11A039 Supply Without Demand by Jim Davies, 2/8/2011    

Yesterday I berated WorldNetDaily for its preoccupation with superstitions, but allowed that sometimes it does spot useful news; and right on cue it did so a few hours later! - so I must in fairness give the web site credit. I find that the item is neither new nor exclusive, but it was news to me: China has been building as many as 20 large cities a year in the last few years, still completely unoccupied. I think that's unique in history.

Here's one example; smart-looking apartment blocks, wide, tree-lined, well-lit roads, everything clean and shipshape, but not a person in sight.

"Why?" is the obvious question, and surprisingly, nobody appears to know. These "ghost cities" are reported in Time, the Daily Mail, Business Insider, the BBC, blogs on Mises.org and even the World Bank, and elsewhere - but none report a rationale. Speculation - even by World Bankers, very guardedly - is that the incentives working within the Chinese government favor growth on paper; thus, if some regional Pol can show he added 15% new houses last year, he's placed on a fast track for promotion. Never mind that nobody is using the vacant houses, that's somebody else's department. This is bizarre; close to a billion Chinese are living in what would in rural America be called squalor, yet millions of fresh, clean, well-equipped houses and apartments are lying empty. The Daily Mail estimated that there are 64 million empty homes in the country (including these new ones) and hence, a major glut; yet they are clearly "needed" by those in slums. It would be a great tragedy if these fine homes were to succumb to moth, rust, bug and bush, and so become uninhabitable before ever being occupied; a government "bridge to nowhere" is bad enough but that would be awful.

The Mises blog nailed the matter: 'This is an example of why I am a skeptic of the China growth story. 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.'

Government people never produce real growth. Prosperity results when someone works to produce a good or service someone else wants to buy, makes a profit, then invests some of it in capital equipment to produce more goods and services. That investment will usually not be "tidy" like these empty Chinese cities, but rather piecemeal; but they don't lie empty, or not for long. One can debate whether a supply stimulates a demand (speculative house building, for example) or whether demand stimulates a supply; but in a free society, the two are always closely linked because all decisions are voluntary. A produces only what B demands. When ours is fully free, the resulting prosperity will be unprecedented.

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