Ironically, that has created a populist backlash that has vaulted even worse economic ideas into power.
Anyone read "Capitalism in the 21st Century"? It's long and dense, but it does make some excellent, well-supported points about the structure of an economy that explains the current situation very well with historical antecedents.
This won't do it justice, but: inequality always increases, by definition, if the returns on capital outstrip the overall growth in the economy. (Think through that if it's not obvious; it's literally a mathematical truth.) The book argues that history is a series of long, slow accretions of wealth, with increasing inequality, until some shock (usually a violent revolution) overthrows the old system, resets inequality, and the cycle starts again. The latter half of the 20th century, for the US, was one notable exception: growth outstripped returns to capital, so the benefits of that growth were widely shared: inequality decreased. That trend ended in the ~1980s, and the widening inequality gap has fueled unrest.
And the book points out that we've seen this show before. I think we're in the "history repeating itself as farce" phase, though.
The US financial system is structurally orientated towards distributing wealth poorly. It's an unavoidable economic fact that when someone spends newly created money there's a wealth transfer from currency holders to them (that's why counterfeiting is illegal), and in the US means there's a persistent, systematic transfer of wealth from currency holders to the banking/financial system. Which is extremely regressive, as poorer people hold the largest fraction of their wealth in cash, while the middle and upper classes have more of it in assets like housing and stock.
Economists funded by the banking system will try to distract you by arguing about inflation vs deflation, but it's a smoke screen. It's perfectly possible to have a non-regressive inflationary economic system, e.g. one where the government directly prints money and gives it to the poor, and such a system would avoid the systematic transfer of wealth from the lower classes to the financial industry.
You don’t need a conspiracy, you just need a philosophy of small government and low regulation to let grifts expand through the financial parts of the economy. The history of financial regulation in the US is the banking industry finding new ways to evade regulation, which lead to moral hazards and privatized gains / socialized losses.
But it’s not that the “system” is explicitly designed that way; instead, it’s an adversarial system and the US in particular (for cultural reasons) has long favored the vigilante over the regulator.
The story works even without simple Hollywood villains. The system isn’t malicious, it’s just stupid.
Which is a long way of mostly agreeing with you.
(Oh, except on printing money. That’s a surprisingly deep subject that’s often misunderstood. You’re spot on about government-sponsored wealth redistribution, though. Fully on board with that.)
Stories like what happened to Jack Ma have to be interpreted in that context, I think. In my reading that wasn't about politics at all, but about an unregulated peer to peer lending product (i.e. a tech based loan shark system for exploiting people in need) he was about to release.
I still remember my wife casually mentioning, back in 2019 or something (well before Evergrande), that China was restricting property speculation. Prohibiting folks from taking out loans on third properties etc. As an Australian this was mind blowing to me, property speculation is a sacred religion there.
I far from agree with their politics on social matters, but their financial regulators aren't asleep at the wheel and haven't been regulatory captured.
1. https://en.wikipedia.org/wiki/Three_red_lines
2. https://www.forbes.com/sites/georgecalhoun/2020/11/16/why-ch...
Before 3RL, RE bubble was being addressed since 2010s, TLDR is policies led to domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. ~2017 crack down on shadow banking which drove developers + local gov to increase presales, turning it into a financial instrument to keep the taps going. Then hard 3RL in 2020.
Could have probably smashed skulls harder, sooner, but they've been regulating for 10+ years, developers kept finding loopholes thinking central gov would be soft, until central gov wasn't.
See:
https://www.ceicdata.com/datapage/charts/o_china_cn-floor-sp...
At minimum getting floor space completion to peak in 2014 = mitigated bubble.
E: IMO also important to note 3RL happened AFTER 12TH & 13th 5YR PLAN that build out PRC renewable manufacturing. Reason why 3RL is feasible was it became possible to shift construction to renewable rollout to keep jobs and gdp, minus RE speculation, i.e. why PRC can grow at ~5% instead of 5% + 3% RE speculation. RE was never 30% economy, about 15% + 15% in construction and downstream industries. The 15% RE growth got cut down, but other 15% shifted to growing renewable infra.
I think a lot of folks who were dismayed by the 2008 bailouts during the GFC would have a lot of sympathy and respect for whats going on. China didn't bail out, they let them burn.
The deflationary conditions are the next challenge and I'm very interested to see how they are combatted. It's interesting that Xi has come out strongly against Abenomics, and direct cash transfers, arguing that they'd distort things and "breed laziness".
Obviously this is a very unconventional view point, but looking at the financial shenanigans that have happened in the West and Japan over the last couple decades it's hard to argue in favor of the conventional methods.
Big issue is neither approach really increases the velocity of money, and just leads to it ending up in savings and bloating balance sheets. You've got to get the cash moving.
E: I do ponder how much of the deflation actually is an "efficiency dividend" due to the mass adoption of renewables and electrification. Saul Griffith (one of the folks behind the inflation reduction act) is working on a macroeconomic analysis that suggests renewable energy is inherently deflationary. Solar panels cost less as time goes forward but oil always costs more (due to getting harder and harder to extract).
My intuition is also that PRC deflation = PRC producer simply better at cheaper inputs and value engineering products. A 10K USD domestic EV today is significantly better than a 10k USD domestic IC from 5 years ago. PRC manufacturing very good at Model T-ing everything. And it's the "correct" model since PRC is large income disparity society. Common prosperity means driving quality/costs down so the 5000k USD per capita in tier 3_ cities have something reasonable to buy. And also makes migrating/sustaining to those cities viable because T1s/T2s are full. It's why we see stats like aggregate sales during major events (11/11) or travel going up, but per capita spend down. Market is creating products forbottom quantiles who are price sensitive to consume. Common prosperity is giving T3+ cities a taste of T1/T2. Get's obfuscated by western reporting because their source in T1 cities are buying less Prada handbags because they have to shut down one of their 3 hotpot restaurants. Also just general PRC branding improving in popularity and domestic blends tend to be cost-concious, this gets labelled as consumption downgrading (and some of it is), but a lot of it is also PRC value-driven products are increasingly competitive with imports. Enough to drive patriotic purchasing. Bonus this means very cost-competitive goods for exports and displacing (western) incumbants on increasingly higher value sectors.
Then add government driven consumption, i.e. vouchers for cars, appliances, tourism, industrial upgrades. Underdeveloped safety net = people will have propensity to save. So more prudent for gov to pull targetted consumption lever, IIRC accounting for gov social transfers on top of household consumption, PRC consumption around OECD average. They can consume more, but not as prolific as Americans unless CCP gets more sectors to extract service rent. Which I don't think they want to, at least not as much as US - crippling education debt not good if you want to maximize broad talent development. The other generic suggestion is improve investment market / financialization, and there's some efforts to. But to be blunt, too much of PRC poor are undereducated and vunerable to... not sound investment. IMO recipe for social disaster when grandma gambles away nest egg on stocks because mass speculation / herd mentality / scams / superstition . AKA shenanigans. So really just leaves household saving what they need, buying what they can afford, and gov boosting consumption via levers, and indy policy stretching more consumption per rmb by making goods better/cheaper.
If anything, I think the finance industry is more built on stock markets, real estate, etc., and manipulating or trading on them to extract value from people participating in them, which are generally wealthier people and businesses.
They were always run by politicians, oligarchs, capitalists and interest groups.
[1] https://en.wikipedia.org/wiki/Long-Term_Capital_Management
The way I see it, if the markets led by PhD and Noble laureates fails, people start looking for alternatives. Since the "establishment" has been proven useless, the door is open for "anyone" to chime in. The reality is that the economist at the top do not want to see the deficiencies because they have their salaries on the line.