AUSTRIAN ECONOMICS ADDICT

Thinker (Photo credit: dSeneste.dk)

Lets do some heavy lifting to start the week. Two weeks ago, Charles Hugh Smith, at oftwominds.com, had three outstanding articles that built on top of each other. For him they were relatively short, but as usual were filled with great insights. He talks about what politicians, bureaucrats, central bankers, and intellectuals not only think; but also talks about the incentives and constraints under which they are making decisions: Why their policies of counterfeiting money for funding stimulus programs, bailouts or for increasing their sacred GDP numbers, will continue until economic reality forces a change: Why China and the US are in similar situations, even though China is a centrally planned economy with some free market reforms, and the US is a free market economy with massive Government intervention.  Take the time to read these articles, they will expand your ability to think. Make sure you look up the phrase “Cargo Cult”, if you don’t know what is. It is the perfect descriptive phrase.

The first is titled, Why Krugman And The Keynesians Are Lackeys For The NeoFeudal Debtocracy, read here. Here are a few excerpts from the article.

“Incredible as it seems to GDP-worshippers, there is a difference between productive investment and squandering money. A productive investment generates a multiplier effect: most importantly, it increases productivity which then creates value, surplus and wealth……..Value, surplus and wealth can only be created by increasing productivity. If an investment doesn’t increase productivity, it is either malinvestment, misallocation of scarce capital or consumption…….The Keynesians’ inability to distinguish between consumption and investment that increases productivity is fatal.”

The second is titled, The Way Forward, read here. Here are a few excerpts from the article.

“Absolutely nothing within the Status Quo can possibly be truly reformed until the default option of doing nothing will guarantee collapse…….The usual reasons why real reform is impossible are duly trotted out: political stalemate/gridlock, the power of vested interests, etc…….The real reasons are deeper than economics or politics. Humans have been selected to assess risk with two biases:”

“1. The short-term takes precedence over the long-term.”

“2. One in the hand is worth two in the bush, i.e. protecting what wealth and power is in hand is more important than risking them on a potential improvement.”

The third is titled, China 2.0 Is In Trouble, read here. Here are a few excerpts from the article.

“Despite the many differences between China and the U.S., their basic problems are remarkably similar: an economy that increasingly serves a tiny Elite, and a political/financial system that is incapable of meaningful reform…….As a matter of “face” and policy, China’s leadership focuses almost exclusively on GDP growth; GDP is the tail wagging the dog, …… and it leads to absurdly unproductive allocation of credit and capital to projects that will never earn the cost of that capital…….. The easiest way to boost GDP is to put a shovel in the ground–build something, anything. That has been China’s strategy for 20 years, and it is now yielding diminishing returns.”

Related articles

“The Carrot’s In Reach:” The Myth Of A Self-Sustaining Recovery. by Charles Hugh Smith (austrianaddict.com)

The Structural Endgame Of The Fiscal Cliff, by Charles Hugh Smith (austrianaddict.com)

This entry was posted on May 6, 2013 at 12:22 am and is filed under Econ. 201, Government and Politics. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Cargo Cult, Central bank, Charles Hugh Smith, China, Debt Serfdom, GDP, Keynesian economics