Thursday, October 07, 2010

GDP projections: mindlessly drawing lines on a chart

In Brian Wang's latest mindless China boosting he claims that China's economic growth will continue at high tempo for at least another two decades. He doesn't base this claim, a claim on which all his projections depend, on any facts, he just assumes it to be true.

In fact, he's made clear in a previous post on the topic that he thinks losing 2 percentage points of growth over the coming decades is a worst-case scenario which he can't even imagine any reason for. This is because he is a fucking retard.

How Brian Wang Thinks (and I use the term loosely)

Nevermind that he misuses the word 'synthesis' to mean 'logical deduction' and 'collating of disparate facts', neither of which has anything at all to do with anything done by an artist, designer or philosopher.

I find that incredibly offensive but it's relevant here because it tells us where and how he got his notions from. He got them from economists, those notorious line drawers who understand fuck-all about reality, nothing about science, and less than nothing about any real-world economies.

For fuck's sake, economists think money and banking are what make up economies. And they dismiss the real-world economic behaviour of real human beings as "irrational" and "not economics". Their pretentious "economic models" are just some kludged up math equations stolen from 18th century thermodynamics. Not modern thermodynamics but strictly 18th century notions of thermodynamics which were quickly proven very wrong.

What Brian Wang's done is poll what economists (those empty-headed morons) say about China's economy and then copied their technique of mindlessly drawing lines (well "curves" because that way you can be more pretentious and mathemagical) on a graph. I'll prove it.

China's Demographics

China's GDP growth in the last 35 years has depended on uneducated peasants migrating to cities to become factory workers. This is called Urbanization. In the last 35 years, China's urban population has risen from roughly 160 million to 600 million. I say roughly since China is notorious for lying about these statistics much the way every Western government lies about unemployment figures.

So (600-160)/160 = 2.75. Over a period of 35 years, China's economy has more than doubled just from Urbanization alone. In fact, since 1.029^35 = 2.71, over 2.9 percentage points of China's economic growth over that 35 year period is attributable to urbanization alone. Assuming the uneducated peasants don't participate in the economy at all. A ridiculous assumption but hardly unprecedented in economic circles.

Is Urbanization in China going to continue? Yes but at a much reduced rate. In the last 35 years, China's urban population nearly tripled. In the next 20 years it's projected (lines have been drawn on a graph) to increase by 50%. That's 1.02^20 = 1.485. So that's 1.029-1.020 = 0.9 percentage points knocked out right there.

If you do away with the ridiculous assumption that uneducated peasants don't participate in the economy, things don't look so bad. But you still have to account for the fact that China's population increased by more than half in the past 35 years. Those uneducated peasants have to eat you know. And China's population is only projected to increase by 10% before it peaks within 20 years. Since 1.012^35 = 1.518 and 1.005^20 = 1.105, that's 0.7 percentage points knocked out right there.

Now, I'm not going to add 0.9 and 0.7 together to get 1.6, that would be double counting. But it's obvious China will lose at least 1 percentage point from the greatly reduced population and urban worker growth rates. That's in the very best case scenario. As I said before, Brian Wang thinks this is a worst-case scenario. His worst-case scenario takes into account only demographic change and nothing else.

Beyond Demographics - now we're talking real economics

Because of course, projections of China's economic future get worse the more factors you take into account. Back in 1981, China implemented this thing called the Responsibility System which means that farmers and company managers were responsible for losses and profits of their production. As expected, this provided a massive economic boost. Is this something China is likely to be able to repeat? No it is not. It's something China will never be able to repeat.

(Except by moving to an anti-authoritarian coop workplace system, but that would cause China's authoritarian regime some rather large political problems.)

It gets worse. Because you see, for the last 10 years China has been busily assimilating any and all high technology in the world, including but not limited to semiconductors, high speed trains, nuclear power plants, supercritical coal power plants, rocketry, automobile construction, marine ship construction. In fact, China is considering building nuclear container ships and is on the verge of becoming independent in nuclear power plants. Not bad for a country that still had a steam locomotive in regular service less than 5 years ago.

Can China reproduce its past assimilation of new technologies by copying starship Jumpspace engines and asteroid mining technology from the Centauri and Vorlon empires? No because they are fucking fictional. The best that China can hope for is to roll out the technology it's already acquired more widely. By say replacing inefficient coal power plants with more efficient ones. Oh right, it's already been doing that for the last 10 years. And yes, it will keep doing that ... with progressively smaller returns on investment.

And then it gets much worse. You see, there is another country that pursued the same export-oriented labour-intensive then shift to high-tech long-term economic strategy that China is now pursuing. It's not like China invented the idea after all. It's a tried and true pattern. Well, that country is South Korea. As it happens, South Korea never managed to achieve the phenomenal growth rates China did and its long-term average in its best growth phase was at least 3 percentage points lower than China's.

Does that mean China has got some kind of special magic going? No, because I'm not the kind of dumbass that believes in magic. Nor am I a racist that believes, as Wang certainly does, that Chinese are naturally superior.

What it means is that China has been using its raw economic clout to ... um 'acquire' high technology from every other country in the world. Something South Korea never managed. Not for free anyways - South Korea paid for the technology it acquired. China just demands it as a cost of doing business. But as already noted, there isn't anymore technology left for China to hustle from other countries. It's already got everything, including things like maglev that nobody else is using.

The only other possible explanations are 1) China's economic growth going in had been suppressed in a way South Korea's hadn't been (unlikely), 2) China went into its growth phase with more educated and healthier people (it did thanks to starting growth 20 years late), 3) having a communist government really does help (yes but not when the capitalists are playing smart industrialist), 4) China is fudging its economic figures. Personally, I'm banking on #2 and #0 (health and technology) but what's interesting is that none of the explanations for higher-than-south-korea growth rates are sustainable. In fact, health-wise China isn't doing too well lately compared to South Korea.

Even the very worst of economists (supposedly) understand the difference between intensive economic growth and extensive economic growth. China is currently in an extensive economic growth phase where it's putting already-existing (labour) resources to work. And long, long before it hits Western levels of per-capita GDP it will have moved to an intensive economic growth phase. By which I mean that its economic growth will crash.

South Korea

I want to finish this by getting back to South Korea, especially the part where I said "and then it gets much worse". South Korea isn't a line on a graph that exists only in some moron's imagination. It's a real country with a real (industrial) economy - not a fictional economy like the USA's, Ireland's, Iceland's or China's recent property bubbles. And South Korea is roughly 20 years ahead of China so what's happened in the last 20 years to South Korea is rather instructive to anyone who wants to predict China's future.

Now, South Korea's highest growth phase occurred in the 60s and 70s, back when the world economy was still booming and not in chronic depression since the likes of Reagan, Thatcher, Kohl and Gorbachev (all horrible leaders in their own unique ways). What happened to South Korea in the 2000s doesn't make things look very promising. Worse yet, South Korea is extremely urbanized, so it's not going to grow that way anymore. I suppose that's good news for China since it's going to be urbanizing well into the latter half of this century. But really it just means that China is backwards and it's going to be dealing with uneducated peasants that much longer.

There is something incredibly fishy in China's economic figures. It doesn't make any sense at all that China could sustain a higher economic growth rate than South Korea's while ending up with a poorer real-world outcome. China was about 20 years behind South Korea when they began their respective economic growth phases, and it remains more than 20 years behind South Korea today. And this despite having better demographics, better health and better access to technology. It's probably due to China's bloated foreign-exchange reserves which are 2.5 times larger than South Korea's on a GDP per capita basis. Clearly China's government has fucked over its own citizens and the world in order to acquire global financial power.

And with that last insight, maybe China can afford to prop up its economic growth rates. Assuming it's willing to lose most of its financial power.

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