20 thoughts on “The Coming Lost Decade”

  1. Japan has a lot of problems unrelated to its former growth-through-exports economic model. You can read about their tax system, or their lending practices to zombie companies, or their real estate valuation methods, but what it essentially all boils down to is that they have a lot of policies and systems in place that prevent the recognition of failure, turnover in the economy, and market-based price discovery.

    All of which essentially means that the engines of capitalism simply don’t work in most of the Japanese economy. Heavy manufacturing and electronics are the only two really competitive industries they have. Retail? Forget it. There’s no Japanese Wal*Mart putting competetive pressures on Mom & Pop shops. And their construction industry (especially in public works) is a wealth sinkhole.

    Of course, China has problems too – they’re just different.

    I guess my point is: don’t expect a repeat of Japan’s problems in China. China is going to go to its own unique hell in its own unique way. And at the core of both the sulphurous destination and the means of getting there is the Communist Party.

  2. If we do not get commerce going on in space, they will dominate space — in the race of government programs China has many structural advantages. The space pork advocates point at this when they talk about Chinese domination of space.

  3. Of course before Japan was the Soviet Union, and before that, Nazi Germany, etc. Politicians, dictators, and fund managers will never learn that they aren’t as intelligent as the market.

  4. The productivity issues in the Japanese retail sector are a bit overblown IMO. The Japanese do not have Walmart but they have a penchant for automated vending machines. The high prices for Japanese real estate, due to their high population density, also dampen the case for large shopping surfaces.

    Japan is having the same issues which happened to all evolved economies. They have reached a certain development level which they are finding hard to improve upon. The market is saturated.

    There have been many advancements coming from Japan in these past decades. These advances include hybrid cars, neodymium magnets, blue/green/violet LEDs, CD/DVD/Bluray, etc.

    The Chinese economy, barring any resource availability issues, will continue growing for the next decade at the very least. The Chinese economy is still very much backwards and it will take a long time until it reaches maturity. They still lack a lot of infrastructure, services, agricultural and industrial capacity. They are now in a stage similar to the Japanese economy during the late 1950s/early 1960s.

    Talk about a Chinese construction bubble, which I often see, is nonsense. Until the migration from the countryside to the cities subsides, housing construction will continue. They still lack many roads and railroads, electric power generation, transmission, and communications infrastructure. Just looking at their hydropower schedule is one example of this. The Three Gorges Dam is not the only dam infrastructure of that dimension they have planned in their schedule.

  5. That was an interesting article. China certainly has some social issues approaching with an aging population but I’m not certain it is foreshadowing the economic collapse of their country.

    Manufacturing and construction might be the two dominate sectors right now but that does not mean that consumer goods or services don’t exist and are not growing.

    An interesting aspect of the manufacturing sector that wasn’t mentioned in the article is the gifting of technology to China. They get manufacturing processes from companies setting up shop there but they also gain the technological know how of the products they build. What they don’t get from legitimate business they get through espionage.

    Which is why I don’t think we should dismiss China in space. They don’t have the track record we do but they are not that far behind us in technology. They have the advantage of learning from everything everyone else has already done.

    They might be a long way from sending a manned mission to the Moon but so are we.

  6. Regardless of China’s future prospects, Their much ballyhooed space program has not been very active lately. They’ve put guys up in orbit three times in the past 10 years. They’re supposed to put up a small space station at some point in the next decade.

    The Chinese aren’t going anywhere in a rush.

  7. The Chinese space program is switching launch and production facilities to Hainan island. They will launch their heavy Long March 5 rockets from there. Until that facility is up and running I doubt the Chinese will engage in any major on orbit activities.

    The Chinese have already replicated most of the Mercury and Gemini space program. Sure they only did a couple of flights but they do not need to reinvent the wheel as much either. The only thing left to do which can still be done with their current rockets is to demonstrate space docking prior to making an actual space station akin to the Agena target vehicle used during Gemini.

    Once they have Long March 5 they will have the infrastructure necessary to launch a cost effective space station and robotic lunar exploration vehicles.

  8. I have to disagree as well on comparing Japan and China. Instead, a more accurate comparison would IMHO be Japan of the 90s and the US of today. As I see it, the last two US administrations have enacted a serious of dubious Keynesian-style bailouts of much of the US economy (Bush administration bailouts of military contractors, airlines, housing, and financial sector, Obama’s bailouts of labor unions, state governments, auto manufacturers, construction, and financial sector). I see this leading to the same sort of long term, underperforming economy that Japan currently has, especially given the vastly ineffective nature of the current Obama targets.

    The machinery by which this is carried out differ, but there’s no reason to expect the outcome to be different.

    China has a different problem, namely, that much of the wealth, economic activity, and legal system is controlled by a large parasitic elite. Everyone has similar problems with a parasitic elite, but China is probably the most advanced economy with an elite having this degree of power. A considerable portion of the Chinese economy is directly owned by government with in addition many commercial firms having partial ownership by a government-owned business.

    On the legal side, there are many Chinese government bureaucracies that simply can make up law on the spot or shift their interpretation of existing law on a whim. End result is that the Chinese government will win every time they compete with Chinese private industry.

    And given that you can be jailed or worse for criticizing the situation, China doesn’t have the democratic outlets that countries like the US do.

    My view is that sooner or later, the strategy of societal stability in exchange for supporting a heavy parasite load will fail. The parasites will forget or neglect their side of the supposed contract.

  9. Another factor I never see discussed is that the growth of desktop manufacturing over the next twenty years is going to hollow out a great deal of what constitutes China’s export market today. Much of China’s export value still comes from exactly the kind of cheap, small-scale stuff that desktop manufacturing can make on the spot as cheaply as china can, with zero transport costs.

    Sure, they’ll try to ride up the value curve and sift to high-value things that aren’t as readily made in desktop facilities — but things like cars are already being produced in highly automated factories where labor cost advantages don’t count for much, and China has a terrible quality/safety reputation to overcome. And the existing manufacturers aren’t about to abandon those markets without a fight.

    Interesting times are on their way.

  10. The future belongs to those that show up for it.

    Japan’s population is rapidly shrinking and they aren’t allowing immigrants in at anything like replacement. Schools are closing and buildings are going unoccupied. Put the same population from 1970 in place in Japan today and you’d have the same economic results. They’re preserving their culture, but their demographics won’t be back in shape for another two generations.

    This is the big upside to having millions of more or less western culture based immigrants from Mexico crossing the border. It brings us up to replacement in population while avoiding the upcoming Europeastan.

  11. An excellent article, it doesn’t change my view of the potential threat of Chinese dominance in space. If anything, it proves that they are willing to undertake the cost of establishing infrastructure (the only important thing in space-faring) no matter what. We are not. We’re too comfortable, and won’t take risks.

  12. “The Chinese have already replicated most of the Mercury and Gemini space program. ”

    I usually try to avoid snark, but are you kidding me?

    Have the Chinese practiced orbital rendezvous, docking, EVA, lunar-duration missions (8-14 days), high-energy orbit changes?

    Yes, Gemini was a “dead end” with Apollo in the works, but again, so was Apollo a dead end with Shuttle in the works. Mercury was barely more than Spam-in-a-Can, but the cramped little Gemini developed and tested just about every procedure employed in space flight since then.

    Soyuz, by the way, is up to the level of Gemini in terms of the “features” I have mentioned, and one can argue ’till the cows come home about relative technical “sophistication.” China may have something comparable to Soyuz hardware, but when have they done anything besides the “Spam-in-a-Can” mission?

    Tell me I am wrong by telling me what the Chinese have done in space.

  13. Japan achieved this remarkable growth with a weak yen — which supported exports and discouraged imports — and high savings rates, which funded massive investments in infrastructure and manufacturing capacity.

    Interesting that saving leads to investment which leads to future productivity and prosperity – growth. Is it just me or is the Obama administration trying to do the exact opposite and discourage saving?

  14. People went west to get some elbow room. Space is the ultimate elbow room. Space is a new game. We can not predict the winners and losers. I’m hoping it’s free people.

  15. Savings doesn’t always lead to future productivity growth, Pete. There’s a key supply-side factor here, which is that that savings has to be invested in genuine technological innovation ventures. It won’t lead to future productivity growth if you simply bury it in a tin can in your back yard, or if you lend it to your crazy Uncle Frim so he can develop his perpetual motion machine.

    And that’s sort of the point of this article: the enormous savings of the Japanese were tragically mis-invested — into useless Stalinesque “infrastructure” projects, and later a gigantic pointless real-estate and other asset bubble. Not only did this bogus “investment” not produce any future productivity, it helped impoverish the nation, since there were no returns above inflation when the original investors looked to cash out.

    In essence, the Japanese saved enormous fractions of their income, converted it to beautifully-engraved paper notes, and buried them in their backyards — where they promptly rotted away to trash.

    This should ring a vague bell here, too, as KH observes. When you hear those neo-Keynesians in the White House babble on about how it isn’t that critical where they fling their “stimulus” money, remember the lesson of Japan. It does matter. If you throw it away, it does you no good at all, and some harm, depending where you got it. In the Japanese case, it was savings, so the post-war generation essentially threw away 25% of the value of their labor in their 40s and 50s. In our case, since we’re borrowing the money from foreigners or the future, then, depending on what happens, we’re either throwing away the value of our childrens’ labor, or preparing a huge con job in which we essentially steal the savings of foreign investors. “Think globally!” indeed, heh heh.

  16. Yes savings need to be invested constructively, and future prosperity is contingent on such economically efficient savings and investment. The point I was alluding to was that governmental efforts to distort the market and encourage the private sector to spend and consume run counter to this and will actively make the US worse off in the future (though maybe help buy an election in the short term).

  17. Have the Chinese practiced orbital rendezvous, docking, EVA, lunar-duration missions (8-14 days), high-energy orbit changes?

    The Chinese did EVAs in the Shenzhou 7 mission. They have the Feitian spacesuit which is a clone of the Russian Orlan-M. In the same mission they released a small parasite satellite named BanXing which they used for testing formation flying. They tested a toilet in Shenzhou 6. So there is little doubt they plan to do longer duration missions in the future.

    Shenzhou is a clone of Soyuz, like you yourself said, so it can make the same kinds of missions.

    Like I said, their major omission regarding Gemini is to demonstrate space docking. Something akin to the Gemini Agena target vehicle missions.

    Unsurprisingly that is precisely what they are planning to do with Shenzhou 8 which is supposed to dock with the Tiangong 1 target vehicle. Both vehicles are planned to be launched in 2011 (next year).

  18. I meant no criticism, Pete; just adding to what you said. And I agree with you that the obsessive focus on consumer demand and debt as a way to finance it, rather than savings, is genuine madness. It’s like no one ever heard of the ur-rules of finance, be it personal or public:

    (1) If you can’t afford it, don’t buy it.

    (2) Save up for stuff.

    Weird. The United States used to be such a Puritan country, too. Maybe this is some kind of backlash. Like when a tea-totaller finally decides one little ol’ drink won’t hurt him — then ends up in the alley swigging from a gallon of muscatel.

  19. Cavuto had a guest the other day that pointed out that gold is not an investment, it’s a commodity. Cavuto noting that ‘gold investment’ was a sponsor. It was amusing.

    Those ten elites get it wrong again.

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