In defense of Peter Schiff

Miscellaneous General
101

A little more of Dr Murphy, speaking out prophetically against some of the posters here:

"In closing, I want to reiterate that I agree with Peter Schiff on the present dismal prospects for the US dollar. In particular, I do not think that his analogy is that far off; I definitely think that America’s current account deficits in the last few years are due to “unproductive” debt,

Got that, guys? Unproductive debt. There is such an animal. And Peter describes what it looks like.

Even when he disagrees, he agrees. In another article he writes: [emphasis in bold is mine]:

For some time I have been trying to defuse the hysteria over the US current account deficit (e.g., 1, 2, and 3). Using economic arguments and (I hoped) funny analogies, I tried to show that there is nothing necessarily bad about foreigners selling us more final goods and services than we sell to them. My refrain was always that yes, a massive trade deficit could be a sign of American profligacy and a day of reckoning down the road, but it could also be a sign of superior financial institutions and investment climate.

In other words, he was agreeing that Peter Schiff is right, UNLESS our financial institutions are so great and wonderful and the USA is the worlds greatest place to invest. He just isn’t sure if that’s true or false.

I think that in 2010, when we STILL have a $50 billion a month deficit, and our economy is in a shambles, and our wonderful financial institutions all insolvent, we must agree that option 1 is right, that the trade deficit is, in Dr Murphy’s words, a sign of American profligacy and a day of reckoning down the road.

Ok guys, start telling Dr Murphy that he is the stupidest most annoying and most ignorant halfwit who knows nothing about economics and denies the very basics of economic principles, as laid down by the great Ricardo. Time to be nasty to him, not to me.

102

Esuric, is it possible that the Chinese people are saving enough that the Ghost Towns will not hurt their economy? Could it just result in their wants not being satisfied as fully as they would have been sans the government intervention? Anybody have any thoughts on whether the Chinese government would go so far as to direct portions of the population to live in these areas?

103

Dave, you do understand everything you quoted has nothing to do with economics, right? Because Bob Murphy is an economist (and this is a pretty transparent appeal to authority) doesn’t mean that everything he says is a statement about economics. Bob is also a Catholic IIRC. Are we going to say that his opinions about religion are economically sound?

You’re confusing two disciplines. Economics and investment are not the same thing.

104

For each raw material that went into constructing those ghost towns, thats one less raw material available on the market to improve the quality of life for the actual citizen’s of China. We cannot say that it did not hurt their economy. Mis-allocated capital of that size, currently sitting idle, is slap in the face for any economy. Those are scarce factors being used away from the needs and wants of consumers.

105

filc, you’re right in a sense. The truth is, there are no productive activities done by government, and so any city, ghost or otherwise, cannot be said to have been in the best interest of the consumer, because we don’t have the consumer feedback via the market to make that determination.

Peter Schiff cannot make a claim that the Chinese economy is freer because he has no consumer choice results to validate such a claim.

106

filc, I didn’t word that specifically enough. When I say hurt the economy, I mean induce a business cycle. I realize the citizens are getting the short end of the stick. The market is not being allowed to coordinate production for the soul purpose of satisfying their individual wants, I understand that, but could the proportion of production that the Chinese goverment has at its disposal be so large that a bust will not occur.

107

In that case no, it wouldn’t cause a business cycle, but consider this. It is the effect of a business cycle however. The end result of a business cycle is the same thing as the Chinese ghost town city.

In other words, the consequence of a business cycle is mis-allocated resources. The Chinese governments forceful distribution of resources is the same thing, achieved in a slightly different way. The end result is the same, resources are allocated to places where they cannot be of benefit.

To elaborate on LS’s point. These activities effect the whole economy. If there is X amount of steel in the industry, and 100,000 metric tons are employed for the construction of some benign object(A state statue?), then the steel industry is now 100 million tons more scarce. The pricing mechanism will react to this. The government did not satisfy the needs of consumers so there is still demand to employ steel elsewhere. To the degree that the state has intervened in the redistribution of resources, is the degree in which the pricing mechanism has been perverted.

Not only have you caused the price of steel to rise, you’ve deprived the economy of that much steel in the first place.