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Common Sense

What Goes Up, China Edition

Skyscrapers inspire.

Sometimes they inspire shudders.

I am an admirer of such neo-​Babels, and you can’t find a better Schelling point for New York than the Empire State Building. Civilization’s highest erections symbolize something good about humanity.

And yet, I wonder about the latest Chinese engineering effort, Sky City, to be built in Changsha in record time, 90 days.

It’s supposed to house over 31,000 people, contain hotels and restaurants and schools and shops, too, and tower up 163 floors to a height of 2,749 feet.

How could such a thing be so quickly constructed, and still be safe?

Cheating.

Well, not really. It’s prefab. Much of the work has already been done. Building it will be a job of putting pre-​fabricated pieces together. The company responsible for the effort has had some success on prefab buildings before, and …

The whole thing still sounds a tad hubristic. I wish the builders (and inhabitants) the best, but, even if it succeeds, there’s an ominous aspect to the whole project, if economist Mark Thornton’s theory about new-​building skyscrapers has any truth to it. Tall buildings are built when people are optimistic. People are most optimistic during booms. Booms — at least inflationary booms — yield to busts, and many of the major economic depressions have been marked by unfinished or just-​finished record-​book skyscraper projects.

Does Sky City signal a Chinese bust coming soon?

It may. For the story of our time might be this: China is to America, now, what America was to Great Britain in the 1920s and ’30s. Similar monetary policies and bailouts.

And the loaning nation doesn’t get off free. At least, we didn’t in the decade in which the Empire State Building was finished.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets too much government

Got Jobs?

New jobs come from entrepreneurial insight into new ways of profitably producing goods; they are paid for with investments. After a bust, old ratios of prices and wages cease to work, requiring time for entrepreneurs to refigure. But capitalism’s basic scenario — savings, investment, productivity gains, trades — still applies.

Some folks prefer to short-​circuit all this, simply robbing Peter to create a job for Paul.

They’re known as politicians.

President Obama proposes spending an additional $447 billion to create jobs, even though our economy is already gummed up with debilitating debt. The Cato Institute’s Dan Mitchell argues that taking money from the economy’s right pocket (taxes) and putting it in the left pocket (spending) doesn’t create economic growth or long-​term employment, but, for those who happen “to be sitting in the left pocket … [i.e.], a state or local politician that’s getting money from the so-​called stimulus,” they think “it’s a good thing.”

Congressman Jesse Jackson, Jr. (D‑Illinois) says that the “only way out” of our current mess is to offer every one of the 15 million unemployed Americans a $40,000-a-year job … with the federal government.

Most Republican presidential candidates pitch their (quite mythical) job-​creating skills, too.

The Republican presidential candidate banned by the national news media — no, not Ron Paul, the other one, former New Mexico Governor Gary Johnson — put it best. “The fact is,” he said at the only debate he was allowed to appear in, “I can unequivocally say that I did not create a single job while I was governor.”

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies

The High Rise Before the Fall

Many Americans who have never driven in ol’ London town have driven over the London Bridge — in Arizona. I’m an outlier, here, in that I’ve been over many a London bridge, but not to Lake Havasu’s.

But that doesn’t make me an expert on the Shard London Bridge, a London skyscraper (yes, skyscraper) nearing completion. Popularly called “The Shard,” it will be the tallest building in Europe. 

So prepare yourself: Expect a major economic collapse in the old country. 

Yes, for the last century, the building of record-​height skyscrapers could have served as a leading economic indicator … of disaster. As Mark Thornton explains, record-​setting skyscraper construction is

a sign of a looming economic crisis. The model has successfully identified the Panic of 1907, the Great Depression, the Stagflation of the 1970s, the Tech Bubble, and the Housing Bubble. 

In a scholarly paper on the subject, Thornton cautions not to use this strange correlation “as a guide to fiscal and monetary policy” or, superstitiously, an excuse to regulate “skyscraper heights … to prevent economic crisis.”

But the connection between building heights and boom-​and-​bust remains suggestive. Extra-​big skyscrapers rise during extra-​big booms, themselves fueled by central bank credit inflation. That is, inflation — and its usual consequences (which include unexpected deflation and financial collapse).

If only our central banks could maintain a stable money supply, rather than constantly tinkering with money to fine-​tune the economy, our biggest buildings might not serve as such good predictors of our biggest economic downturns.

This is Common Sense. I’m Paul Jacob.

Categories
education and schooling too much government

Explaining the Next Bust

Is the long-​cycle “higher education boom” now beginning to go bust?

Like financial bubbles fed by subsidy and the Federal Reserve’s limbo-​low interest rates, American colleges and universities are plagued with too much government attention —particularly by policy that says “everybody should go to college.”

But common sense tells us that not everybody profits by going to college, that sending ill-​prepared, unqualified and even uninterested young non-​scholars to college, largely so they can “earn higher incomes” is absurd. Pushing the vast majority of American humanity through the university mill cannot ineluctably yield increasing returns. With diminishing returns, increasing government attention can only feed a dangerously unsustainable bubble.

And once it bursts, Americans will demand explanations. 

Look to the theory of “signaling,” which posits that a (or the) chief use for schooling is not learning but a demonstration: Getting a college degree shows (“signals”) employers that the persevering student possesses virtues useful in “the real world.” 

We’ve come to rely on those crude signals, but as economist Bryan Caplan argues, businesses could adapt to a very different information market: “Ending government subsidies for education wouldn’t create a new working-​class generation; it would lead businesses to massively expand the employment of interns to take advantage of the large pool of talented, young people who can’t afford tuition.”

Gee, learning one’s trade for free sounds better than going into debt to “signal” employers that one would likely be able to produce for them.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets ideological culture national politics & policies too much government

Déjà vu Economics

Last week I noted the revival of interest in F.A. Hayek’s classic political tract, The Road to Serfdom. This week? The ongoing revival of interest in Hayek’s theory of boom and bust.

According to economist Gerald P. O’Driscoll, Jr., today’s debate about stimulus spending mirrors the debate in the Great Depression between John Maynard Keynes and Hayek. Republished letters from October, 1932, Times of London, are eerily up-to-date.

The letter from Keynes and his allies, arguing that spending — any spending whatsoever — would spring the economy out of depression strikes me as a tad bizarre. All spending is equal? Make that several tads bizarre.

Can you say déjà vu?

The Hayekian response seems at once more sophisticated as well as commonsensical. For instance, Hayek recommended an immediate repeal of the infamous Smoot-​Hawley Tariff. He recognized a major factor for the Depression’s low expectations and business doldrums: The trade-​killing legislation that hit the New York Times’s front page the day before Black Tuesday, 1929.

O’Driscoll and other economists have been making much of the enduring significance of the Hayek-​Keynes debate. But there are differences between the Depression and now, aren’t there? 

Back then, the loss part of the profit-​and-​loss system hadn’t been so completely undermined by recovery policy. Today we have bailouts, and these only increase risk-​taking, likely to make the next bust even bigger — and today’s Keynesianism perhaps worse than the disease itself.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets general freedom too much government

Prophet of Loss

What if Karl Marx was …  half right?

Marx’s theory of history elaborated that, with each bust of the boom-​and-​bust cycle, the rich would nab ever more property — capital — until impoverished workers united to take all that capital for “themselves” (as a collective) and run it for the common good.

That’s dialectical materialism. It didn’t predict what happened even in Communist countries. But something vaguely Marxian is going on now.

Today, when there’s a bust, government bails out the failed rich guys — even buying companies.

Further, governments keep hiring more people to “stimulate” the economy. Government workers increase as a percentage of the workforce, with higher-​than-​average wages and benefits.

This used to be called “creeping socialism.” Politicians move us closer to total government — measure by measure, tax by tax, law by law. No revolution necessary.

Except … well, as politicians put more of our eggs into the collectivist basket, each down-​swoop of the business cycle makes the whole system less stable — and (with increasing taxes and debt) more burdensome to sustain.

It could all lead to revolt — a taxpayer revolt.

Taxpayers, who’ve had to put up with a lot of nonsense over the years, aren’t even a tad bit interested in the foolishness of communism — or a corporate, fascist super-state.

That’s where Marx and his followers had it all wrong. Only the build-​up of instability seems Marxian. Americans’ response is to seek limits on government.

This is Common Sense. I’m Paul Jacob.