Why is Asia doing so badly?

Here is more bad economic news from Asia.  Yet those countries don't have banking crises as many other nations do.  So what exactly is up?

The usual story is that these nations are "heavily dependent upon exports."  But if I may wear my Don Boudreaux hat for a moment (or more), is not the state of Kentucky also heavily dependent upon exports?  Is not the Cowen household heavily dependent upon exports?  Why is being dependent on exports so especially bad for parts of Asia?

One answer is that Asian exports, which travel great distances, are often consumer durables and such purchases are especially easy to postpone. Services are often more robust.

Another answer is that many Asian producers have chosen high fixed costs in a way that requires steady or rising revenue over time.  That is their version of being highly leveraged without taking on much explicit debt.  Again a central lesson of this depression will be how many different ways there are to leverage.

Last week I was surprised to read this:

“For a long time, Harvard had a negative 5 position,” she said. “That
means that 105 percent of the assets are invested at most times.”

So far it seems that the least leveraged parts of the world — all things considered — are South America and sub-Saharan Africa.  Brazil, Chile, and Peru are a few of the countries which, in relative terms, are suffering least.  If you wish to understand the course of events, keep your eye on those locales. 

Comments

didn't harvard just start providing tons of financial aid for low-income students? I wonder if that's going to change.

Some day microeconomics texts writers will wake up to the fallacy of fixed vs. variable costs. You won't find it in accounting, and business managers and investors don't recognize the distinction. All costs are fixed at the moment they are incurred, and all costs are variable if you wait long enough. Rothbard has a good smasheroo of this in Man, Economy, and State.

Re: service industries vs. consumer durables, what matters more is that the latter are more capital intensive and require greater initial investment, hence often more debt.

Mr. Sumner-

Perhaps I'm missing your point.

Are you saying that the money supply was expanded too quickly and that has led to our current problem? If so, I would definitely agree. It's so very easy to expand the money supply when all you have to do is print it or punch a button on a computer.

The AD didn't fall immediately because people don't change their habits overnight. Excessive consumption is like excessive eating or drinking, once you get used to it it's hard to stop. It took awhile for people to realize that their jobs were in jeopardy. It took awhile to find out that their houses weren't just overvalued by 5 or 10%, but by much, much more. It took awhile for their 401k's to take a major beating. Only once the picture of just how badly the Fed and the gov't has screwed things up did people stop buying and start saving. The AD has shifted from a demand for more stuff to a demand for savings (i.e. safety). Even now- many people put on a brave face and expect that things will start to turn around by year's end- but it doesn't take much probing to get them to confess that they don't really believe it and they know that they've been swindled.

I am (for as long as I can be) a residential remodeling contractor. I'm no economist or academic. I began building my business at roughly the same time as Greenspan flooded the country with cheap, easy credit. The new bubble formed- and I hired employees to keep up. I spent a small fortune training them. I learned lessons the hard way (any business growing at a clip of 30-50% per year probably will)- these lessons always come with a price tag. I worked hard to help my clients live the good life- with gourmet kitchens, luxury master baths, additions to their homes so their kids would have 'their own space',etc. Was this wise investment by them or me? Was it useful for the suppliers and subcontractors to gear their business to the economy that was created by Greenspan? I used to have 14 employees with family wage jobs and benefits- now I have zero.

However, I'm not complaining. I'm not looking for a handout, bailout, stimulus plan, subsidy or whatever. I merely want the waste and excess to be flushed from the system. I want there to never be an opportunity for a man or small group of people to be able to do so much damage again. I do not want AD spurred through a political process that rewards the few and destroys many. I don't want the game to be rigged anymore. I want there to be real capital invested in real tangible assets that have real value.

Again- perhaps I'm missing the point. I'm, after all, just a (public) high school educated regular schmoe.

I believe this is the link you are looking for.
Chinese Factory Worker Can't Believe The Shit He Makes For Americans
"Often, when we're assigned a new order for, say, 'salad shooters,' I will say to myself, 'There's no way that anyone will ever buy these,'" Chen said during his lunch break in an open-air courtyard. "One month later, we will receive an order for the same product, but three times the quantity. How can anyone have a need for such useless shit?"

Indeed.

Raivo Pommer
raimo1@hot.ee

Gegen krise

Die norddeutschen Länder wollen gemeinsam beim Bund für ihre Verkehrsprojekte kämpfen. Hamburgs Bürgermeister Ole von Beust (CDU) sagte heute nach einem Treffen mit den Regierungschefs von Schleswig-Holstein, Niedersachsen, Bremen und Mecklenburg-Vorpommern, Berlin müsse sich der Hinterlandanbindung der Häfen und der Infrastruktur mehr widmen: "Wichtig ist uns, dass der Bund verstärkt einsteigt." Aus dem Konjunkturprogramm I sei nicht genug angekommen. "Da geht es darum, das aufzustocken." Bremens Bürgermeister Jens Böhrnsen (SPD) betonte: "Dazu gehört auch, dass wir (...) deutlich machen, dass der Anteil des Bundes an Hafeninvestitionen und vor allem auch an der Hafenunterhaltung viel zu gering ist."

What is AD?

BK - great post.

Japanese banks are also doing poorly. Masaaki Shirakawa, President of the Bank of Japan, announced today they will consider providing up to JPY 1 trillion (approx USD $10 billion) in subordinated loans to help banks shore up capital bases. Mr. Shirakawa explained that with banks' falling stock prices, they may be falling short on cash and be reluctant to lend. The policy is aimed at improving willingness to lend.

Sound familiar?

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