Sunday, September 27, 2015

Bernie Sanders

As I write this in late September, the Democratic presidential campaign is in a state of flux. Hillary Clinton is still the favorite, but the train-wreck-in-slow-motion of her ethics problems has created a lot of doubters. Those folks are flocking to Bernie Sanders, the I’m-too-left-to-be-a-Democrat Senator from Vermont. Sanders has historically called himself a Socialist, but he really doesn’t have much choice to run for president other than as a Democrat.

What Sanders has proposed is to make the U.S. more like our urban myth of how western Europe is run: with a much bigger government, providing many more social services, all on the backs of the rich.

First a digression on the urban myth part. There are three aspects to this. First, the central governments of western European countries are a larger share of their economies than ours is … but … our regional governments (states, cities, counties, and especially school districts) are much larger. If you lump them all together, you’d find that government in America is a tad less than the middle of the pack for western Europe. Second, America gets knocked because we pay for much of our healthcare, and some of our higher education, with private funding. Except we also get more for what we pay for: that’s why foreigners come here for medical care and college educations. This spending is often used to beat up America about its priorities, but that’s probably misplaced since American’s don’t seem to think it’s a bad enough deal to go elsewhere for medical treatment or college educations. Third, there aren’t that many rich people to tax to pay for this. The dirty little secret of all these discussions is that total income of “the rich” is already smaller than what the government spends: if we took it all, we’d still end up short. Way short. In order to afford big increases in government spending, we can’t define “the rich” as the top 1%, or even the top 10%, instead it has to be more like top 50%. Some people are OK with that, but many of them are in denial that this includes themselves.

Anyway, let’s take Sanders proposals at face value, since they are gaining in popularity. What does Sanders propose: 1) expanding Medicare into a single payer healthcare system that covers everyone for everything (that’s 75% of it right there), 2) shoring up predicted shortfalls in social security, 3) infrastructure improvements and repairs, 4) making college more affordable, and 5) government funded family leave.

The Sanders program amounts to increasing total federal spending by about one-third—to a projected $68 trillion or so over 10 years.

For many years, government spending has equaled about 20% of gross domestic product annually; his proposals would increase that to about 30% in their first year. As a share of the economy, that would represent a bigger increase in government spending than the New Deal or Great Society and is surpassed in modern history only by the World War II military buildup.

So this is a huge deal. What I wonder is if you asked people, did Roosevelt expand government enough, or did Johnson further expand government enough, I wonder how many would say “yes” to one of those, but would still be in favor of Sanders’ proposal? Those people definitely have a cognitive dissonance issue that they need to resolve, particularly since any rollbacks in those programs by Republicans are mostly reductions in positive growth rates rather than reductions in size and scope. For the true believers who answered “no” to both, then Sanders is probably their guy.

How would he pay for this?

[Sanders] has so far detailed tax increases that could bring in as much as $6.5 trillion over 10 years, according to his staff.

This reality check is problematic.

Having said that, if Sanders does push through conversion of our healthcare system to Medicare, then everything we now spend on healthcare would be up for grabs to be taxed away. That would more than cover the cost, so we shouldn’t really argue that his Medicare proposal creates a funding problem. Of course, it creates a huge political problem because people are not going to want that stuff taxed away, but that’s another story.

What’s interesting to me about this has two parts.

First, he’s proposing the healthcare spending, without the healthcare financing. This is financially dishonest in the small ways that we’re used to from members of Congress. The thing we need to keep our eye on as macroeconomists is that the money will come from somewhere.

Second, if my assertion is correct that there’s enough healthcare spending already out there to cover his proposal, so that we’re just moving money between different accounts … then why does he need the other $6.5 billion in proposed taxes? That’s twice the remaining spending proposals.To the extent that we buy into the Keynesian view (and I’m sure Sanders does) that spending pushes the economy forward, and taxes pull it back … then Sanders proposal to have excess taxes is a plan to hit the brakes on the economy. Who does that make sense to?

You can read about Sanders’ proposals in this piece entitled “Price Tag of Bernie Sanders’ Proposals: $18 Billion” in the September 14 issue of The Wall Street Journal.

“A Career In Economics”, from the AEA

The American Economics Association (AEA) has a new video out entitled “A Career In Economics”. In it, four economics majors talk about how useful their major was for their career as someone who uses economics without being an economist.

A career in's much more than you think from American Economic Association on Vimeo.

Consumption Inequality

Growth numbers are OK, the U.S. has posted 5 longer than average expansions in the last 2 generations, and everyone seems to have an awful lot of stuff.

But clearly there’s a growing problem with inequality. Part of the reason for this is that the top is doing very well, while the rest are merely doing OK.

Note two things: 1) this is already adjusted for inflation, and 2) it measures households. Households have been getting smaller through time, so the 30% improvement in consumption shown here packs more punch than is shown, and would be higher if we corrected for that. Of course, it would be higher for the top 5% too.

Drawn from the article entitled “How a Two-Tier Economy Is Reshaping the U.S. Marketplace” in the January 28 issue of The Wall Street Journal.

Saturday, September 26, 2015

What Should We Call Poorer Countries?

Here’s a social problem that’s broader than economics: what do you call people who aren’t doing as well that isn’t insulting, doesn’t sound patronizing, and doesn’t open up an avenue for those less well-off to rationalize their situation?

Macroeconomists and politicians have this trouble with countries. We need a label. In the handbook for this class, I’ve primarily used “developing”, but I’ve also mentioned “third world”.

Third world is an older term, that’s seen as insulting by some.

Developing has been on the rise for a couple of decades, but it’s seen as patronizing.

Using either phrase (or others) can open up the third can of worms. This has two facets.

First, some will argue that the developed countries are richer because they’ve stolen stuff from developing countries. This is a popular notion, tied up with exploitation, for which there’s actually not much supportive data. The really scary thing is not that the U.S. has taken a lot from, say, Cuba — but rather that if Americans actually cared about Cuba as much as Mexico, Cuba would probably be better off.

Second, there are many people who will say things like “we’re doing this our way because we don’t want to be developed … we don’t want to turn out like you”. This is actually really frightening, because often the people saying this are already the ones with most of the money and power in these countries. In short, they’re big fish in a small pond, and they like it that way.

I’m posting this during Pope Francis’ first visit to the U.S. Personally, I have very strong feelings that Pope Francis may be the biggest exponent of this view at the moment. While personally, he has taken a vow of poverty, he’s been elevated to the top of institution that got rich from just about very means except economic growth, and he’s using that position to criticize societies that got rich from pretty much only economic growth. I find that irony disturbing.*

Some of these ideas, and others, are touched on in the article “The Rise and Fall of the Term ‘Third World’” from the May 1 issue of The Wall Street Journal. For the curious, they date the usage of the phrase third world to French sociologists in the early 1950’s. They came up with that term to put a positive spin on those places, even though now some people think of it as insulting.

FWIW: I’ve lived and worked in Utah for a majority of my adult life, but I am not Mormon. I grew up in a heavily Catholic area, and have a great many close Catholic friends. I do not advocate that you take my viewpoint as anti-Catholic, or even anti-Francis. I am merely very much opposed to the publicly stated economic positions of this Pope.

Sunday, September 20, 2015

China’s Real GDP Growth Rate

It’s late July and I’m writing up an article from late April. In the past 3 months, not only are we continuing to worry about how China’s economy is doing, but now their stock market has crashed too: it’s off by 1/3 since mid-June. For perspective, that’s roughly as much as the NYSE lost in 1929.

I am not a huge fan of the stock market as an indicator of macroeconomic performance. And that’s in the U.S. where investors have thick markets to choose from. In China, investors are limited in their choices, and are allowed to buy stock on margin: this is a recipe for a stock market to get unhinged from the underlying economy.

But, back to China’s growth rate, and the article I found interesting.

“Growth Likely Overstated,” said a Citibank report, concluding that actual quarterly growth could be below 6% year to year, depending on the factors weighed. Other research firms put their numbers far lower, with Capital Economics pegging the quarter at 4.9%, the Conference Board’s China Center at 4% and Lombard Street Research at 3.8%.

That’s quite the range of numbers. And that low end of 3.8%. That’s the range a developed economy can hit fairly regularly (although we’ve had trouble with that for 8 years now). But for a developing country like China, that rate is terribly low. As in, never-going-to-develop low.

Here’s the kicker:

… The figures are suspiciously smooth, with none of the sharp gyrations seen in the U.S. or other economies. The methodology often appears inconsistent or contradictory. Also, no one knows how China accounts for inflation when tabulating its gross domestic product.

Note that last sentence, and think about how we work through GDP in class. We start out by counting up nominal GDP. But there’s no way to count up real GDP. Instead, we estimate inflation, remove it from nominal GDP, and what we’re left with is real GDP.

If analysts are saying “no one knows how China accounts for inflation”, what they really mean is no one thinks their growth rates are credible or accurate.

Off the record, the leaders in China seem aware of this problem:

… Roundabout backing of Premier [Li], who in 2007 as Communist Party chief of northeastern Liaoning province criticized China’s GDP numbers as “man-made and therefore unreliable,” according to a memo by the U.S. ambassador at the time, later released by WikiLeaks.

I guess WikiLeaks was good for something.

Read the whole thing, entitled “China’s True Growth Is a Mystery; Economists Weigh the Clues” in the April 26 issue of The Wall Street Journal.

Saturday, September 19, 2015

America’s Crude Oil Export Ban

Politics often leads to economic policies that are nothing short of stupid. One of the especially stupid periods for such policies was the 1970’s. It was if the country had hit a string of bad luck so the politicians figured they’d start kicking it while it was down.

I’m done now. Winking smile 

One of the things that came out of that was a ban on the export of crude oil.

This was at the time of the two OPEC oil crises (1973-5 and 1978-9). But note the bizarreness: because oil we imported was getting more expensive we banned the export of our own oil.

An analogy may help. In the labor market, a teenager exports time/labor from the family when they work outside the home, and when the parents hire, say, a cleaner, they’re importing labor. With those ideas in mind, the oil export ban is like the parents responding to cleaners getting more expensive by telling the teenager they have to quit their job. Yeah … that might make more time available within the home so that they teenager could do more cleaning … but I think it’s fair to say it’s probably not the approach most parents would choose. But that is what the politicians chose back in the 70’s when they instituted the oil export ban.

And don’t fail to note that even if this could be justified as a slightly panicked response to a transitory problem with crude oil supplies … we still have the ban in effect 40 years later.

Yet high prices are an incentive to develop new technologies, and while it took decades, the response of Americans to higher crude oil prices was to develop horizontal drilling and its ugly stepchild fracking. Now we have cheap crude oil. But we’re not allowed to sell it to people who’d pay more for it.

There’s also a problem with path dependence. Path dependence is the idea that you get where you are by following a certain path, and that path may have had side effects. In the case of the U.S., some of the crude oil that we import comes mostly from Mexico, Venezuela, and other places. And it’s the dirtier, nastier, harder to refine kind of oil. So we have a refinery industry based around turning the nastiest crude oil into lots of nicer products, like gas, jet fuel, plastics, and so on. Except that now, not only are we producing a lot more crude through horizontal drilling with fracking, but it’s also coming out of the ground in a nicer form that we’re not well-equipped to process. Importers in other countries will pay a premium for the good stuff, but we’ve made it illegal to sell it to them.

Mind you, it’s not illegal to export all the good stuff we make out of the lousy crude we import. So, we still need to import a lot of lousy crude to keep the refineries we have doing what they’re designed to do.

You can’t make this stuff up.

Oh, and BTW, it’s been several years since the horizontal drilling boom started to hit, and D.C. still hasn’t fixed this.

Here’s an op-ed from an oil industry executive entitled “The Oil Export Ban: A Relic of the 1970s”. It’s from the April 24 issue of The Wall Street Journal and it touches on some of these issue.

Thursday, September 17, 2015

This Summer’s Financial Crisis

Next up on the chopping block for financial collapse is … Moldova.

Never heard of it? Read the article linked below, which includes a map showing where Moldova is.

Moldova has been simmering for a while. When the Soviet Union broke up,* some of its “states” became independent formally, and some because independent informally. Ukraine was in the former group. Moldova was in the latter group. When Ukraine became independent, Moldova didn’t want to leave Russia … but was no longer physically connected to Russia. And it’s landlocked. So basically, the locals and Russian in the government kinda’ sorta’ broke away from the new Russia because it wasn’t corrupt enough for them, and no one was going to fly over to Moldova to straighten things out.

These things matter macroeconomically because rich guys in eastern Europe, especially those who got rich through illegal activities, start moving their money through places like Moldova to launder it before they, say, go buy a house in London … or maybe Park City.

Greece has been in the news because the IMF has had difficulties dealing with them, and the Greeks currently owe them a lot of money. The IMF doesn’t even send negotiating teams into Moldova because there’s no one to negotiate with. It’s that bad.

Here’s an example of the problems. A London based consulting company named Kroll was brought in to file a report about the financial crisis. part of the reason why:

I have read Kroll’s report, and I regard it as deeply flawed. I cannot comment on the accuracy of Kroll’s forensic investigation, but the explanation of the liquidity transfers between the entities concerned – particularly transfers between the three banks and Russian companies – displays a lamentable lack of understanding of how banks actually work.

That’s from Frances Coppola, a journalist who writes for Forbes, who I don’t regard as terribly hard on developing countries. But clearly she thinks Kroll was out to make a paying client happy.

Yet this report with a” lack of understanding of how banks actually work” was denounced by what passes for a government in Moldova because it was too hard on them.

Oh … and BTW … the EU had turned a blind eye to so much of this that they were very close to admitting Moldova to their union last December. Of course, we know from the Greek story that that are people working for the EU who will turn a blind eye to fudged economic data because it’s so important to them that Europe be united no matter what the problems.

So, in a couple of years, I’ll be using my Google Search toolbar above to find this article so that I can tell the ECON 3020 students that we’ve been watching this for a while.

* Before World War II, the Nazis and the Soviets had plans for divvying up eastern Europe. As the Soviets started rolling back the Germans in 1944, in some places they put in place sympathetic puppet governments, and in others they pushed out the locals and had Russians move in. Today we call this ethnic cleansing, although that term didn’t come into vogue until about 20 years ago. Anyway, Moldova used to be mostly filled up with Moldavians, who are one of the two big groups that make up Romanians (if you’ve ever seen Ghostbusters II, Vigo claims to be the scourge of Moldavia). But the Russians liked the Moldovians’ land, so they pushed out enough of them, and brought in enough Russians that it’s now like a Russian enclave that’s not attached to Russia any more. Oh … and … Moldova has a breakaway part, called Transnistria, that’s even more lawless.

Saturday, September 12, 2015

Why Is Macro So Hard – Who Could Have Seen That Coming?

Former student TW sent along a piece from Cato@Liberty. That’s a blog from the libertarian Cato Institute, so your mileage may vary. It’s entitled “Who Could Have Seen That Coming?”

It discusses, snarkily, the all too earnest presentation of news items where the consequences of dumb policies are presented as surprised.

To economists, they usually are not surprises at all.

We talk a lot about unintended or unanticipated consequences around here, but in these cases the consequences were anticipated and even predicted by a lot of people.

The examples come from three news items where the economics would probably be straightforward for an undergraduate with a semester or two of economics:

  • Minimum wage increases are causing the fast food industry to look for ways to automate (price floors on labor will do that)
  • Predicted outcomes from clean energy initiatives aren’t materializing (probably because it was just rent seeking to begin with)
  • The list price of college is more expensive because we offer a lot of financing options to students (which shift demand to the right).

The overwhelming problem is not that people don’t see these things coming – the author documents that. Rather, it’s that people choose not to listen to the people who tell them their pet project won’t work out the way they hoped.

With fresh students every year, it’s always a good idea to bring back this old Hillary Clinton quote (I’m not even picking on her, it’s just representative of her ilk):

"I'm not going to put my lot in with economists." --after being asked by George Stephanopoulos about economists' claims that her gas tax holiday proposal would not bring down gas prices.

I don’t think Stephanopolous is that great either, but at least he respects a point from principles about the incidence of a tax on a specific product.

Wednesday, September 2, 2015

Why Is Macro So Hard? Someone Meant Well

There’s a philosophical argument that’s much larger than mere macroeconomics, about the appropriate relationship between the ends and the means of a decision.

Does the means justify the end?

Or does the end justify the means?

There are no answers that satisfy both questions. Indeed, Thomas Sowell argued that one of the big distinctions in the political arena is whether someone is focused on motivations or consequences. Part of the craft of economics is that you need to think about both. Part of the problem with understanding economics is that politicians and bureaucrats appear increasingly skewed towards a focus on motivations at the expense of consequences.

Kevin Williamson, writing at the conservative/libertarian National Review has an excellent take on the problems with motivation as your basis for judgment.

Politicians tell us what a policy is supposed to do, what it is intended to do, and they ask to be judged by their intentions.

That paragraph continues with an extended dig at Obamacare. I’m OK with this, but isn’t good enough to quote … except for the zinger I highlighted in bold, which doesn’t make much sense without the rest of it:

The so-called Affordable Care Act, we were assured, was intended to make health insurance a better value and to make health-care institutions give their customers better service at better prices. Never mind the unspoken premise that is the law’s foundation — “We can radically increase demand for health-care services while reducing costs and improving quality because politicians are magic!” — and its inescapable contradictions. “We meant well,” they say, and that is supposed to be enough.

It isn’t.

This blog is read by non-majors, but the target audience is economics majors. As a major, here’s what your future holds in store:

It falls largely to persnickety, unpleasant eat-your-spinach types, and to certain happy souls blessedly liberated from the romance of politics by events and experience, to document that what is supposed to happen and what happens are not the same thing.

Again, there’s some hyperbole in the middle of the paragraph before another zinger:

You can raise wages at Walmart in the na├»ve expectation that there will be no consequences — in much the same way that all manner of bad decisions begin with the exhortation, “Here, hold my beer.” But there will be consequences.

I actually kinda’ like that vision. Without advocating alcohol consumption, can you imagine what the legislative process would look like if it was shown as reality TV, with all the legislators holding beers (and some of them probably partaking), and one of them said something like “Here, hold my beer, I’ve got to go pass some new laws.” What would you call such a show — Jacklegislator? OK. My daydream is over.

Economics has sometimes been characterized as the social science of unintended consequences.

Some unintended consequences are unforeseeable, but many are not. They are at least partly foreseeable, even if unintended, and our good intentions do not entitle us to blind ourselves to reality. …

That we can be reasonably sure that there will be unintended consequences does not mean that we know what they will be; these things are unpredictable by nature. …

So, how do we move forward in this sort of world?

[We need to] ask ourselves: How much economic chaos are we willing to accept in exchange for the small probability that we might get what we want out of economic policy? If your answer is “Not much,” then what you want is stable rules and as little policy uncertainty and regime uncertainty as you can achieve. But that means more or less swallowing something close to the whole of free-market economics like a goldfish and leaving very little room for the politicians to engage in policy entrepreneurship. It is easy to understand why politicians oppose that sort of thing.

But why ordinary functioning adults with a passing understanding of how the world works and without brain damage oppose it — and they do — is a mystery.

I’m starting my 27th year as a professor, and it was 9 years before that when I started thinking of being an economist as a career. When I started out I would have thought this viewpoint interesting, but I would have dismissed it as impractical. Two thirds of a lifetime spent watching politicians and bureaucrats get away with a balance shifted too far over towards motivations at the expense of attention to consequences has made me think it may be the only way for a country to consistently succeed.

Read the whole thing entitled “Why Walmart Is Reducing Worker Hours, After Raising the Minimum Wage — and Other Lessons in Reality Read more at:

Hat tip to Steve Karlson writing at Cold Spring Shops for bringing that article to my attention.

Deficits by Month Instead of by Year

People freak out over government deficits.

Deficits are a flow variable. They are measured over a period of time, and can be roughly proportional to the length of that period of time.

But deficits also have up and downs. There’s a problem that’s been known in time series analysis for a long time, called aliasing. Aliasing is where you average or sum a time series over two or more observations … and the resulting time series doesn’t look like what you started with.

This is a huge problem with deficits. Deficits are supposed to be bad: they wear black hats. Surpluses are supposed to be good: they wear white hat. ;)

The thing is, if you look at deficits month by month, sometimes they’re in deficit and sometimes they’re in surplus. That should mean the economy is being pushing in the wrong and then the right direction.

But no one talks about that.

Instead, what we do is we add up those numbers of one sign (the deficits) and those numbers of the opposite sign (surpluses) until we get a number of the sign we like. Usually that shows a deficit … because deficits are bad … they wear black hats. Boo-wha-ha-ha.

This little bit of statistical sleight-of-hand should make you think twice about taking deficits seriously. I sure hope so.

Anyway, this was all motivated by the biggest monthly surplus in 7 years that occurred in the spring. If surpluses are good, that should have caused the biggest boost to the economy in 7 years. I’m still waiting.

Read about it in the article entitled “U.S. Posts Biggest Monthly Budget Surplus in Seven Years” in the May 12 issue of The Wall Street Journal.

Tuesday, September 1, 2015

How Worried Should We Be About China?

Outside of macroeconomics classes, the common worry about China is that their economy is big, and growing fast, and will soon be taking over the world … or something like that ;)

Macroeconomists are worried about something different though: how far off from reality are the official numbers announced by China. And, as a corollary, how bad is it?

We also worry about something called the middle income trap. This is the idea that while some countries grow from undeveloped to developed relatively smoothly (think South Korea), others seem to stall once they climb that ladder a ways (think Brazil). Macroeconomists are worried that China’s economy might stall before they become the biggest economy in the world. We really don’t know why economies stall, but a majority of them seem to.

So how does China look to a macroeconomist? The answer is: not great. China has certainly grown extraordinarily over the last 35 years. But the growth is uneven, both regionally and across industries. And there are a lot of warning signs.

As I write this (over several days in July 2015), the Chinese stock market has spent most of the last couple of months crashing. That’s kind of a big deal — more on this towards the end.

I’m not a China expert, but here’s some quotes from someone who is. This is from a post entitled “Considering the Veracity of Chinese GDP” from Balding’s World.

After China released above consensus GDP numbers showing 7% growth, many asked questions about the accuracy of Chinese GDP growth data.  Articles were written by The Economist and Financial Times, by both publications and journalists I respect, essentially arriving at the conclusion that the numbers are good faith estimates, aren’t perfect, can be considered generally accurate, and have the trend right.  I understand this line of thinking but I think this view point fails to grasp the depth of data manipulation that is being thrust upon the world in the world. 

The author then spends several paragraphs getting into the specifics of his own research showing that official Chinese estimates of home price inflation seem to be ridiculously low (I’m not too concerned that you digest all of that). Anyway, 10% inflation in the price of housing, in total, over 15 years, seems ridiculous just about anywhere.

But, recall that real GDP is not measured directly. It’s measured by counting up nominal GDP first, and then removing the effects of inflation. Remove too little inflation, and you’re left with real GDP growth rate estimates that are too high.

… China experienced some of the highest levels of money growth excluding high inflation states; while numerous countries had comparable or higher nominal GDP, China reports inflation levels over the 2000 to 2011 time period less than the United States and among the lowest of even all developed countries.  All of the Chinese real GDP story is dependent on low inflation data.

… To anyone who has spent anytime in China in recent history the question is simple: do you believe the price of renting an apartment has risen in urban areas by less than 10% since 2000?

It cannot be emphasized enough that this is not a rounding error or an accident …

However, it would be a mistake to think this type of behavior has disappeared.  Just this past February a major statistical change was made to GDP numbers that was only uncovered by researchers at McKinsey after numerous people, myself included, expressed surprise at the rapid increase in Q4 2014 consumption.  The NBSC went so far as to note that consumption data in 2014 was not comparable to previous years and this change was found only after inquiries were made by people questioning the data. 

The NBSC is the agency of the Chinese government that compiles macroeconomic data.

Revisions to macroeconomic data are common. The thing is, in other countries, no one does a revision unless it can be compared to previous years.

Throughout the years, China has been a serial GDP reviser with a non-exhaustive list of changes in 2004, 2008, and 2014 though it is quite possible there are others that are either public or non-public with all revisions making significant upward changes.  Furthermore, the NBSC has admitted that it has not standardized the data so almost any year to year comparison over more than a couple years is worthless.  In fact, even when back to back years are non-comparable due to methodological changes, there is no mention of this anywhere on the NBSC website.

This next bit is huge, but you have to put on your statistics hat for a bit:

There is also indirect evidence that Chinese data is less than accurate.  Let me give you two examples.  First, Chinese economic data has virtually no variance

I start out in principles of macroeconomics by pointing out that routine variation in U.S. real GDP growth rates is much broader than most people recognize, with a standard deviation that’s roughly 2%. That’s not 2% of the growth rate, that’s 2%, so that a plus or minus 2 standard deviation range (approximating a 95% confidence interval) is 8% wide. Normal U.S. real GDP growth runs from –1% to +7%.

Second, China is probably the fastest country in the world to release quarterly and annual GDP. … A mere 15 days after the quarter, China has such efficient statisticians that they have collected a sampling of data and crunched the numbers?  Makes you wonder why companies can’t release quarterly numbers in a few hours.

So what’s the truth?

When studying the Chinese economy, it isn’t enough to say we believe GDP or other data is wrong as we need to have comparable data that allows us to say with confidence what a better figure is.  … common sense should tell us that Chinese GDP growth is much weaker than advertised.

… Producing 7% more as a country and consuming only 1% more electricity would require a monumental shift in production techniques or industrial restructuring for a country of 1.3 billion people in one year.  …

… Look at trade partners where exports to China have absolutely collapsed across a range of products from consumer to industrial inputs and commodities.  Official trade data with imports declining 15.5% …

… absent the stock market boom, Chinese firms saw no profit growth.

Finally, I am always puzzled when I hear people talk about the “weak” Chinese economy when they turn around and talk about 7% growth.  The official growth estimate for 2015 has declined from only 7.1% to 7.0% but somehow this 0.1% has sent commodity prices plummeting, close trading partners like Singapore into recession, cause electricity consumption to flatten, and cars sales to evaporate.  …

Here’s what’s really scary:

Li Keqiang [the number 2 guy in China’s government] made his now famous remarks about GDP growth in the context that the data he received as a provincial leader was unreliable so he focused on measures that were more difficult to manipulate.  The risk here is that Chinese leaders and other interested parties are receiving manipulated data.  … If Chinese leaders are telling the world how poor the statistical agencies in China are, imagine the reality.

N.B. There’s a little bit of statistical jargon in Chinese economic data. The acronym YOY means “year over year”. It’s basically a growth rate for the last 12 calendar months, not this year’s 12 calendar months.


Now, what about that stock market boom and then crash? There’s a lot of evidence piling up that that the boom is coming about from lending money to buy stocks (you know … that whole 1929 thingie). Oh, and BTW, this article also notes that Li Kequaing forecast 7% real GDP growth this quarter, and lo and behold, the NBSC says the economy hit it exactly (you know … that whole no variance thingie).

And, the source is wonkie, but the Chinese government tried to rein in that borrowing and lending ( a lot of which is being funded by provincial governments), and failed. The scope of the problem was too large for the solution, so they are now implementing a bigger but more focused second plan that seems to be working better.

And China seems to have triple bubbles. Remember 2007-8 in the U.S., where we had one bubble in primary residential real estate? China has one of those, and it measures out at 3 times the relative size. Oh … and they have the stock market bubble (that seems to be deflating), and the credit market bubble (that the government seems to be trying its hardest to prick).