China's Ghost Cities

There is a saying that goes "build and they will come"-perhaps rooted from "Supply creates its own demand" which is a (Keynesian) misinterpretation of Say's Law.

And perhaps too that's the core China's economic model, judging from this news account, courtesy of Al Jazeera (Hat Tip: Robert Blumen/Mises Blog)

Unfortunately in as much as there had been a theoretical misinterpretation and the subsequent failed "theory", China's uninhabited 'ghost' cities seem like a symptom of misdirected capital.

To quote Robert Blumen, ``A lot of the so-called GDP growth is spending by central planners that has no real economic value. The reporter says that "a country can raise its GDP by spending more", which is almost a tautology, since GDP counts spending. But GDP growth does not necessarily mean real economic growth. Real growth can only be accomplished by expanding the capital base, and that requires economic calculation by entrepreneurs who are risking loss of their own capital. Just building a lot of physical stuff and counting the amount you spent is not the same thing."

Indeed "no economic value"- that's because capital is locked up or sunk into unproductive assets and activities. Frontloading expenditures to prop statistical Keynesian constructed "GDP" will come at the cost of future capital losses.

This makes China's economic model as seemingly unfeasible and unsustainable. Anyway, let the good times roll, since imbalances take time to accrue before unraveling.

Well, that's the nature of bubble cycles.