Are economies of democratically elected governments stable?

No, that's not how the CCP stays in power. They are heavily reliant on the cooperation and acceptance of the industrialist/business classes and the masses in general. There is a social contract in China, and it goes something like "you don't get to vote or read media we don't approve of, but you do get development and growth." It is not "shut up and take it or we'll kill you."

Point is that if you subtract the "prosperity and development" part of the contract, you've got a billion+ people that have no reason to go along. You can't shoot your way out of that.

The lion's share of the Chinese economy. The upshot of all the capitalist reforms over the last decades, is that they've largely replaced the monolithic state economy, with one operated by an entrepreneurial class. They now need the cooperation of that class, to remain in power.

 

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Both the USA and Europe have maintained an arms embargo against China ever since Tianenmen Square - that's over 20 years.

 

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Predicting political change is a lot like predicting earthquakes - you can observe the structural features and see the mounting pressures, and make a very reliable predicton that some major shift is on the way. The difficult part is predicting when it will happen - could be tomorrow, or next year, or not for decades.

 

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Quite a few (more than would publicly admit it since not even half do vote) of the un & under employed in US and many of the Joe Americans with decreasing purchasing power ON AVERGE again would be glad to sign that contract.

Your point is well taken: there is little reason for the CCP to fear significant rejection so long as they are delivering several times the US GDP growth, and increasingly shifting a greater share of it to the masses. Of course there will always be unhappy minorities - as is the case in the US.

I think the vast majority of Americans will love to have a government like China's by end of 2014. For why, see post here:
http://www.sciforums.com/showpost.php?p=2727167&postcount=175

In addition to what is stated there, food prices many cannot afford (if they buy gasoline during 2015) will shift the values placed on voting vs eating and driving etc. strongly towards the latter. A new emotion will arise in many: China Envy.

 

Bill Gross is sticking by his implied "no" answer to thread's question:

"... Bill Gross, who directs the world’s biggest bond fund at Pacific Investment Management (PIMCO) upped the ante in his Total Return fund from three to four percent against the U.S. government’s debt.

At the end of April, PIMCO’s $240.7 billion Total Return Fund had negative 4 percent of its assets in government and related debt as opposed to the negative 3 percent the month prior. The big bond fund also raised its cash position to 37 percent in April from 31 percent in March. ...

“Holding Treasuries at these yield levels for an extended period of time represents and abdication of responsibility,” Gross wrote on PIMCO’s website ..."

From: http://www.topstockportfolios.com/r.../1/0/96abc399f3366465a9d79ff1d1efdaac146f03af

 

A specific and current example of why democratically elected governments are NOT stable in the long term*, especially now that fiat money can roll off the printing presses:

"... At this point, there can't be anyone left who truly believes that the debt ceiling debate taking place in Washington is really about what's good for America. The truth is the debt ceiling debate is about the 2012 election - and the party that wins the debt ceiling debate will be the party that comes out on top next year. It's politics - pure and simple.

Republicans and Democrats have their own respective agendas heading into the 2012 election. And with 16 months to go, there's just enough time for actions taken now to work their way through the system and swing the economy in one direction or the other. ...

The Democrats would like to see rapid growth, with unemployment coming down sharply. They don't care so much about whether inflation is ticking up a bit, or whether an over-large budget deficit may cause trouble in the future. If they get elected in November 2012 they figure they will sort out any problems after the fact - particularly if they can recapture the House.

Conversely, the Republicans would like growth to be sluggish, with unemployment stubbornly high. They also would like to make the painful decisions that bring long-term growth now, so that they can benefit from the growth and not suffer the political cost of the pain if they capture the Presidency and ideally both Houses of Congress in November 2012. ..."

From: http://moneymorning.com/2011/07/14/the-2012-election-and-the-truth-behind-the-debt-ceiling-debate/

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* perhaps even the short term now - we will know soon after 2 August 2011. Billy T comment: Neither party can help the other. It is not in their nature. Perhaps the debt ceiling compromise will not be reached. It’s like the scorpion who wanted to cross the Red Sea: He told the turtle it would be safe to give him a ride on his back across as if he stung the turtle he would drown so the turtle agreed and both died mid way across. The scorpins last words were – I could not help it – it’s my nature.

 

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As Pogo said: We have met the enemy and he is us.

 

Lookit that NASA budget. Exactly why I am disgusted with society (Western "liberated" democracies) and choose not to vote, hoping only for revolution. SNFU.

Such waste---fking military budget(which has a bigger space program than NASA)

 

100% agreement. Also why there is no courage anymore, too scared for space travel, too cheap to spend on exploration.

 

Be careful what you wish for. I think when the dollar collapses (I'm still predicting it will before Halloween 2014) you are likely at the least to get Marshall law, if not full blown bloody revolution (wide spread food riots, etc.), ending by a strong military leader on a "white horse".

 

I'd rather roll the Dice Billy and bet on a winner than sit in the morass of mediocrity. I don't even give a crap for myself anymore, just depressed about the direction of the human species.

 

Because we vote for politicians who promisse the most (and some of it they do deliver on) here is what we really get:

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Decades of voted services & imports (fiat money) > US production

Only twice in human history has any nation not collapsed with debt to GDP ratio above 90%.

(1) England did when it went deep into debt to build the machines (factories) of the industrial revolution and had a captive empire (especially India) only it could sell to (thing like textiles from the new power looms, etc.)

(2) US did after end of WWII as it was the only significant nation with its manufacturing still in tack.

I.e. the exceptions are when the deep in dept nation is also by far the leading global manufacturer.

US no longer enjoys that unique position. In fact for more than decade Asian nations are selling more manufactured goods than the US is - a small fraction (<10)%) even to the US.

 

I'm going to go ahead and assume that you meant to say "government" there, rather than "nation." I don't think you can produce any examples of nations "collapsing."

 

Yes your assumption is correct, but better still might be "no economy" has survived a 90% ratio. We often speak of governments "falling," especially in England and other parliamentary governments with little disruption of their economy.

Above 90% either the lenders charge such high interest rates that each year the ratio grows worse OR the government devalues the money to pay off debts. US is following this path with the FED buying Treasury bonds with "thin air money" to keep interest rates low. Few seem to realize it Or don't print much about it but trying to get China to increase the value of the RMB wrt the dollar is more accurately described as more of the US's dollar devaluations efforts.

China is has been keeping the RMB relatively steady in value. I.e. as inflation goes up so does the purchasing power of the Yuan, (of course cost of some parts of economy are going up faster than others - food & housing, but housing is now coming down in price /sq meter and food is at least now stable). It is the dollar that is dropping in real value - buy some groceries to see what I mean. China wants to switch more to a domestic based economy, so I predict the RMB will go up even faster than the cost of living in China does for several years now. And predict the reverse for the US.

Or in other words: More Americans will drop out of the "middle class" and more Chinese will climb into it.

 

Only if by "better" you mean "incorrect." You are asserting that, for example, the economy of Japan has "not survived." Except, Japan is still there, housing and feeding and transporting and employing millions and millions of people - the word for that activity being "an economy." Japan's economy does not appear to be "dead;" in fact it is the world's third largest, and in fact still grows mildly.

What, exactly, is it that you are predicting will happen to countries that run debts above 100% of GDP for too long? You use a lot of ill-defined, sexy-sounding language about "survival" and so on, but what does it mean? Are you referring to stalled growth and high unemployment, or what? Suggesting that the debt-to-GDP ratio won't recover? Because you're speaking in apocalyptic terms about outright national demise, and this seems highly overblown. Since you're making categorical assertions about "every country that's ever ran a debt bigger than such-and-such," how about you actually deal in concrete examples of such, and show us what happened and how the high debt contributed to it. We might learn something useful from that, unlike these vague polemics.

So you're saying that either the debt stays high, or you undergo a bunch of inflation. This is substantially less sexy than what your earlier phrasings suggested.

Meanwhile, you keep suggesting that reinvigorated manufacturing - and specifically, manufacturing for export - is the right answer to the situation. But, dollar devaluation is exactly the policy that one would pursue to make that happen. China's gotten where they are exactly on the back of the intentional suppression of their currency's value - and exhibits rather high inflation. So you seem to be trying to have your cake and eat it too.

 

It is 1 AM for me - I don't have time or inclination to discuss semantics now. But perhaps some of the additional paragraphs I added while you were replying will make what I am trying to say more clear _ the last is sort of a summary. It is:
"Or in other words: More Americans will drop out of the "middle class" and more Chinese will climb into it."

Next day AM:
I will play your semantics game a little:
Every populated region has an "economy." The Eskimos do, but it is more primitive than that of the US. Not easy to define "primitive" in this context as IMHO some not too primitive economies are more to be desired than the unsuitable, oil and credit based, economy the US has. One characteristic of primitive economies is that the population on average lives more directly from the land (or sea), not the Wal-Mart, the gasoline station, or the Kroger, etc. and makes a lot of what they consume.*

What I was saying (and have been saying for about five years) is that with the US's intentional dollar devaluation that the US version of an economy will not survive the run on the dollar that I predicted will come on or before Halloween of 2014. More Americans, of necessity, will be eating food they grew (even in urban lots after they have burned down the unsold house that was there) and much less of Kroger's food. Etc. - I.e. Living in a more primitive economy.

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* Sell your big second car, while it still has value. Use the funds to buy cheap at yard sales etc. functional old sewing machines. You will be able, if my predictions are correct, to sell them for nearly 10 times what you paid in about 5 years when people without jobs make their own clothes and clothes to sell. Few will listen to this good advice just as few did 4+ years ago when I told them to buy ADRs of Brazil and India.

 

The games are all on your part. You're the one trafficking in ill-defined (but sexy) terms of "national survival" and what-have-you. I'm just asking what you actually mean by any of this. If you'd limit your assertions to unambiguous terms (trade, growth, gdp, inflation, etc.) then there'd be no issue.

So, lower standard of living. There, was that so hard? But, what is the mechanism through which this is supposed to happen? A lower dollar makes imports more expensive, true - but it also boosts export competitiveness and internal demand for domestic production, and thereby boosts employment. Given that the USA is a very large, diversified economy spanning an entire continent, there isn't really anything that we absolutely have to import.

But my other question remains: you promote an export-heavy manufacturing-based economy as the cure for America's ills. The main thing that America would need to do to get to that point, would be to devalue the dollar to boost export competitiveness, particularly vis-a-vis China. As I just described above. So it seems to me that you are simultaneously claiming that dollar devaluation is urgently needed, and also that it is really bad and spells the end of America. So, square that circle: if dollar devaluation is bad, and reinvigorated manufacturing (specifically, for export) is good, then what is the industrial policy that boosts America's manufacturing and exports, but keeps the dollar strong?

 

In all due fairness, I do know some people who would see it as the "end of the world" if they couldn't have their Starbucks and Jamba Juice every day.

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After I said in post 73: “Only twice in human history has any nation not collapsed with debt to GDP ratio above 90%.” You complained that nations don’t collapse due to economic problems (But Workaholic in post 79 understood what I meant / said about “nations collapsing”) but I agreed with you that I did not mean the nation would cease to exist – cease to be populated and suggested that:

"no economy has survived a 90% ratio” might better express what I was stating - actually I had been quoting a recent extensive study, which as I recall did say “No Nation” (survived or recovered from –If forget which) a 90% ratio. Anyone not being obtuse would understand their meaning (I did, as Workaholic did) and not assume they were literally stating that region would become unpopulated or have no economy.

But you continued to discuss the words I was using, and not the idea, and objected to my “no economy” too with:
“You are asserting that, for example, the economy of Japan has "not survived." Except, Japan is still there, housing and feeding and transporting and employing millions and millions of people - the word for that activity being "an economy."

As it was then 1AM for me I said I did not have time or inclination to discuss semantics (of the word "economy”) but then the next AM, agreeing with you once more: I admitted that I did not mean the population would have no economy – only that it would be very different economy. I said:

But you would not give up. Would not switch to discussion of the ideas:

Using words that don’t express with exact precesion is not “semantics.” Semanitc is the discussion of words and their meaning, which I have NOT done until now. (I.e. This is the first semantics I have posted. Prior to this, unlike you I have been using words to try to express an idea, and twice changed the words I was using at your request, but you seem to want to discuss the words I use, not to discuss the idea I am suggesting. That why I finally said I would play your semantics game.)

BTW,"inflation" is far from an "unambiguous term." I think when some time ago, I told that I have some TIPs it was you who said: "The CPI does not measure true inflation." etc. It is sufficiently ambiguous that factor of 2 difference in its computed values exist.

Now, in the following, you start to discuss the idea (instead of semantics):

I did not say: “lower standard of living” as I am disinclined to call a slightly more primitive economy, one more connected to the land, a “lower standard of living” than one with greater wealth and average income, etc. I.e. "standard of living” is a very ambiguous term. - Different meaning for different people:

In fact in post 77 I said “Not easy to define "primitive" in this context as IMHO some not too primitive economies are more to be desired than the unsuitable {to economic stability}, oil and credit based, economy the US has.” Quite a few very high paid Wall Street types agree – have moved to New England farms etc. as they have seen / understood how inhuman their hectic artificial lives were. – I.e. they wanted, and could afford a HIGHER standard of living on a farm, splitting their own wood for winter, etc. (Money / income, etc. is not the measure of “standard of living” in my book, or theirs.)

As to: “what is the mechanism through which this is supposed to happen?” I have explained that dozens of times in the last five years: Briefly: going into debt that can never be repaid (in real value – only in depreciated currency). I.e. there comes a day when the lenders say: “No more you dead beat.”

Or ask for such high interest than the debt problem rapidly becomes worse (as has happen in Greece, appears very likely to be happening in one or more of the other PIIGSs (Cap S is for Spain) and perhaps even France*, if their credit rating is downgraded. – It surely will be if Italy does not recover as France has great exposure to Italian debt.) It will be a few years more before China tell the US to go to hell – that China now trades only with those who do not need to borrow to buy and will no longer finance US deficits.

I do agree that as the dollar declines in value, the volume of some exports will increase. That does not mean the income from exports will increase in real value with larger volume – often quite the contrary. For example, Brazil exports more beef than Australia does but they earn more money with beef exports. (Brazil's steers climb up and down hills, too steep for crops, so make relatively tough beef, but with no risk of mad cow disease as 100% grass feed.)

Another serious problem for the US is that it no longer can make much of what the world buys. (The factories are closed, the skills needed no longer exist, etc.) For example Asian countries are now making generation 6 of flat screen displays – US cannot even make generation 1 with an economic yield (too many screens with defects). As I have frequently noted, after the dollar run it will be mainly coal and Midwest corps that are economically competive, but less than 5% of the population has jobs related to that. How do the other 95% live? – Very poorly is my answer, with government aid for many. That is already rapidly growing and adding to the debt.

As far as: "what is the industrial policy that boosts America's manufacturing and exports, but keeps the dollar strong..." I doubt there is one now. Earlier, in many post I noted that GWB's tax cuts helped build the more modern factories in China (mentioning W. Buffet's 10% ownership of BYD motors, etc.) I also have suggested a 100% tax on funds exported to build factories outside of the US. I.e. Buffett could still help BYD expand with ~200 million dollar investment, but he would have had to give the US treasury 200 million dollars also, which would fund retraining (and especially higher education) of former US auto workers (and others whose jobs had been exported.) Unfortunately, doing that now is sort of locking the barn door after the horses were stolen.

The US now has lost too many jobs. In the non-manufacturing areas, like soft ware, Others can do as well and sell cheaper. The US masses are more poorly educated in math and sciences than most other "advanced" countries. We still have some of the finest higher education universities in the world, but every year the entering class at most has lower SAT scores (except SAT has adjusted their scale by about 20%, as I recall, to keep the average score constant.) -China has a funded program to build 50 "MIT or equal" new universities and is very actively stealing (with high wages, complete labs built to the new professor's specs, etc. and very motivated smart, well prepared students.) the best professors in the west, (many are not ethnic Chinese, just top notch experts) to head the new departments. Thus with less well prepared entering students, cut backs in funds, etc. US's day as having the world's best universities are numbered.

SUMMARY: I am not trying to “square the circle.” I have been very clear: depreciating the dollar is disaster as it is being done mainly with print press money. Also note that contrary to economic theory the ~20% decline in dollar value in less than a decade has NOT significantly booster the (inflation adjusted) earnings of US exports. I don't have hard numbers but think even the volume has held about steady with only a few exceptions. One would be natural gas - none was exported a few years ago, so yes that volume has increased.

Later by edit:
* Perhaps even Germany:
"...Reports {a few minutes go ~8AM (NY time)} indicate that Germany fails to get bids for 35% of the total bonds offered at auction. ..."
from: http://www.stateofthemarkets.com/re.../1/0/bd8fd7114ffb380832c52676a2e63fc72700dc84 an article titled: "German bond auction not well received"