In this issue:
Drift to Ochlocratic Socialist Dictatorship Confirmed: Realignment with China’s Ideological Flow; Dutertenomics Equals the Broken Window Fallacy
-The Confirmed Ideological Drift to China’s Neo-Maoism
-Dutertenomics Equals the Broken Window Fallacy: 1 (China) MINUS 1 (US) =2 (G-R-O-W-T-H)!!!!
-Broken Window Fallacy: Like the US, Why China’s FDIs Are NO ELIXIRs!
-Broken Window Fallacy: Will These Aggrandized Deals Continue If China Suffers a Crisis?
-Mr. Duterte’s Speech Inflames US-Russian War!
Drift to Ochlocratic Socialist Dictatorship Confirmed: Realignment with China’s Ideological Flow; Dutertenomics Equals the Broken Window Fallacy
We are not just living in interesting times, but we are living in a historical chapter that will be one for the books. A decisive breakthrough history is in the making!
First, inflationism via asset bubbles (credit financed gambling and speculation) has been deeply worshipped by the consensus and portrayed as a sustainable panacea for development and progress.
Next, inflationism’s quintessential outcome of which the great Henry Hazlitt (Economics in One Lesson p 117) presciently admonished as tearing “apart the whole fabric of stable economic outcome” that has driven men to towards “desperate remedies”, particularly “to the attraction of fascism and communism” and to “totalitarian controls” have emerged in full motion in the Philippines. In particular, the Philippine political economy’s crucial drift towards an “ochlocratic” (rule of the mob) socialist/leftist dictatorship.
As far back in December 2016, I have highlighted the risks of strong man bubble. In early May or prior to the elections, I warned that leftist governments had consistent records of ruining currencies which reflected on the economic conditions. At the close of the presidential election, I admonished on how the renegade left will be integrated within the system, first through appointments and later through the election process. (Changing the System is a Time Consuming Process; Duterte’s Backdoor Strategy May 18, 2018)
Then the sustained assault, and subsequent threats, on Western governments, supposedly for raising the human rights issues against the new administration’s war on drugs. After which, while the leadership enthrall and divert the public’s attention with firebrand, profanity laced and brinkmanship-blackmail geopolitics; through peace negotiation, the renegade left has been increasing its political economic leverage or clout on prospective policies (While Brinkmanship Geopolitics Escalate, NDF-NPAs Flex Their Political Muscles October 9 2016).
Now for the confirmation of the transformation…
And in this shifting of political and cultural thing, America has lost it. I mean, I realigned myself in your ideological flow and maybe I will also go to Russia to talk to Putin and tell him that there are three of us against the world: China, Philippines and Russia. [applause]
So with that I in this venue…Your honors, in this venue, I announce my separation from the United States [applause] both in military, so --- not in the social [garbled] both the military but economics also.
So please we have another problem of economics in my country.[laughter] I have separated from them so I will be dependent on you for all times. But do not worry, we will also help as you help us. [applause]
The Confirmed Ideological Drift to China’s Neo-Maoism
Chinese Vice Premier Zhang Gaoli and more than 200 business people from China and the Philippines comprised the attendees in the forum (Reuters October 20).
Mr. Duterte pronouncements set a firestorm here and abroad.
Immediately after the speech, the leadership’s economic cabinet members went into damage control. They announced that these “did not mean that the country will break off ties with the West, where according to them, “We will maintain relations with the West but we desire stronger integration with our neighbors”. (GMA7, October 21)
Japan’s Nikkei Asia even published a notice from the Philippine government that “urged the public to wait for guidelines before interpreting President Rodrigo Duterte's announcement in Beijing that Manila will separate from the United States” (Nikkei Asia October 21). This reeks of a sense of panic from Duterte’s cabinet.
The Japanese government even signaled apprehensiveness over the geopolitical move towards an alliance with China. According to Nikkei Asian Review (October 21): The Philippines' newly found affection for Chinahas sparked concern in Japan that it would embolden the Asian giant to expand more aggressively in the South China Sea. Japan has worked with the U.S. and others to pressure China to accept an international arbitration ruling in July that rejected Beijing's claims in the South China Sea. The ruling involved a case brought by the Philippines, but Manila has downplayed the decision in its favor. "The South China Sea is an extremely important issue that directly affects the peace and prosperity of the region," Japanese Chief Cabinet Secretary Yoshihide Suga told reporters Thursday in response to the China-Philippines summit held that day. "We want to work with other countries, including the Philippines, in order to formulate a strong response."
Mr. Duterte has been slated to meet with the Japanese government in the coming week.
Because polls have indicated that the Philippine denizens had a net 66% trust rating for the US as against China with a NEGATIVE 33 (Philstar October 18), Mr. Duterte have been reported to have backpedaled (From ABS-CBN October 22): “Duterte later clarified in a press conference in Davao City after his arrival in China that his "separation" statement refers to foreign policy and not diplomatic ties. "You know, you have to take my words in the context of what I've been saying all along. It's not severance of ties.... because in severance of ties, you have to cut diplomatic relations. I cannot do that. Why? It's for the best of our country to maintain that relationship. Why? Because there are many Filipinos in the United States," he said. "People of my country (are) not ready to accept," he added. "What i'm really saying is a separation of foreign policy."
I’ve always stated here that those flip-flops have not been about impulsive statements or mere outbursts, but instead have signified part of the PR campaign to “transform the consciousness of a society”.
Notice that Mr. Duterte deftly shifts his demagoguery depending on the audience. The goal is not to confront inveterate beliefs, but as I have stated here, to subordinate these with signals of devotion or steadfastness in commitments, sincerity and moral uprightness in pursuing a cause (war on drugs).
In short, mind control through language manipulation or Orwellian “doublespeak” is a time consuming process too.
It’s why Mr. Duterte ingratiates himself with the Chinese government through assimilation: (from the speech): “You know I have a Chinese blood. I have a Moro blood. I have a Visayan blood. I've studied the nuances of our characters. I have come to the conclusion that we are Orientals a very courteous race… my grandfather on the mother side was a Chinese.”
Seen in the context of “aid”, while Mr. Duterte has threatened to reject US and European aid (RapplerOctober 6), he goes on “begging on hands and knees” to the Chinese.
Now, with the plans to development, we are really short of the cashflow…So I come here and say, I am not asking for free but if I could --- China would find in his heart to help us in our needs, then we will remember you for all time… So please we have another problem of economics in my country.[laughter] I have separated from them so I will be dependent on you for all times. But do not worry, we will also help as you help us.
In the same speech he goes on to condemn US aid and commerce “they have poured millions on us, on our economy nothing has happened”.
Mr. Duterte even implicitly accused the US of brain drain “iI you think they’re liberal with the Filipinos, it’s because they have the brains and you get most of the best and the brightest of the Filipinos for your country.”
Mr. Duterte doesn’t provide the cause of US recruitment of “the best and the brightest of the Filipinos”. First, it hasn’t just been the US. 12-15 million (ABS-CBN, December 19, 2015) “the best and the brightest of the Filipinos” have spread around the world. Second, politics always have been devoid of cause and effect. What caused the diaspora? Has it not been due to the ill-fated peso which manifested the dearth of economic opportunities? What has caused the boiling frog collapse of the peso? If economic opportunities have been sufficient then mass migration would hardly be a factor. Problem is what has constrained economic opportunities, and subsequently, job creation? Has it not been the same political shenanigans being adapted today but this time veering on the left?
Chinese support is being earnestly supplicated by Mr. Duterte because of the coming moves to CLOSE the political economy (ala Venezuela, Cuba and North Korea)
Dutertenomics Equals the Broken Window Fallacy: 1 (China) MINUS 1 (US) =2 (G-R-O-W-T-H)!!!!
I announce my separation from the United States [applause] both in military, so --- not in the social [garbled] both the military but economics also.
So please we have another problem of economics in my country.[laughter] I have separated from them so I will be dependent on you for all times
This should be a splendid example of the Broken Window Fallacy
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Stated differently, the consensus will focus on the “broken window” and thereby attribute ‘economic’ benefits from it. Or money spent on the broken window will mean income for the glass supplier. Period. That is—which is seen.
But how about that is—which is unseen?
How about the same money that COULD have been spent to increase inventories or to purchase machinery in order to INCREASE income, and thereby EXPAND consumption of the shopkeeper overtime?
How about the same money that could have been used to spend on jewelry to SATISFY the good shopkeeper’s wife for their coming anniversary? Or how about clothes/toys for the shopkeeper’s son on his coming birthday?
The broken window merely REPLACED what had been lost. Neither did it add to the shopkeeper’s income nor did increase satisfaction (utility) to the shopkeeper’s family. The window replacement would have been a priority of a very much lesser significance, had there been no accident.
So when Mr. Duterte posited to end to the US-Philippine economic relations, it represented the BROKEN WINDOW theory in action!
Mr. Duterte sees “plenty of happiness for my country” (GMA7, October 19) with investment and funding deals and promises worth $24 billion (Bloomberg, October 21) but he had been entirely BLIND to costs.
And so was 3.53% weekly pump on the Phisix!
He does not see the direct and indirect costs or risks from the severance of economic ties.
The direct impact could be for the US government (and allies) to expel illegal immigrants from the Philippines, or a pullout by western investors that may affect both asset prices and access to credit, as well as, dislocation to the economy. Some senators have cited a portion of the above. (Inquirer, October 21).
Of course, the indirect (unseen) costs would likewise mean LOSS of investment opportunities (would have been investments may be written off), REDUCED access to credit (would have been financers may back off), and this would not only cause credit downgrades (increase in credit costs) but would likely raise trade, capital and labor protectionism, and the risks of economic embargoes or sanctions against the Philippines.
And that’s just the simplistic economic dimension which doesn’t include politics (which again is entwined to the economy) and geopolitics
Broken window as expressed in math is 1-1=2.
Therefore, Dutertenomics extrapolates to 1 (China) MINUS 1 (US) =2 (G-R-O-W-T-H)!!!!
Of course, Dutertenomics equals the stockmarket’s logic as well.
Broken Window Fallacy: Like the US, Why China’s FDIs Are NO ELIXIRs!
It’s not just opportunity costs and unintended consequences the shopkeeper’s damage, the broken window can also be seen from perspective of the shopkeeper’s glass supplier.
Or applied to current events, the alleged wonders from China’s investments.
The Broken Window fallacy is supposed to satisfy the shopkeeper through the replacement of the broken window.
But what if the substituted window has been inferior or of poor quality to one that was broken? What if the supplier of the window doesn’t deliver on his promised goods?
As example let me cite again China’s massive investments in, or implicit “aid” to Africa.
While there are definitely advantages from Chinese FDIs, there have also been disadvantages. And disadvantages are substantial.
Harvard University professor of business and economics Mark Esposito and associate professor of finance and head of competitiveness studies at i7 Institute for Innovation and Competitiveness at ESCP Europe Terence Tse wrote at Fortune.com (November 20, 2015)*:
“But despite the substantial investments, most of the them have been routinely cast as detrimental to Africa’s overall competitiveness. The projects are dependent on deals made at the highest political levels. They lack competitive and transparent bidding processes, and most of the work force employed at these ventures has been Chinese. Promises of job creation have not been fulfilled. Further, when Africans are hired, local rules and regulations are often flouted, leading at times to poor safety”
“The projects are dependent on deals made at the highest political levels.” Remember, I wrote last week that the much ballyhooed deals are, in fact, political investments rather than market investments? And that
“political investments are undertaken with publicly unseen or unstated political goals and quid pro quo conditions. Servicing the consumers or the markets operate as subordinate objectives. The (cost benefit) distributional effects of the former would starkly be different than the latter.” (Another MEGA “Pump” Bubble Based on The China Philippines MEGA Deals! (October 19, 2016)
So the above provides us empirical clues on why these political investments are unlikely to benefit the general economy, except for the distributional flows to the “connected” few.
A simple smell test for the political investments: Would these investments arise without political privileges? If the answer is no, then political privileges would serve as key motivation for investments (not market dictated profits and losses). The benefits from which will flow mostly to politicians, bureaucrats, and their private sector wards, as well as, their foreign sponsors. (Hitler’s economic fascism/ modified version China’s state enterprises and their private sector vehicles)
And given how Mr. Duterte has recently opened a war on the oligarchy, specifically an oligarch Mr. Roberto Ongpin (Rappler August 3), then why wouldn’t 1,000 traders flock with him (Inquirer October 18)?
These traders understand that Mr. Duterte ARBITRARILY sets the terms for commercial engagement.
If they don’t help support Mr. Duterte’s agenda, then they risk the wrath of the BIR, and or the bureaucracy breathing down on their necks, and or of the accommodation of Chinese competitors at their expense, and or from Mr. Duterte’s fulminations or outbursts as seen against Mr. Ongpin. Who would want to be publicly lynched (and life threatened) not only by the leadership but by the zealots??? Who would want to have his property appropriated by compulsion?
Yet it would appear that media treats 1,000 traders as entirely about C-O-N-F-I-D-E-N-C-E?
While it may be true that part of it may be confidence, wouldn’t these traders also want to be a head of a state enterprise should political economic system shift?
Last week, the Chinese president Xi Jinping announced, according to the New York Times (October 16) that the Chinese Communist Party had the ultimate say over state companies: “Party leadership and building the role of the party are the root and soul for state-owned enterprises…The party’s leadership in state-owned enterprises is a major political principle, and that principle must be insisted on.”
A blueprint for these 1,000 traders?
And here’s more.
Yet it’s easy to surmise why Chinese workers have been sent to political projects in host countries. It’s about China’s domestic economy too. Given the material economic slowdown in China, the government would rather export their people along with their FDIs to stave off political turmoil at home.
Besides, because of the one-child policy, a demographic crisis from a huge gender imbalance looms. Reuters reported in January 2015 that there were 118 male for every 100 female, or 33 million more males according to Radio Free Asia also January 2015. This should be an explosive vent should social tensions occur. So perhaps part of these FDI-packaged Chinese labor exports means, to again, diffuse societal strains by having to match males with foreign females.
Oh boy, they’d love it here! Will escorts be the new industry?
Yet allegations of neo-colonialism again from Mssrs. Esposito and Tse: “Perhaps making matter worse, the kinds of goods that the two partners trade with each other have done little to change such perception. Whereas China buys from Africa mainly natural resources—minerals and metals—African countries import primarily the finished results, ranging from machinery and electrical goods to plastics and rubber. Such an arrangement could benefit both parties, but it’s more often seen as China exploiting Africa’s natural resources to feed its need for industrial output. At the same time, by exporting cheap—and often shoddy—manufactured goods to African countries, local companies not only become less competitive but they also grow increasingly dependent on China.”
With Chinese labor partaking of political projects, skills enhancement becomes a question: “Recent research has also suggested that the Chinese presence has failed to bring significant skill developments, adequate technological transfer or any measurable upgrade to the productivity levels to this part of the world.”
But because of political pressures, “China has become more tactful in its approach to Africa”, and in order “to mitigate the broad criticisms of its “mercantilist” approach toward Africa by, among other things, offering more access to capital for local companies” they have also been altering trend in investments that “are not concentrated in natural resources: Services are the most common sector, with significant investments in manufacturing as well.”
It doesn’t stop here. Shortcomings from the legal and institutional perspective on Chinese FDI’s on Africa, as noted by Catherine Elkemann, candidate legal practitioner at law firm Hogan Lovells International LLP in Hamburg, and Oliver C. Ruppel Professor of Law, Faculty of Law, University of Stellenbosch and Director of the Development and Rule of Law Programme (DROP), South Africa**:
it is not certain that Africa profits from Chinese investments. As shown above, the Chinese investments on the continent can also lead to negative side effects such as negative implications for human rights, labour law, and for the environment, as well as detriments for the local economies. From an economic perspective, the sustainability of Chinese investments is very questionable. Most Chinese investments still go into the natural resource sector with the result that many countries are becoming more and more dependent on these resources. If African countries want to make their investment relations with China more sustainable, it is essential that they attract investment in other areas as well. With regards to existing investment, African countries should place more emphasis on performance requirements, for example the participation of local workers in these investment projects, technology transfers, and training of local workers, and should also try to keep the labour-intensive down-stream activities in their respective home countries
You see, if there has been no panacea from the US, there will be no elixir from the Chinese either!
But politics operate on its own reality away from economics.
Broken Window Fallacy: Will These Aggrandized Deals Continue If China Suffers a Crisis?
This brings us back to the “seen” effects.
True, Chinese FDIs have been rising, but those investments have hardly translated to external trade. Again, that’s because of China’s slowing economy.
