There is absolutely no silver lining to the $8.4 billion in write-downs that Merrill Lynch announced last Wednesday. Merrill is being hit from all sides: sell-side analysts, on the conference call; journalists; ratings agencies; and, of course, the stock market. But the biggest hit, in the long term, will be to Merrill’s reputation. I’m old enough to remember when Merrill was the number one debt house in the world: the Thundering Herd was known and feared across Wall Street as the best of the best when it came to bond trading. They made the biggest profits, they had the biggest market share, they earned the biggest bonuses. Now, however, all that is gone.
Is Chinese growth credible?
I’ve long been sceptical of Chinese growth numbers. I don’t doubt that China’s economy is growing rapidly, but year after year of 10% growth seems incredible.
In addition to the generic argument for doubting extreme numbers, we have the long history of Communist regimes falsifying their numbers, and western observers gullibly taking their lies at face value. Fool me once, shame on you; fool me twice, shame on me, right?
In the latest issue of The Economist, I read a couple of other facts that reinforced my scepticism. I don’t claim that they are a smoking gun, but they are certainly weird.
Weird Fact No 1: 60% of the Chinese remain in agriculture, where they produced 12% of GDP. For the past three years, rural income per head has risen by more than 6% annually in real terms. In the first half of this year, pushed by fast-rising food prices, it was up 13%, the highest increase since 1995 according to official media... Rural China is still home to about 60% of the country’s 1.3 billion people, but agriculture’s contribution to GDP has fallen from more than a quarter in 1990 to less than 12% today. Are there any other major economies that fit this pattern? Can the average non-farm worker really be 11 times as productive as the average farmer? What other countries with a purchasing power parity per-capita GDP of $7,600 are 60% agricultural? (Aside: Could rural workers engaged in non-agricultural pursuits be enough to make these numbers reasonable?)
Weird Fact No 2: Chinese consumer spending is only 36% of GDP: China will soon boast seven of the world’s 10 biggest shopping malls. Yet, Chinese households are hardly the most eager shoppers. Consumer spending has fallen from 47% of GDP in the early 1990s to only 36% in 2006, the lowest proportion in any large economy... At the other extreme, American households consume 70% of GDP. Normally rapid growth is a reason to borrow against future earnings; so why do the Chinese appear to be doing the opposite? Perhaps, the simplest explanation is that it is much harder to fake high consumption than high GDP. Any other Chinese growth sceptics out there? What should I be reading?
Hayek in Hindi?
I have been reading a lot of Hayek lately for my Constitutional class and one thing that strikes me is that there is no translation of Hayek into any Indian language. That is really strange since Marx is read by at least two linguistic groups in their local language.
I wish I could say I was proficient enough scientifically in any other language than English. Then I would gladly take on the job of translating Hayek and Buchanan and Tullock for Indian audiences. There are a lot of very literate people in India who read the dailies. All we need is a good local language translation and the rights to run a Road to Serfdom or Calculus of Consent series in one of the dailies. In less than one generation we can convert India from a socialist country to a free market country. Need to go find that Charles Koch (an entrepreneur who has done much to popularize Hayek’s ideas) of India, who would sponsor such an activity and a scholar who can do the translation.