Now, some of the things Peter says are simply false, misleading, or poorly reasoned. For example, his prediction of future Chinese economic dominance is simply nonsensical and shows a fundamental misunderstanding of Austrian insights, such as the coordination/calculation argument.
The economic calculation argument has nothing to do with whether China will become dominant or not. Especially since China is more and more capitalist every day.
His argument is that China “produces things” and therefore has a structurally sound economy. Now, it’s true that China produces things that Americans will no longer produce, but only because America has moved on and innovated into other, more capital intensive industries. In other words, there have been natural changes in dynamic comparative advantages (though, there have also been some changes in the pattern of production caused by arbitrary interventions. In this respect, Peter is correct, but he often fails to make the distinction.
You admit there are two reasons we produce less. What is your evidence that Peter’s reason [what you call arbitrary interventions] is not the main one, and that your reason [that we have “moved on”] is but a minor one?
Now is the time for the parable of Farmer Esuric. A hard working man, he made about $10 an hour working his farm, doing his own carpentry, making all his own repairs. He worked 160 hours a month. Then he decided to “move on” and “innovate”. He became Doctor Esuric, a psychotherapist. He hired Farmer China, his neighbor, to do all the work on Esuric’s farm. Farmer China was willing to do it for 5 dollars an hour. Doctor Esuric was charging $100 an hour for his services.
“Yee hah, I just saved $800 dollars a month letting China do the work”, thought Doctor Esuric.
The Doc opened up shop, but oddly enough, for all his innovative, capital intensive, high tech, state of the art advantages, only one guy came seeking his services, and only wanted one hour a month. So that at the end off the month, Farmer China came along to ask for his $800, and Doctor Esuric was only able to pay him $100. Farmer China agreed to be paid later, and charged very modest interest.
This went on month after month. Another $700 in the hole, every single month.
“I don’t understand”, thought Doctor Esuric. “Ricardo told me this would work out fine. Why am I going broke?”
Moral of the story: If there is no market for your capital intensive innovations, don’t build your whole economy around them. Otherwise, you will have a $50 billion dollar trade deficit every month. Your neighbor, who makes the traditional stuff there is great demand for, will get rich and you will go bankrupt.
Additionally, China also produces empty ghost cities and super-malls.
Numbers, please. If Bill Gates loses a hundred dollar bill, it doesnt hurt him that much. So we have to know what percent of the Chinese economy is being blown on these 7 ghost towns. Let us remember that even after building these ghost towns, China still produces enough to pay for all its imports in cash [and it is the second largest importer in the world] and to be the world’s biggest exporter.
Production is not the measure of economic success; warranted production is (we must differentiate between investment and malinvestment, or what is also known as "conspicuous production).
I’d say if you make something that everyoone else wants, so much so that you are the world’s biggest exporter, then you are probably engaged in plenty of “warrented production”.
Conversely, America is doomed, according to Schiff, because “it doesn’t produce anything.” This is simply false.
What’s false is the quote. He says America doesn’t produce ENOUGH to pay its bills. Which is 100% indisputable. We owe another 50 billion dollars to China every single month. And this has been going on for years.
American production peaked in 2007 before the crises (a global maximum), and is still the center of innovation and entrepreneurship (China is merely an imitator in many respects. Of course, you could point to a counter example, but this would be an exception, and not the rule).
Being the center of innovation and entrepeneurship is all very nice, but it doesn’t pay the bills. Proof: We have to BORROW $50 billion dollars every single month.
Next, there is nothing intrinsically wrong with a current account deficit, not only because it’s met with a corresponding capital account surplus,
I’ll let Peter answer this one, from Crash Proof:
… the balance of payments, the book-
keeping system for recording transactions between countries, is
made up, among other items, of a trade account, which is the part
of the current account that nets out imports and exports, and a
capital account, which nets investment flows between countries.
Because dollars we send abroad in payment for goods and ser-
vices are returned as investments in U.S. government securities
and other assets, one account can be viewed as the flip side of the
other. Acountry, like the United States, that is a net importer will
therefore typically have an offsetting capital balance, the trade ac-
count being a deficit and the capital account a surplus.
But “surplus” as it is used here is a bookkeeping term mean-
ing simply that more cash flowed in than flowed out. The rea-
son cash flowed in is that an asset, say a Treasury bond, was
purchased by a foreign central banker. But selling a bond doesn’t
make us richer; it creates a liability. Sure, we initially have cash
in hand as a result of the sale, but it’s money we are obligated to
pay back with interest.
So the word “surplus” has a positive ring to it, but a capital
surplus has the opposite meaning of, say, a budget surplus. Sur-
pluses can be bad or good. A surplus of water in a reservoir dur-
ing a drought is good, but when it’s in your basement during a
rainstorm, it’s bad.
but also because it’s often better to buy from someone else than to produce it on your own.
Often, yes, but not if you cannot afford it. And we cannot afford it. Proof: We borrow $50 billion dollars a month, every single month for years, to “buy from someone else”.
In other words, cooperation is always more efficient relative to isolationism/self-sufficiency
Again, only if you can afford it.
(Ricardo’s law of comparative costs).
Reread Ricardo, and you will see he is talking about a country that can afford to buy from other countries, not one that has to go into debt to do it.
A trade deficit is only a bad thing when it’s arbitrary and forced,
No. It is also bad when you cannot possibly repay it.
and there’s nothing wrong with being the world’s largest creditor nation and/or the world’s largest debtor nation. America was the world’s largest creditor nation before the great depression.
Which proves what? post hoc etc. What is does prove is that even a humming powerful economy, to the extent that it is the world’s largest creditor nation, can be driven into adepression by money printing. Read up on ABCT.
Again, Peter often fails to stress these points/distinctions.
But the most problematic statement, which he continuously repeats, is that China is freer or more capitalistic than the U.S. This is simply absurd at face value, considering that China is still run by the CCP, which (a) is the biggest human rights violator in the world,
What has that to do with economic freedom or with capitalism?
and (b) still centrally plans much of the Chinese economy.
But our govt meddles much more than theirs does.
The Index of Economic Freedom ranks China as the 140th freest economy, while America holds the #8 slot.
Peter was asked about this, and said that the Index is based on subjective judgements, because it gives an arbitrary subjective weight to the various components it decided constitute economic freedom.
My biggest problem with Peter Schiff is that he’s seen as the ultimate authority on Austrian economics. People conflate his own personal views with Austrian economics in general.
So your biggest problem is not with him, but with other people. OK.
An Austrian economist would find much of his statements agreeable, but, as I’ve demonstrated, many of the things he says are simply false and contradict parts of Austrian economics (some of which is really just mainstream economic doctrine).
I’ve already refuted all the things you said are false and that contradict AE.
As far as hyperinflation is concerned, it’s a possibility, and that’s all that can really be said (there are too many factors at play there).
Asserts the oracle. What proof do you have of that statement?
I think the biggest problem here is how Smiling Dave is conducting himself. He’s completely incoherent and combative.
I think I’m very coherent. I think some people understand quite clearly what I am saying. The ones that don’t have had their intellectual powers twisted out of shape by their superficial reading of deep books. They can no longer grasp the obvious.
As for combative, I think of it as self defense, Mr Pot