How the Detroit Syndrome will Affect Industrial era Urbanization

Finally someone in the mainstream partly shares my view on why the centralization “urbanization” paradigm of economic growth represents a passe model as the world transitions to the post industrial or information age.

From Deutsche Bank’s global strategist Sanjeev Sanyal writing at the Project Syndicate (bold mine) hat tip Zero Hedge

The problem with this post-industrial urban model is that it strongly favors generalist cities that can cluster different kinds of soft and hard amenities and human capital. Indeed, the growth dynamic can be so strong for some successful cities that they can hollow out smaller rivals (for example, London vis-à-vis the cities of northern England).

Some specialist cities could also do well in this world. But, as Detroit, with its long dependence on the automotive industry, demonstrates, cities that are dependent on a single industry or on a temporary location advantage may fare extremely poorly.

All of this has important implications for emerging economies. As it transformed itself into the “factory of the world,” the share of China’s urban population jumped from 26.4% in 1990 to around 53% today. The big, cosmopolitan cities of Beijing and Shanghai have grown dramatically, but the bulk of the urban migration has been to cookie-cutter small and medium-size industrial towns that have mushroomed over the last decade. By clustering industrial infrastructure and using the hukou system of city-specific residency permits, the authorities have been able to control the process surprisingly well.

This process of urban growth, however, is about to unravel. As China shifts its economic model away from heavy infrastructure investment and bulk manufacturing, many of these small industrial cities will lose their core industry. This will happen at a time when the country’s skewed demographics causes the workforce to shrink and the flow of migration from rural areas to cities to slow (the rural population now disproportionately comprises the elderly).

Meanwhile, the post-industrial attractions of cities like Shanghai and Beijing will attract the more talented and better-educated children of today’s industrial workers. Unlike rural migrants heading for industrial jobs, it will be much more difficult to guide educated and creative professionals using the hukou system. The boom in the successful cities, therefore, will hollow out human capital from less attractive industrial hubs, which will then fall into a vicious cycle of decay and falling productivity.

Stories like Detroit’s have played out several times in developed countries during the last half-century. And, as the fate of Mexico’s northern towns suggests, emerging economies are not immune from this process.

This shows of the evolving transition from the industrial centralized based economy towards knowledge based decentralized economy

This also means that central planning or government infrastructure spending based on the urbanization model will eventually translate to huge losses for society.

But again taxpayers will bear the burden for the miscalculations of presumptuous popularity and vote seeking policymakers

 

UN’s FAO on World Hunger: Let them eat insects

Many nasty side effects of inflationism has not only been to reduce the quality of products and services (value deflation) as well as to promote fraud, for instance in food (rat meat, horse scandal) but has also prompted policymakers to desperately scamper for solutions based on absurd premises. 

From the BBC.com (hat tip Zero Hedge)

Eating more insects could help fight world hunger, according to a new UN report.

The report by the UN Food and Agriculture Organization says that eating insects could help boost nutrition and reduce pollution.

It notes than over 2 billion people worldwide already supplement their diet with insects.

However it admits that "consumer disgust" remains a large barrier in many Western countries.

Wasps, beetles and other insects are currently "underutilised" as food for people and livestock, the report says. Insect farming is "one of the many ways to address food and feed security".

Remember these multilateral institutions are taxpayer funded. This means that such bureaucracies have been benefiting from wealth transfers (taxpayers to bureaucrats) which should have been redirected instead to “hunger”.

Yet in order to sustain their privileges, they recommend bizarre elixirs instead of promoting real market based reforms. Such is an example of ‘social justice’ based on central planning.

The UN and her subsidiary the FAO should set an example.  UN-FAO leaders should require all their employees to have insects as part of their daily fare.

The last time a political leader allegedly declared sarcastically “let them cake”…such led to a bloody revolution.

Quote of the Day: Central Planning will lead to Economic Regression

Similarly, the record of government planning in the United States is fraught with internal inconsistencies.  The federal government both subsidizes tobacco growers and propagandizes against smoking.  It pays some farmers not to produce grain products and, at the same time, subsidizes others with irrigation projects so they can grow more of the very same grain products.  Government programs for dairy farmers keep the price of milk high, while its subsidies to the school lunch program make the expensive milk more affordable.  Government regulations mandating stronger bumpers make automobiles safer, while the governments Corporate Average Fuel Economy (CAFE) standards make them lighter and more dangerous.  Both increase the cost of automobiles.

Those who think that central planning will promote economic progress are naive.  When business enterprises get more funds from governments and less from consumers, they will spend more time trying to satisfy politicians and less time satisfying customers.  Predictably, this reallocation of resources will lead to economic regression rather than prosperity.

(italics original)

This is from James Gwartney’s and Richard Stroup’s 1993 primer, What Everyone Should Know About Economics and Prosperity (sourced from Café Hayek’s Don Boudreaux)

On the Central Planner’s Forecasting Failures

Do central planners have detailed or accurate knowledge about the workings of the markets and the economy? 

From Bloomberg,

The Bank of England’s forecasting capabilities have deteriorated in the past five years, resulting in “large” errors, and officials should investigate the reasons for such shortcomings, an independent review said today.

The report by David Stockton, a former Federal Reserve official, sets out options including encouraging “more assertive” staff to challenge the central bank’s “house view” and incorporating financial-stability risks into forecasts. It said the latter should be “high on the agenda.”

The review is one of three commissioned by the central bank’s governing body following a lawmaker push for an inquiry as the BOE prepares to take on unprecedented powers to regulate the financial system. The bank also released reports on its framework for providing liquidity to the financial system and its emergency support to banks.

“The Monetary Policy Committee’s recent forecast performance has been noticeably worse than prior to the crisis, and marginally worse than that of outside forecasters,” Stockton said. “The bank and the MPC need to introspect more deeply and more systematically about the lessons that can be gleaned from episodes of large forecast errors.”

Even a recent study from the US Federal Reserve of St. Louis questioned the debt and deficit forecasting capabilities of the Congressional Budget Office (CBO) whose “projections for longer horizons are considerably worse than those for shorter horizons”

Of course one can’t resist pointing out the astounding blindness of US Federal Reserve Chairman Ben Bernanke’s to the onset of the crisis of 2008 which continues to linger or haunt the US and world economies, today.

The central planner’s fundamental mistake emanates from the dependence on the supposed accuracy of the substitution or the simplification of knowledge through numerical aggregates based on econometric-statistical models for what in real life is a complex world operating on decentralized knowledge from human action from a combination of localized knowledge or “particular circumstances of time and place”, the individual’s unique and immeasurable preferences and value scales, economic calculation and the dynamic stimuli-response/action-reaction to the ever changing environment.

In accepting the Nobel Prize, the great F.A. Hayek explained of the pretense of knowledge by so-called experts

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences — an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude — an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed." I want today to begin by explaining how some of the gravest errors of recent economic policy are a direct consequence of this scientistic error.

If central planners have been blatantly, consistently and pathetically wrong with their economic forecasting—stemming from erroneous assumptions, premises, theories or models—then what more should we expect of the consequences derived from policies grounded on these wrong projections?

Black Swan theorist and author Nassim Taleb warns about mistaking centralization for stability (Foreign Affairs):

Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to "Black Swans" -- that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.

Such environments eventually experience massive blowups, catching everyone off-guard and undoing years of stability or, in some cases, ending up far worse than they were in their initial volatile state. Indeed, the longer it takes for the blowup to occur, the worse the resulting harm in both economic and political systems.

Seeking to restrict variability seems to be good policy (who does not prefer stability to chaos?), so it is with very good intentions that policymakers unwittingly increase the risk of major blowups. And it is the same misperception of the properties of natural systems that led to both the economic crisis of 2007-8 and the current turmoil in the Arab world. The policy implications are identical: to make systems robust, all risks must be visible and out in the open -- fluctuat nec mergitur (it fluctuates but does not sink) goes the Latin saying...

Social policies aimed at ‘suppressing volatility’ which ultimately ends up with ‘massive blowups’ signifies as bubbles in motion are the risks we all envisage considering the path towards centralization (for instance, EU’s political union, bank supervision, expansive financial regulation)  undertaken by most developed economies.

Bottom line: I would not trust an iota of what central planners say.

IMF’s Christine Lagarde Inflationist Delusions

From the Deutsche Borse Group: (bold added)

International Monetary Fund Managing Director Christine Lagarde praised monetary stimulus efforts of the world's major central banks Thursday, but said non-monetary authorities in Europe, the United States and elsewhere need to build on those steps to improve growth in a slowing world economy.

Lagarde, at a press conference ahead of the annual meetings of the IMF and World Bank, said she "expects courageous, cooperative action" at the meetings.

She also aimed criticism at China, whose top economic policymakers declined to attend the meetings because of territorial disputes with host Japan. China needs to be more of a global partner and increase demand for foreign products, not just concentrate on exporting its own products, she said, after pointedly noting its officials' absence.

Lagarde vowed the IMF "will spare no time and effort" to help Greece, but said the objective is to ultimately free that country from dependence on outside assistance.

Noting that the IMF has downgraded its projections of global growth, Lagarde said, "we are not expecting a very strong recovery." Indeed, she called high unemployment rates in advanced countries "terrifying and unacceptable."

The Federal Reserve, the European Central Bank and the Bank of Japan have all adopted additional easing measures, and she praised their moves, but said that by themselves those actions are "not sufficient." 

The "momentum" imparted by monetary easing "should be seized as an opportunity," she said.

Ms, Lagarde’s “momentum” remarks essentially echoes former President Obama’s chief of staff and current Mayor of Chicago Emanuel Rahm’s infamous sly quote on establishing political controls over society…

You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.

And emerging market central banks have fawningly embraced Ms. Lagarde’s recommendations.

This from Reuters:

Emerging market central banks have clearly taken to heart the recent IMF warning that there is “an alarmingly high risk”  of a deeper global growth slump.

Two central banks have cut interest rates in the past 24 hours: Brazil  extended its year-long policy easing campaign with a quarter point cut to bring interest rates to a record low 7.25 percent and the Bank of Korea (BoK) also delivered a 25 basis point cut to 2.75 percent.  All eyes now are on Singapore which is expected to ease monetary policy on Friday while Turkey could do so next week and a Polish rate cut is looking a foregone conclusion for November.

South Africa, Hungary, Colombia, China and Turkey have eased policy in recent months while India has cut bank reserve ratios to spur lending.

The BoK’s explanation for its move shows how alarmed policymakers are becoming by the gloom  all around them. Its decision did not surprise markets but its (extremely dovish) post-meeting rhetoric did.  The bank said both exports and domestic demand were “lacklustre”.  (A change from July when it admitted exports were flagging but said domestic demand was resilient) But consumption has clearly failed to pick up after July’s surprise rate cut — retail sales disappointed even during September’s festival season.  BoK clearly expects things to get worse: it noted that ” a cut now is better than later to help the economy”.

Ms. Lagarde’s comments, which gives emphasis on the short term at greater costs of the future, can be summed up into two types of casuistry: 

The delusion of central planning: 

From the great Ludwig von Mises (Omnipotent Government),

It is a delusion to believe that planning and free enterprise can be reconciled. No compromise is possible between the two methods. Where the various enterprises are free to decide what to produce and how, there is capitalism. Where, on the other hand, the government authorities do the directing, there is socialist planning. Then the various firms are no longer capitalist enterprises; they are subordinate state organs bound to obey orders. The former en­trepreneur becomes a shop manager like the Betriebsführer in Nazi Germany.

As well as the delusions of the elixir of inflationism or perhaps a stealth scheme being employed by the cabal of central bankers to demolish what remains of laissez faire capitalism 

From the deity or icon of inflationism, Lord John Maynard Keynes (PBS.org) [bold added]

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Inflationists are either aware of the evils their policies create but nevertheless insidiously impose them for covert political reasons, or have been too blinded by their possession of power.

Video: Adam Smith on the Folly of Central Planning (Man of System)

In the following short video, Yeshiva University Professor James R. Otteson explains how Adam Smith assailed the idea of the "Man of System" or the folly of central planning.

Here is a prologue from LearnLiberty.org (again Thanks to Tim Hedberg)

How do you like being told what to do? If someone tells you to do something you find enjoyable or fulfilling, you may not mind. What if you are told to do something contrary to what you would choose for yourself? What if the government was the one telling you to do it? Adam Smith, the philosopher and father of economics, talks about a "man of system," a central planner who believes he can orchestrate the lives of others, like chess pieces that can be moved at will. As Professor James R. Otteson illustrates, society suffers when the man of system attempts to force his desires on the lives of individuals in ways that contradict their own desires. According to Smith, people are not chess pieces to be moved on a board; they are living and thinking and have their own wills. Individuals pursuing their own desires will constantly be in conflict with the desires of any central planner.

Here is Adam Smith excerpted from the Theory of Moral Sentiments

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

Since individuals are fundamentally unique (have different values, preferences, biases, cultural, spiritual or educational orientation, level and specificity of knowledge, and etc...) and have competing interests, this only means that the "principle of motion" will always be "of its own" or different from that envisioned by the man of the system.

Will Urbanization Save China’s Capital Spending Bubble?

Mr. Stephen Roach, Chairman of Morgan Stanley Asia, writing at the Project Syndicate thinks so,

Reports of ghost cities, bridges to nowhere, and empty new airports are fueling concern among Western analysts that an unbalanced Chinese economy cannot rebound as it did in the second half of 2009. With fixed investment nearing the unprecedented threshold of 50% of GDP, they fear that another investment-led fiscal stimulus will only hasten the inevitable China-collapse scenario.

But the pessimists’ hype overlooks one of the most important drivers of China’s modernization: the greatest urbanization story the world has ever seen. In 2011, the urban share of the Chinese population surpassed 50% for the first time, reaching 51.3%, compared to less than 20% in 1980. Moreover, according to OECD projections, China’s already burgeoning urban population should expand by more than 300 million by 2030 – an increment almost equal to the current population of the United States. With rural-to-urban migration averaging 15 to 20 million people per year, today’s so-called ghost cities quickly become tomorrow’s thriving metropolitan areas.

Shanghai Pudong is the classic example of how an “empty” urban construction project in the late 1990’s quickly became a fully occupied urban center, with a population today of roughly 5.5 million. A McKinsey study estimates that by 2025 China will have more than 220 cities with populations in excess of one million, versus 125 in 2010, and that 23 mega-cities will have a population of at least five million.

China cannot afford to wait to build its new cities. Instead, investment and construction must be aligned with the future influx of urban dwellers. The “ghost city” critique misses this point entirely.

All of this is part of China’s grand plan. The producer model, which worked brilliantly for 30 years, cannot take China to the promised land of prosperity. The Chinese leadership has long known this, as Premier Wen Jiabao signaled with his famous 2007 “Four ‘Uns’” critique – warning of an “unstable, unbalanced, uncoordinated, and ultimately unsustainable” economy.

I have deep respect for Mr. Stephen Roach but I think his “urbanization” argument hardly distinguishes from the other public work projects such as infrastructure and transportation. They are all anchored on justifications of centrally planned interventions that presupposes omniscience or the superiority of knowledge of political authorities, as well as, the incontrovertibility of such trends (which for me accounts as the folly of reading past trends into the future; or “fighting the last war”).

In short, urbanization, based on government design, seems like a lipstick on a pig.

Urbanization according to Wikipedia is closely linked to modernization, industrialization, and the sociological process of rationalization.

Urbanization is characterized by, again Wikipedia.org

Cities are known to be places where money, services and wealth are centralized. Many rural inhabitants come to the city for reasons of seeking fortunes and social mobility. Businesses, which provide jobs and exchange capital are more concentrated in urban areas. Whether the source is trade or tourism, it is also through the ports or banking systems that foreign money flows into a country, commonly located in cities.

Urbanization in reality are symptoms of the 20^th century model of intertwined centralized social activities based on mass production, mass media and markets which drew development and population to urban areas that paved way for the age of urbanization.

But are we still in the industrial age or are we shifting to the information age?

While Urbanization has still been an ongoing phenomenon, signs are that current centralized trends have been shifting.

For instance in China, demographic trends show that population and development has been moving inland. This may be partly due to government projects, China’s spontaneous economic response to the unfolding events around the world and the alleged reshaping or “rebalancing” of China’s economy (The Economist)

But what mainstream seem to ignore is that mass production has been transitioning towards specialization, which is why Asia became a supply chain network.

Moreover, future trends points to home based production for simple products (3-D printing anyone?)

Chart from KPCB’s Mary Meeker

Decentralized social media via the internet has also been challenging mass media. In terms of advertising, mobile and internet have been dramatically gaining at the expense of Radio and Print. Even revenue growth from ads on TV has been stagnating.

Also, mass markets are being turned into niche or specialty markets.

Specialization of production and niche markets has led to grassroots development.

Proof?

The expansion of the booming Business Process Outsourcing has not only been within cities but to secondary cities and to rural areas as well. This applies both to India and the Philippines.

As I previously wrote,

Also business focus will increasingly be directed to specific needs (niche marketing) rather than mass production and also on where the consumers and markets are.

In the Philippines, shopping malls have sprouted not only in major cities but also in capitals of provinces or secondary cities. Take for example the largest shopping mall chain the SM Group which has 43 malls nationwide and growing. This is a noteworthy example of the deepening dispersion trends, where facilities have been mushrooming outside of mega cities.

I might add that SM has reportedly been targeting rural or provincial areas for expansion due to a booming agricultural economy and has been on a land-buying binge in Bacolod, Tacloban, Baguio, Bulacan, and Laguna, Quezon and Pangasingan.

Of course the agriculture economy has been part of the boom, but as noted above, even BPOs are headed towards rural areas. There may also be other telecommuters or home based technology businesses, aside from the large informal economy and remittance based income.

What the point?

Decentralization is bound to upend centralized based social activities of the 20th century

As the prescient Alvin Toffler wrote in Third Wave (p. 298-299)

The Third wave alters our spatial experience by dispersing rather than concentrating population. While millions of people continue to pour into urban areas in the still industrializing parts of the world, all the high technology countries are already experiencing a reversal of this flow. Tokyo, London, Zurich, Glasgow, and dozens of other major cities are all losing population while middle-sized or smaller cities are showing gains…

This redistribution of and de-concentration of population will, in due time, alter our assumption and expectations about personal as well as social space about commuting distances, about housing density and many other things.

This has gradually been happening today.

Bottom line: Urbanization will unlikely save China’s Keynesian centrally planned capital spending boom from turning into a bust.

Myth of the Greater Good: Philippine Government to ‘Blast’ Illegal Settlers for Flood Project

Recently I quoted Wendy McElroy’s the Myth of the Greater Good.

Yesterday’s headline news would seem like a great example

From Yahoo.com

The government is prepared to "blast" houses and other illegal structures along riverbanks and waterways if inhabitants refuse to transfer to safer areas, Public Works and Highways Secretary Rogelio Singson said yesterday.

Singson said President Benigno S. Aquino III has authorized the use of force to remove obstructions in the tributaries in Metro Manila and nearby provinces, citing the government's "political will" to implement its P352-billion flood control and mitigation program.

He said the government plans to relocate around 190,000 illegal settlers in the water channels as part of its efforts to reduce floods and minimize casualty during stormy weather.

"I just received instructions from the President that if push comes to shove, we will have to blast the houses if they don't leave within a certain period," Singson said in a Palace press briefing after presenting the flood control master plan to the President.

Political priorities that cater to the alleged “greater good” as shown in the above are reactive, presumptive, short term oriented and populist. Such also demonstrates the innate nature of the state.

The usual stereotyped responses by the government to fleeting immediate popular concerns are short term oriented, where the typical solution centers on throwing of more money at the problem, more regulations or prohibitions and or more taxes.

Never mind that the past centrally planned flood projects have been ineffective. Nobody questions if such fiascos have mainly been consequences of the knowledge problem and of the fragility of central planning operating on a highly complex environment. Everybody has been made to superficially think or believe that such blemishes have been mainly about the lack of money and or mismanagement and of the supposed necessity of government action.

So to address these, for politicians and the bureaucracy, such failures require even grander and more lavish projects. Of course these will be accompanied by the presumptions of expertise.

And anything that obstructs on their visions has to be met by force. Since environmentalism has been today’s politically correct theme, thus illegal settlers or squatters have become targets for coerced actions.

The so-called poor, whom were frequently used as convenient rationalizations for raising taxes, have been transformed into objects of political wrath.

Political priorities are dynamic. The shifting nature of government’s attention greatly depends on popular circumstances which dominate the headlines or which reflect on the public’s opinion.

A few months back, the public has been mesmerized with territorial claims dispute. And with calls for populist nationalism, the government’s response has been to increase their budget with implicit popular approval. According to globalsecurity.org, the Armed Forces modernization bill that would add 75 billion pesos ($1.8 billion) for defense spending over the following five years to acquire more weapons, personnel carriers, frigates and aircraft. Yet all such increases in military spending will hardly bolster the nation’s defense or do anything substantial to address the so-called controversial regional dispute.

Instead what these does is to pressure taxpayers into supporting non productive activities which will be used against them.

In the future, should there arise other popular immediate concerns such as natural calamities, e.g. earthquakes or tsunamis or others, expect the response to be the same—throw money at the problem, and wish or hope for their success.

Current political obsession over the environment comes in response to the monsoon rain flooding where popular opinion has been shaped by flawed ideas of environmental experts. One of whom has even blamed economic growth and urbanization as responsible for the current disasters.

Never mind if the citizens of the metropolis have shown increased wellbeing from economic development (table from NSO).

For the environmentalist religion, the argumentative framing has been to put up a strawman and beat them down.

The thrust of the environmental nirvana fallacy extrapolates that we should remain poor so as to allegedly “save the environment”. Yes, use one event (fallacy of composition) to highlight the need for socialist interventionist misanthropic (anti-people) policies by ignoring all other important factors.

High approval ratings thus becomes a license for political boondoggles premised on the supposed omniscience of “experts” whose reasoning can’t even pass the logical rigors of economics.

High approval ratings also mean that current policies have been designed based on the outcome most preferred by the median voter—Median Voter theory or populist politics.

Yet politics has always been a zero sum or even a negative sum activity.

So the Philippine government has turned the heat against the illegal settlers or squatters whom incidentally are mostly creatures of the state through the decriminalization of squatting or the Lina Law. The immoral statute has encouraged rampant squatting which has mostly been used by local politicians for election purposes.

Never mind too that despite the immorality of the actions of the illegal settlers who were mostly incentivized by law and became instruments of politicians, these people still have natural rights enshrined by Article 3 of the Philippine 1987 constitution (hat tip my beloved daughter) which holds that

No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.

“The government is prepared to "blast" houses and other illegal structures” signifies that the privileges of the natural rights of life, liberty, or property only belong to the political class and to those designated by them. All the rest are standing vassals of the state and whose lives are seen merely as statistics.

This also shows that the nature of the state is institutional violence, such that violence and the threat of violence can be used indiscriminately, especially targeted against their own citizens, depending on the caprices of those that wield them.

As the great Professor Ludwig von Mises explained,

State and government are the social apparatus of violent coercion and repression. Such an apparatus, the police power, is indispensable in order to prevent antisocial individuals and bands from destroying social cooperation. Violent prevention and suppression of antisocial activities benefit the whole of society and each of its members. But violence and oppression are none the less evils and corrupt those in charge of their application. It is necessary to restrict the power of those in office lest they become absolute despots. Society cannot exist without an apparatus of violent coercion. But neither can it exist if the office holders are irresponsible tyrants free to inflict harm on those they dislike.

In reality, both illegal settlers and the threat of violence against them, to justify the administration’s new pet flood project, signify ethically as two wrongs which do not make right.

Yet for the current crop of politicians, high approval ratings translates to political superciliousness and the license to conduct political repression which elevates the risks of a tyrannical rule.

History shows us of the myth of the rational voter where people junk rationality in terms of politics to support “systematically biased ideas concerning economics” or widespread social ideas grounded on economic ignorance.

Populist politics have been premised on what people want to hear rather than what they need to hear.

Nazi chief Adolf Hitler’s popular rise to power should be a magnificent example. Chart from Spiegel Online

At the end of the day, the “greater good” is in essence the bamboozling of the gullible public using feel good political themes, for them to support the self-interests and the priorities of the political class coursed through institutionalized violence.

Even in the Olympics, Central Planning Fails

Why do Olympic games suffer from financial losses? Because Olympic planners think that they have it all worked out.

From the Telegraph,

-Large areas of empty seats seen in stadia for the second day running

-London 2012 chairman Lord Coe reveals students and teachers are also being called in at the last minute

-Every tout arrested had tickets sent to foreign VIPS

-Organisers Locog have begun an investigation into the ticketing fiasco

To the chagrin of political authorities, to cover on the scores of empty seats, students and soldiers had to be bussed in.

This is a familiar scene in the Philippines which we call the “hakot crowd”

Again from the same Telegraph article,

Last night, Team GB cyclist Geraint Thomas said: ‘It’s quite sad, seeing all the empty seats.’

Lord Coe revealed yesterday how troops, students and teachers were being drafted in to help end the embarrassing spectacle of empty seats at Olympic venues.

By discriminating against the markets, authorities had these coming to them after all

Professor Christopher Westley at the Mises Blog rightly points out,

The Olympics are essentially mercantile events in which planning takes place outside of market forces so as to achieve outcomes preferred not by consumers but by states. (Peter Hitchens argues here that this trend started with the 1936 Olympics in Berlin when Hitler and Goebbels transformed them into “grandiose and torch-lit” spectacles.) Regardless, the events in London are demonstrating once again what an LSE economist in the 1930s said about economics–that its “curious task” was “to demonstrate to men how little they know about what they imagine they can design.” Why did Sebastian Coe and his team think they could effect a better outcome than what would result from the price system? These are practical men, but even Keynes might admit that they are probably slaves of some defunct and incorrect economist.

So at the end of the day, financial losses extrapolates to the debasement of medallions for winners or may even lead to higher taxes for the unfortunate London residents whom has hosted such grand boondoggle.

Quote of the Day: Why Central Planning Fails

Here is an excerpt of Professor Don Boudreaux’s excellent piece on why central planning fails.

Attempts to centrally plan economies are very much like attempts to fly by dressing like and flapping like a bird: utterly futile because the most that can be observed of any successful economy are a handful of large details (“assembly lines,” “retail outlets”…..). The vast majority (99.99999999999…9 percent) of the details that must work reasonably well aren’t observed by the would-be central planner. What Hayek called “knowledge of the particular circumstances of time and place” – knowledge of details spread today across the globe and across billions of different human minds – is not incidental to the successful operation of a modern economy. Utilizing that knowledge – vast, deep, changing, incredibly fine-grained detailed knowledge – is the very key to a successful market economy.

Central planning is as futile as trying to strap on wings and fly like a bird – and potentially as calamitous.

Of course, few people today advocate full-scale central planning of economies. But smaller-scale interventions suffer the same problems as do attempts at central planning: inevitably inadequate knowledge of how to intervene. Asserting, for example, that the key to economic recovery is to “increase aggregate demand” is a fiction borne from observing a true, but only large and inadequate, fact about successful economies: most producers, at any given time, are able to sell most of what they plan to sell. But to leap from this observation to the conclusion that “therefore, government can stimulate economic recovery by increasing aggregate demand” is akin to a human being costumed-up as a bird and leaping off of a mountaintop, flapping away, hoping, hoping, hoping to fly.

The failure of central planning all boils down to one thing: the limits of knowledge.

Central Planning in Education Fails

Central planning even in education doesn’t work. Take a look at Japan’s PhD’s experience

From Nature.com (hat tip: Prof Arnold Kling) [bold emphasis mine]

Of all the countries in which to graduate with a science PhD, Japan is arguably one of the worst. In the 1990s, the government set a policy to triple the number of postdocs to 10,000, and stepped up PhD recruitment to meet that goal. The policy was meant to bring Japan’s science capacity up to match that of the West — but is now much criticized because, although it quickly succeeded, it gave little thought to where all those postdocs were going to end up.

Academia doesn’t want them: the number of 18-year-olds entering higher education has been dropping, so universities don’t need the staff. Neither does Japanese industry, which has traditionally preferred young, fresh bachelor’s graduates who can be trained on the job. The science and education ministry couldn’t even sell them off when, in 2009, it started offering companies around ¥4 million (US$47,000) each to take on some of the country’s 18,000 unemployed postdoctoral students (one of several initiatives that have been introduced to improve the situation). “It’s just hard to find a match” between postdoc and company, says Koichi Kitazawa, the head of the Japan Science and Technology Agency.

This means there are few jobs for the current
crop of PhDs. Of the 1,350 people awarded doctorates in natural sciences in 2010, just over half (746) had full-time posts lined up by the time they graduated. But only 162 were in the academic sciences or technological services,; of the rest, 250 took industry positions, 256 went into education and 38 got government jobs.

In short, even PhD graduates end up jobless.

The basic problem is that educational output does not conform with the desires or requirements of the marketplace.

Instead government policies, out of political goals “to match the capacity of the West”, produced surpluses, which has led to these unemployed “experts”. In other words, these unemployed PhDs had been products of misdirected political imperatives. This also applies to capital too.

It’s the same with public education. Four out of TEN college graduates in the Philippines have been unemployed. That’s because the problem hasn’t been about the lack of education, but rather, the lack of economic opportunities and the misguidance brought about by too much government interventionism.

Graduates can only work when there are available jobs. And economically productive jobs emanate from the private sector. Even government jobs are financed by taxes from the private sector. When the private sector are burdened by too much regulations, political mandates, taxes and compliance costs, investment opportunities dwindles. Thus, the surge in unemployment.

Bottom line: Education does not guarantee jobs. Economic freedom does.

China To Build The World’s Largest Megacity

Drunk with the recent success of combining capitalism with her “communist” political structure, the Chinese government has embarked on a grand scale of central planning—China plans to build the largest megacity in the world!

This from the Telegraph,

China is planning to create the world's biggest mega city by merging nine cities to create a metropolis twice the size of Wales with a population of 42 million.

City planners in south China have laid out an ambitious plan to merge together the nine cities that lie around the Pearl River Delta.

The "Turn The Pearl River Delta Into One" scheme will create a 16,000 sq mile urban area that is 26 times larger geographically than Greater London, or twice the size of Wales.

The new mega-city will cover a large part of China's manufacturing heartland, stretching from Guangzhou to Shenzhen and including Foshan, Dongguan, Zhongshan, Zhuhai, Jiangmen, Huizhou and Zhaoqing. Together, they account for nearly a tenth of the Chinese economy.

Over the next six years, around 150 major infrastructure projects will mesh the transport, energy, water and telecommunications networks of the nine cities together, at a cost of some 2 trillion yuan (£190 billion). An express rail line will also connect the hub with nearby Hong Kong.

China’s government seems increasingly manifesting signs of overconfidence, a harbinger of bubble bust.

As previously explained in China’s Bubble and the Austrian Business Cycle, imploding bubbles are frequently highlighted or foreordained by “grand” braggadocio (mostly real estate) projects, but instead of the private sector, this time the symptom could emerge from the government.

In addition, while many experts have been obsessed with the supposed certainty of the “deepening” of urbanization trends, I am not one of them. That’s because I see technology as a pivotal offsetting force that leads not to concentration but to decentralization. And technology induced decentralization should apply to most social activities which includes politics, economics, demographics and others.

This is one aspect, which I think, central planners in China or elsewhere seems to have overlooked. Of course, substituting their “expert” knowledge over people’s preferences is another major factor, as exhibited by some of China’s existing ghost cities

Graphic: Central Planning

Below is an example of how central planning looks like. (hat tip: Russ Roberts)

It's a powerpoint presentation which attempts to define the conditions in Afghanistan




Try figuring it out.

As a military official commented,

"'When we understand that slide, we'll have won the war,' General Stanley McChrystal, the US and NATO force commander, remarked wryly when confronted by the sprawling spaghetti diagram in a briefing."

Just goes to show of the impossibility of comprehending every bit of information in a constantly changing world.

As F.A. Hayek once wrote, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."