

It can be. You would be using the same power generators and the same designs. The big difference would be the lower regulatory, labour, and land costs. The same energy output would cost a great deal less in China.

Similarly as 1 mile of roadway will not cost the same in the US as in China, 1 mile of roadway will not generate the same value in the US as in China. Nor does 1 MWh of electricity in China generate the same productivity as 1 MWh in the US.

So they don't have the same value


I am with Faber on this one. Such claims are a lot of statistical nonsense. A mile of road in China will move as many or more people as a mile in the US, where the lower population density makes such roads less productive.

The answer to your query is: yes absolutely it did. Even if we measured it in such an abstract way. And the reason it did, is because China didn't really "produce" any of those good either. Most of them were assembled in China, out of parts produced all over the world.

The same is true of 'American' made products. Of course, if you look at shipping containers you see that China sends out far more full ones and receives empty ones back while the opposite is true of the US.

But more importantly, the unit of measurement is not a "refrigerator" or a "car". A refrigerator in the US is not the same as one in China. It will typically be 30% bigger, and with many more features and options. An American car is not the same as a Chinese car. An American airplane, is not the same as a Chinese one.

I agree on this point. They are not the same. But even if you are assuming that Chinese refrigerators are a quarter the size of American ones and adjust accordingly you are still looking at much greater Chinese production and consumption. And if you look at where American refrigerators come from you will notice that they are just as likely to be from factories in China than in the US.

 
At 2/07/2011 1:32 AM, Blogger AIG said...

"I take it that you missed Paul Otellini's comments"

I take it you didn't understand what I said, or what you said. The argument is whether "volume" is a way of measuring anything.

Most of the electronics have been manufactured overseas for decades.

"I think that you are looking at least 5% or so."

Ok. And then what? More than half of that gets sold overseas. What does it matter if we're selling them apples or bombs?

"It is a con game. You give them weapons systems that are used to wage wars and suppress local populations"

What do you smoke?

"and they give you pieces of paper that can be exchanged for other things that their manufacturers make."

So if we sold them apples for those same pieces of paper, would we be any better off? Again I will ask the question, what do you smoke?

"Lots of other weapons systems have, many of which were not even wanted by the military because they are not useful. "

So now you're a military tactician and can say what the military wants or doesn't.

What is your POINT? Is your point that the dollar values used for measuring these aggregates is not real enough? If thats the case, the dollar value of US manufacturing is just as skewed as dollar values of Chinese manufacturing.

Is your point that a better measurement system would to measure units of production? Its not, because they're not comparable. Thats all there is to that.

Is your point that America is an evil military regime that you absolutely positively need to make up any ridiculous argument to prove, even comparing entire continents with the US to make your point? Well, congratulations.

 
At 2/07/2011 1:42 AM, Blogger AIG said...

"Experience"

Well thats not giving us anything to go on, now is it.

"I am talking about the same design using the same standards. Equivalent infrastructure costs about one tenth the price in China as it does in the US even when the same materials are used. "

Again, what are you basing this on? Please don't say "experience"

"It can be. You would be using the same power generators and the same designs. The big difference would be the lower regulatory, labour, and land costs. The same energy output would cost a great deal less in China. "

It would cost even less in Zimbabwe. Thats not how value is determined.

"I am with Faber on this one. Such claims are a lot of statistical nonsense. A mile of road in China will move as many or more people as a mile in the US, where the lower population density makes such roads less productive. "

You fail to grasp the issue entirely. Whenever it is convenient for you, you will create the fantasy of "all else being equal". When it is not, then the "well they have different pop. densities" argument comes out.

The fact that a US worker is multiple times more productive than a Chinese worker, a single mile of road in the US, all else being equal (going by your standard) generates multiple times the value of 1 mile of road in China.

"The same is true of 'American' made products. Of course, if you look at shipping containers you see that China sends out far more full ones and receives empty ones back while the opposite is true of the US. "

You fail to grasp the argument at hand, and the graphs displayed here.

"I agree on this point. They are not the same. But even if you are assuming that Chinese refrigerators are a quarter the size of American ones and adjust accordingly you are still looking at much greater Chinese production and consumption."

First of all, no you're not. Second, this is ridiculously pointless and a wrong approach.

"And if you look at where American refrigerators come from you will notice that they are just as likely to be from factories in China than in the US"

And if you look at where Chinese refrigerators come from, you're just as likely to see them from US companies as anything else, and their components made all over the world to.

You deliberately fail to understand the accounting of manufacturing.

 
At 2/07/2011 3:02 AM, Blogger PeakTrader said...

Connecting the Dots Between China’s Falling Consumption Level and Its Banking Crisis
January 22, 2011

"One of the striking features of China’s continuing growth as an economic power is its extreme dependence on exports and investments as drivers of growth. Even more troubling is that as expansion continues, consumption keeps falling as a percentage of GDP.

As countries become more affluent, consumption tends to rise in relationship to GDP. And the ample evidence of colossally unproductive infrastructure projects in China raises further doubts about the sustainability of the Chinese economic model.

Household consumption has declined over the decade as a share of gross national product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year.

China keeps on using increasingly unproductive debt to fuel growth, its need to work of growing amounts of bad debt on the sly at the expense of consumption will keep it at loggerheads with its trade partners."

 
At 2/07/2011 8:20 AM, Blogger VangelV said...

That is completely baseless and ridiculous.

All you need to sees that it is not baseless is to look at the budget. The US spends more than ten times what the second highest spending country does on defense even though it has a smaller number of people in its military.

Instead of spewing random thoughts, why don't you try to put some figures on these supposed "huge negative standards of living". Come on, give us a number.

No problem. The budget for maintenance and operations for 2010 stood at $283 billion. The procurement budget was $140 billion. Those are taxes paid by the productive class that could have been spent more productively.

Does military equipment manufacturing break even the 1% mark of total US manufacturing output?

Good question. As Ron Paul argued, the military procurement is spread widely so it is hard to get a handle on it. Much of the equipment made for and purchased by NASA, Department of Energy, and other departments of the US government should actually be counted as part of the military spending but isn't.

First of all, why is the expansion into other markets a sign of decline of the industry in the US. Second, how can you assign one factor that cased a hugely diverse industry to stagnate, considering that this "stagnation" is a fall from a peak reached more than 12 years ago.

I did not say that it is. I just said that much of the reported production US pharma companies comes from foreign activity.

Are you a doctor now? Is the only measure of health, life expectancy?

No, it isn't the only measure of health. But the point is a valid one. Even though the US is the world's greatest consumer of drugs Americans do not live longer and are not happier. Much of what they purchase is not doing them much good.

 
At 2/07/2011 8:26 AM, Blogger VangelV said...

So what? How is this an argument?

Many of the manufacturing jobs created by US aircraft makers are abroad. As I said, aircraft production provides a great benefit to consumers and workers but it has been a destroyer of capital. The civil aviation side of the business has not managed a positive return.

Are manufacturers stupid in producing them?

On the civil side, yes. Making airplanes is not productive because it does not yield a positive return.

So to make a pointless point, you have to group the CONTINENT of Europe and the CONTINENT of Asia.

My point is simple. The EU is about the same size as the US. It produces much more chemicals than the US. Asia used to be a collection of backwards, mostly communist countries. It also exceeds American chemical production. On its own China is rapidly catching up and within a few years it will sell as much as the US as measured in the USD. In terms of tonnage of chemicals it is probably a bigger producer already.

 
At 2/07/2011 8:35 AM, Blogger VangelV said...

I take it you didn't understand what I said, or what you said. The argument is whether "volume" is a way of measuring anything.

The argument is whether the USD reported sales are a way to measure something. Why should I assign 3 times more value for a ton of American cement than Chinese cement? Or three times for a bottle of American beer than a bottle of Chinese beer?

Ok. And then what? More than half of that gets sold overseas. What does it matter if we're selling them apples or bombs?

It doesn't matter what you sell. What I am pointing out is that you do not make as much as the statistics imply.

So now you're a military tactician and can say what the military wants or doesn't.

I did not make up that point. The military did not want some of the weapons systems that Congress was funding. Try to pay attention please.

What is your POINT? Is your point that the dollar values used for measuring these aggregates is not real enough? If thats the case, the dollar value of US manufacturing is just as skewed as dollar values of Chinese manufacturing.

My point is that the data hides the true picture; that China already makes more things than the US does.

 
At 2/07/2011 9:16 AM, Blogger VangelV said...

Is your point that a better measurement system would to measure units of production? Its not, because they're not comparable. Thats all there is to that.

That is my point. You can't use the statistics as they are to show anything meaningful. As I pointed out before, I am with Faber on the issue. What matters is capital accumulation. What matters is the amount of real goods produced in the economy, not accounting gimmicks and make-believe mark-to-fantasy games.

Is your point that America is an evil military regime that you absolutely positively need to make up any ridiculous argument to prove, even comparing entire continents with the US to make your point? Well, congratulations.

That was not my point. But the US is clearly trying to run an empire that it cannot afford. If it is not careful all of the unnecessary spending will cause the destruction of its currency and will lead to a much lower standard of living as the price of energy, food, shelter, clothing, etc., begins to rise substantially.

 
At 2/07/2011 9:35 AM, Blogger VangelV said...

Well thats not giving us anything to go on, now is it.

But reality matters. As the man said, "Who are you going to believe, the statistics or your lying eyes?"

Again, what are you basing this on? Please don't say "experience"

When ABB builds a coal plant in China it can do it for a much lower price than what it takes in the US because it does not have the same regulatory burdens and the same cost structure in China as it does in the US. It is the same GE or Siemens generators and the same equipment generating the same amount of power. But the total price is lower.

You must have heard Paul Otellini's comments. In his speech at the Aspen Forum he said that, "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States."

Intel does not change its specifications. Its plants are identical no matter where they are built but because of the regulatory costs he needs $1 billion more to build a plant in the US than in China, Korea, or Indonesia. Ignoring these extra costs that are placed on American businesses does not make any sense and as soon as Congress defunds many of the anti-capital bureaucracies the better off the country will be. Chips are not made abroad because of cheaper labour. They are made abroad because of a lower cost structure of which capital costs and depreciation are a major factor.

It would cost even less in Zimbabwe. Thats not how value is determined.

You are moving the pea again and hoping to divert attention from a very important point. In a global economy manufacturers look for low cost energy when making plans about their future operations. When idiot greens cause electricity rates to explode companies will look to build their factories in places where power is much cheaper. So far American workers have been lucky because many factories have been spared because foreign grids are not very robust and massive demand growth makes many locations unsuitable for certain types of manufacturing processes. But as grids and distribution systems improve we may see many more factories head abroad even as foreign labour rates move up sharply and are no longer the factor that they used to be.

 
At 2/07/2011 10:09 AM, Blogger VangelV said...

The fact that a US worker is multiple times more productive than a Chinese worker, a single mile of road in the US, all else being equal (going by your standard) generates multiple times the value of 1 mile of road in China.

I think that it is you who is missing the point. Roads are useful for moving around goods. When a rural road in China is rebuilt to proper standards it opens up areas both as sources of labour and production and as markets that can consume goods. The Chinese growth over the past few years has been driven by building new, modern roads where substandard ones used to exist. That creates far more value than replacing an old American road to nowhere with a newer one.

The clear fact is that much of China's infrastructure is now newer and better than what we see in the US. If we look at American airports we see ancient buildings that do not work properly and a traffic control system out of the 1950s. Compare them to airports in Asia or Europe and you see just how far the US has fallen.

Washington

Beijing

Washington

Beijing

Now it is not fair to compare Dulles, one of the worst airports in the US to Beijing, one of the best in China. But no matter how we try to arrange the data we find that the US is way behind Europe and Asia on much of its infrastructure. For the US to be a dominant it needs to rebuild that infrastructure. The problem is that it does not have the money to do so.

 
At 2/07/2011 10:43 AM, Blogger AIG said...

“All you need to sees that it is not baseless is to look at the budget. The US spends more than ten times what the second highest spending country does on defense even though it has a smaller number of people in its military. “

That’s entirely not the same argument. Not even remote. We’re talking about accounting for manufacturing, not defense spending. Only a fraction of that spending actually goes to procurements of new equipment, and a fraction of that represents actual manufacturing value.

You’re trying very hard to make up a problem.

“No problem. The budget for maintenance and operations for 2010 stood at $283 billion. The procurement budget was $140 billion. Those are taxes paid by the productive class that could have been spent more productively. “

None of that has anything to do with MANUFACTURING for defense. Again, you’re deliberately trying to fabricate a problem by using completely unrelated data.

“As Ron Paul argued, the military procurement is spread widely so it is hard to get a handle on it.”

Its not really all that hard.

“Much of the equipment made for and purchased by NASA, Department of Energy, and other departments of the US government should actually be counted as part of the military spending but isn't. “

Peanuts.

“I just said that much of the reported production US pharma companies comes from foreign activity.”

So what. That’s not the argument either. It has no relation to the graphs shown. And it’s a tend that started at least a decade ago.

“No, it isn't the only measure of health. But the point is a valid one.”

No its not. Try getting the flu in China and see how well you will be feeling for a week. Try getting it in the US, and you’ll be up and running in a day.

“Much of what they purchase is not doing them much good.”

Again, are you a doctor now who can assign value for other people?

 
At 2/07/2011 10:44 AM, Blogger AIG said...

“Many of the manufacturing jobs created by US aircraft makers are abroad. As I said, aircraft production provides a great benefit to consumers and workers but it has been a destroyer of capital. The civil aviation side of the business has not managed a positive return.”

First of all, once more this has NOTHING to do with the discussion. These are all things which are reflected in the graphs shown above, and you are adding ZERO value to this discussion by pointing out that the sky is blue and the grass is green. Second, the last sentence is plainly ridiculously wrong.

“On the civil side, yes. Making airplanes is not productive because it does not yield a positive return. “

Once again, plainly wrong because you’re not looking at the whole business model. You are, as usual, deliberately cherry-picking and ignoring everything else.

“My point is simple. The EU is about the same size as the US. It produces much more chemicals than the US. Asia used to be a collection of backwards, mostly communist countries. It also exceeds American chemical production.”

First of all, Asia didn’t used to be a collection of backward communist countries. Second of all, you are comparing 2 continents with 1 country. Nice try.

“On its own China is rapidly catching up and within a few years it will sell as much as the US as measured in the USD.”

Good for it. Who cares?

“In terms of tonnage of chemicals it is probably a bigger producer already.”

There’s no such thing as a “ton of chemicals”. There’s a ton of something in particular…but not a ton of “chemicals”. This is why we don’t measure things the way you want it measured.

“The argument is whether the USD reported sales are a way to measure something. Why should I assign 3 times more value for a ton of American cement than Chinese cement? “

Cement in Beijning costs roughly twice as much as cement in some middle-of-nowhere province in China. And cement in Beijing costs roughly as much as cement in the US. Conversely, cold rolled steel coil costs about 3 times more in China than it does in the US.

This argument purely doesn’t add up, because a ton of cement in Beijing =/ a ton of cement in Xian =/ a ton of cement in the US.

“What I am pointing out is that you do not make as much as the statistics imply. “

No you’re not.

“I did not make up that point. The military did not want some of the weapons systems that Congress was funding. Try to pay attention please.”

So you heard one news story on a jet engine, and now you are taking it upon yourself to apply the SAME news story to ALL DEFENSE procurements. I’ll try to pay more attention next time.

“My point is that the data hides the true picture; that China already makes more things than the US does.”

Things is not a measurement.

 
At 2/07/2011 10:45 AM, Blogger AIG said...

“That is my point. You can't use the statistics as they are to show anything meaningful. As I pointed out before, I am with Faber on the issue. What matters is capital accumulation. What matters is the amount of real goods produced in the economy, not accounting gimmicks and make-believe mark-to-fantasy games. “

If that is your point, it is a plainly weak and wrong point. Once more, “things” are not a measure of anything. “Statistics” are not what is used here. Dollar values are. And if the dollar values are wrong for the US, they are just as wrong for China.

Everything you have said in criticism of US accounting, is equally if not more so valid for Chinese accounting. Is a bridge to nowhere in China “real economy”? Is a row of empty apartment buildings “real economy”? Is a ridiculously overpriced apartment in Shanghai “real economy”? Do their volumes really matter if they are being wasted on empty projects of no value?

Value matters because a ton of cement in China =/ a ton of cement in the US, for the same reason that it doesn’t equal the same within China itself.

“That was not my point.”

That’s always your point. Don’t try to worm your way out.

“But reality matters. As the man said, "Who are you going to believe, the statistics or your lying eyes?"”

Its your eyes I don’t believe, because you have yet to make the point.

“When ABB builds a coal plant in China it can do it for a much lower price than what it takes in the US because it does not have the same regulatory burdens and the same cost structure in China as it does in the US. It is the same GE or Siemens generators and the same equipment generating the same amount of power. But the total price is lower.

You must have heard Paul Otellini's comments. In his speech at the Aspen Forum he said that, "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States."

Intel does not change its specifications. Its plants are identical no matter where they are built but because of the regulatory costs he needs $1 billion more to build a plant in the US than in China, Korea, or Indonesia.”

This =/ 10 times cheaper.

You understand your failing here? Yes it is cheaper to build it in China. It would be even cheaper to build it in Zimbabwe than in China. You always expect it to be cheaper. But its not TEN TIMES cheaper. And you will NOT get the same productivity. Not on your life.

You pick up on a small tid bit of info from one source, multiply it by 10, and then apply the same rule to ALL things American. That has been you standard strategy so far.

 
At 2/07/2011 10:45 AM, Blogger AIG said...

“You are moving the pea again and hoping to divert attention from a very important point. In a global economy manufacturers look for low cost energy when making plans about their future operations. “

I’m not moving anything. Simply, you fail to recognize that the lower cost of production is one of many factors that go into the equation. You also fail to recognize that the same value, quality or even volume will NOT be produced from one location to another, regardless if the factories are identical in every way. Typically, it will be cheaper to do it in China if it is in fact low value added activities such as assembly, be it of a chip or whatever you want.

All this is reflected in the aggregate figures of the above graphs. This is once more saying that the sky is blue and the grass is green. It adds zero value to the conversation.

That is why building a power plan in Zimbabwe would be dirt cheap, but it would have no value.
“When idiot greens cause electricity rates to explode companies will look to build their factories in places where power is much cheaper. So far American workers have been lucky because many factories have been spared because foreign grids are not very robust and massive demand growth makes many locations unsuitable for certain types of manufacturing processes. But as grids and distribution systems improve we may see many more factories head abroad even as foreign labour rates move up sharply and are no longer the factor that they used to be.”

Value added of this paragraph = 0

 
At 2/07/2011 11:07 AM, Blogger AIG said...

“I think that it is you who is missing the point. Roads are useful for moving around goods. When a rural road in China is rebuilt to proper standards it opens up areas both as sources of labour and production and as markets that can consume goods. The Chinese growth over the past few years has been driven by building new, modern roads where substandard ones used to exist. That creates far more value than replacing an old American road to nowhere with a newer one. “

Your WHOLE argument all this time has been “all things being equal”. Now, you’re switching to “well they’re not equal”. Which is what I have been saying all along. So congratulations on discovering that 1 mile of road in China =/ 1 mile of road in the US. ;) I told you that 20 posts ago.

“The clear fact is that much of China's infrastructure is now newer and better than what we see in the US.”

By definition it is newer. Newer is not a measurement of value.

“If we look at American airports we see ancient buildings that do not work properly and a traffic control system out of the 1950s. “

Perhaps the most ridiculous thing said so far here (well today at least). Are you a Civil Engineer too by any chance? The US has about 6 times more airports in the 2,000m+ range than China, overall about 10 times more aiports, a civil aviation fleet multiple orders of magnitude greater than China’s, and a access to air transportation that is pointless to compare to China’s.

Yet none of this seems to be of importance, when looking at the “ancient buildings” of US airports and the “new buildings” of Chinese ones.

“But no matter how we try to arrange the data we find that the US is way behind Europe and Asia on much of its infrastructure.”

Absolutely wrong. The fact that you are showing me pictures of an airport terminal as proof of “superiority” of infrastructure, is indicative that you have no idea what you’re talking about but are only doing so for the usual, standard, and tired old “I hate America and will make any argument to show so”, argument.

There are multiple ways of measuring “infrastructure”. In terms of quality, the US ranks highest only after Germany and a few small countries (Norway, Netherlands and Singapore). In terms of utilization and access and value created, no one comes close. China certainly ranks far below, and no amount of pretty airport structures change this fact.

Your argument is plainly flawed in that you assume that if the ceiling of a passenger terminal is “pretty”, therefore the airport is “better”.

“For the US to be a dominant it needs to rebuild that infrastructure. “

No it doesn’t.

 
At 2/07/2011 11:16 AM, Blogger VangelV said...

As countries become more affluent, consumption tends to rise in relationship to GDP.

Which is what has happened in China and the rest of the developing countries in Asia.

And the ample evidence of colossally unproductive infrastructure projects in China raises further doubts about the sustainability of the Chinese economic model.

It is not the economic model that is the problem. It is the link to the USD that is not working out. Some of the 'unproductive' investments were created by an attempt to escape the devaluation of the USD. The line of thinking was the need to use the purchasing power of newly issued USD denominated debt to build something that will be around after the USD crashes.

 
At 2/07/2011 11:17 AM, Blogger AIG said...

It is strange (though unsurprising) when a "Libertarian" takes it upon themselves, for the purposes of "hate America", to glorify pointless monuments of governments of China as examples of how the US is supposedly failing.

Whats new? The Ryugyong Hotel in Pyongyang already told us that the US was falling far behind North Korea some 20 years ago.

 
At 2/07/2011 11:28 AM, Blogger niknaknoo said...

What's the annual trade defecit again?

I think you'll find it's around half a trillion dollars every year.

This means on average every American citizen is sending $150 abroad every month.

But it's okay, we manufacture more than anyone else so who cares?

 
At 2/07/2011 11:36 AM, Blogger VangelV said...

That’s entirely not the same argument. Not even remote. We’re talking about accounting for manufacturing, not defense spending. Only a fraction of that spending actually goes to procurements of new equipment, and a fraction of that represents actual manufacturing value.

But it is part of the same argument. The $100 billion that is spent on some useless defense systems can build two cities that can house five to six million people in China. The effect on the real economy is much greater in China than it is in the US. And as I wrote before, when you pay three times more for the same quality cement in the US than in China you can't pretend that the statistics have real meaning.

None of that has anything to do with MANUFACTURING for defense. Again, you’re deliberately trying to fabricate a problem by using completely unrelated data.

Of course it does. When the Pentagon spends $140 billion for procurement much of that money goes for equipment made in the US. (I am not even counting the money that is spent for military purposes but goes in the budget of the Department of Energy, NASA and other government agency budgets. How many airports, railway stations, bridges, miles of highways, and cities will that $140 billion build in China? And which will have a bigger effect on the real economy?

Cement in Beijning costs roughly twice as much as cement in some middle-of-nowhere province in China. And cement in Beijing costs roughly as much as cement in the US. Conversely, cold rolled steel coil costs about 3 times more in China than it does in the US.

This is not true. Unless these out of the way provinces have cement factories the prices tend to be the same or higher because areas of high activity get the discounts and benefits that come from spreading out overheads over large volumes.

 
At 2/07/2011 12:04 PM, Blogger AIG said...

"But it is part of the same argument. The $100 billion that is spent on some useless defense systems can build two cities that can house five to six million people in China. The effect on the real economy is much greater in China than it is in the US. And as I wrote before, when you pay three times more for the same quality cement in the US than in China you can't pretend that the statistics have real meaning."

Unless China also spends 100 billion on "useless weapons", and those 2 cities remain empty regardless if the Chinese government build them or not.

You're making up obstacles in your way and creating fantastical scenarios for the sake of having them.

"Of course it does. When the Pentagon spends $140 billion for procurement much of that money goes for equipment made in the US. (I am not even counting the money that is spent for military purposes but goes in the budget of the Department of Energy, NASA and other government agency budgets. How many airports, railway stations, bridges, miles of highways, and cities will that $140 billion build in China? And which will have a bigger effect on the real economy?"

Again, completely fantastical scenarios with no relevance to reality. I can;t even begin to figure out what you're trying to compare here, or how to go about comparing the defense spending of one country, with infrastructure spending of another. About as pointless as one can get.

a) China also spends for defense procurements, last time I checked. b) China also spends on useless infrastructure projects which add no value
c) The US doesn't need additional infrastructure spending. China does.
d) The two aren't even apples to oranges. They're apples to jet engines.

"This is not true. Unless these out of the way provinces have cement factories the prices tend to be the same or higher because areas of high activity get the discounts and benefits that come from spreading out overheads over large volumes."

And you think cement factories tend to be in Shanghai? Look up cement prices in different regions of China. Second, theres the matter of quality, which is by no means homogeneous.

 
At 2/07/2011 12:15 PM, Blogger AIG said...

"And which will have a bigger effect on the real economy?"

So once more your argument is that, building a bridge to nowhere is "real economics" and building an empty skyscraper is "real economics", while building a bomb that some other country wants to buy from you, is "fake".

Well if it makes an anti-American point, why not!

Except that we got to SELL that bomb (to some evil country killing its own people no doubt), while that apartment building is still unsold.

" Some of the 'unproductive' investments were created by an attempt to escape the devaluation of the USD. The line of thinking was the need to use the purchasing power of newly issued USD denominated debt to build something that will be around after the USD crashes."

And when the USD doesn't crash? What happens then?

 
At 2/07/2011 2:39 PM, Blogger VangelV said...

Connecting the Dots Between China’s Falling Consumption Level and Its Banking Crisis...

China's falling consumption levels? Has anyone been to China recently? What falling consumption?

 
At 2/07/2011 2:56 PM, Blogger AIG said...

"Has anyone been to China recently? What falling consumption?"

a) you didn't understand the point of the comment (as in, % of GDP)

b) Why is almost everything you say based on some anecdotal "evidence"?

 
At 2/07/2011 6:52 PM, Blogger PeakTrader said...

VangelV, you use to throw around the term "malinvestment" often, like you were a leading expert on the subject.

Can't you see. China is malinvestment!

 
At 2/08/2011 9:37 AM, Blogger VangelV said...

You understand your failing here? Yes it is cheaper to build it in China. It would be even cheaper to build it in Zimbabwe than in China. You always expect it to be cheaper. But its not TEN TIMES cheaper. And you will NOT get the same productivity. Not on your life.

Actually, it would be much more expensive to build in Zimbabwe because it does not have the local resources, infrastructure, and skill sets to build anything complex. And yes, in many cases it is ten times cheaper to build in China than in the US, not because of labour or material costs but because in the US governments at all levels get in the way of legitimate projects. As I wrote before, try building a coal plant in the US some time. If you can manage it your legal bills alone will be higher than the cost of the same plant built in China.

You pick up on a small tid bit of info from one source, multiply it by 10, and then apply the same rule to ALL things American. That has been you standard strategy so far.

No, I am going by what I know and what I experienced. Around ten years ago we used the 7-10 factor when dealing in China. What we would pay in the US in the USD would be what we expected to pay for in RMB for things like food, hair cuts, massages, alcohol, tobacco, and any products that had a high labour cost component. The same would be true of large projects in heavily regulated sectors. The Airbus and Pratt reps were saying that to build a suitable assembly plant in China took about 15-25% of the cost when compared to one in France or the US. Even the tooling, which is a high cost item, could be made for around one third to one half the cost.

And the main thing American that I have a problem with comes down to the unaccountable actions taken by the political elite. Between the needless wars against Afghanistan and Iraq and the bases in Europe, Japan, Korea, Central Asia, etc., the military is a major burden on the productive class that is responsible for the wealth creation in the US. And so is the parasite class that dominates the public bureaucracy and big business, particularly the financial sector.

I still see the biggest risk to be the currency. The Fed is now trapped in a situation where it cannot raise rates even as real inflation is exploding. Other nations now see that they have to hedge their reserves or risk massive writedowns during the high-inflation (or hyperinflation) environment. Sadly, while that crisis will fix the spending problem, it will drive many good Americans into bankruptcy and poverty. That will include many good people who are members union plans that were forced to own USTs, and many investors who did their patriotic duty and bought bonds as support for their country, state, or municipality.

 
At 2/11/2011 12:24 AM, Blogger VangelV said...

Unless China also spends 100 billion on "useless weapons", and those 2 cities remain empty regardless if the Chinese government build them or not.

First, China does not spend nearly as much as the US on weapons. Of course, it gets a bigger bang for its buck because its weapons are more reasonably priced but that is a subject for another thread.

Second, I saw my first empty city in Yunnan province on the Burmese border. It was a few km down the road from an established older city. The year was 1996. A friend of mine went to the same area the next year. The city was no longer empty because the commercial buildings were occupied and that attracted workers to the new developments. I have little doubt that when prices decline by enough the new cities that you are talking about will also be filled.

a) China also spends for defense procurements, last time I checked.

Yes, it does. It spent around $100 billion in 2008 versus $660 billion for the US. The US spends twice as much in terms of percentage of GDP.

b) China also spends on useless infrastructure projects which add no value

Yes, it certainly does spend on infrastructure projects. But China has a massive rural population moving into cities so even those badly thought out cities will get filled up eventually. While the idiot central planners are often more often than not, the Chinese people are smart and adaptable and will take advantage of those errors by picking up assets at lower values.

c) The US doesn't need additional infrastructure spending. China does.

I take it that you have not been to an American airport lately or driven down an American highway. The US certainly needs to upgrade its failing infrastructure in many locations. You have 100 year old iron pipes breaking under city streets, water treatment facilities that keep failing, an antiquated air traffic control that is stuck in the 1950s, and roads that are being converted to gravel because counties can't afford to repave them.

d) The two aren't even apples to oranges. They're apples to jet engines.

Nice quip but it avoids the point. Again.

And you think cement factories tend to be in Shanghai? Look up cement prices in different regions of China. Second, theres the matter of quality, which is by no means homogeneous.

You are still paying about three times the price for the same quality. That means that the same amount of cement is counted as being worth three times greater to the real economy in the US as it is in China. But that is not the case, which means that the system of measuring is broken.

 
At 2/15/2011 6:46 PM, Blogger VangelV said...

VangelV, you use to throw around the term "malinvestment" often, like you were a leading expert on the subject.

No. I just point out the obvious.

Can't you see. China is malinvestment!

I know that the wind farms I saw in the Xinjiang desert is a malinvestment. And I certainly suspect that my neighbour's solar panel plant is a malinvestment. So are some of the coal to liquids, solar farms, and other alternative energy projects. And it is clear that a lot of the investments made by the bureaucrats will come back to hurt them.

But China is a lot like the US 150 years ago. It is made up of hard working people who are hoping to create better lives for themselves. It is a given that China will go through some serious turmoil. Public demonstations used to be common when I lived there more than a decade ago and I suspect that they have become more frequent. The country may even break apart into a number of autonomous regions. But it is clear that the Chinese people will do better over the long run and will figure out how to use those new infrastructure projects for their benefits. When the price of oil goes up to $250 you will see exactly how wise all those new coal and nuclear plant, road, port and railway investments turned out to be. If I were the Chinese leadership I would build many more cities, roads, ports, bridges, water treatment plants by using borrowed USDs and using those USDs to buy most of the raw materials needed to build them from abroad. And while I were at it I would buy oil fields, mines, plantations, etc., wherever I could.

When the USD finally collapses all of that infrastructure will still be in place and the Chinese people will be able to be much more energy efficient than they used to be.

 

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