Monday, November 11, 2013

The China Bubble. How Inaccurate Information From the Media Contributes to Misallocation of Resources.

A New York Times article this weekend ("New China Cities: Shoddy Homes, Broken Hope") discusses those Chinese provincial cities full of inappropriately dense and often vacant apartment towers that we have been wondering about.

"In a single generation, rural Chinese are being put in apartment housing and made to live an urban lifestyle with no land to farm."
A correspondent writes in,
"This makes urban Chinese utterly dependent of crooked strangers for their daily food. Each family ought to be able to keep ducks and chickens and grow a quarter-acre of vegetables."
Another says,
"This is the Chinese version of urban renewal with equally disastrous results. See the NYT story on the reporter from Reuters that didn’t get his visa renewed after covering China for 18 years. They are copying the Obama playbook and cutting off anyone that casts them in a bad light."
There was just a New York Times article about Bloomberg self-censoring its news reporting about China,
"Mr. Winkler defended his decision, comparing it to the self-censorship by foreign news bureaus trying to preserve their ability to report inside Nazi-era Germany [...] Most important for the larger Bloomberg company’s bottom line, financial news terminal subscriptions, which cost more than $20,000 per year and are the main revenue generator for Bloomberg, slowed for a spell in China, after officials issued orders to some Chinese companies to avoid buying subscriptions"
A correspondent has a good observation,
"The standard for suitable news is established the way a standard, world-wide sea level is established. A relentless, steady force of fear and greed eliminates outliers the way the relentless, steady force of gravity eliminates local mountains of water.

Accurate news will most likely come from anonymous reports by businessmen, expatriates, emigrants, and tourists, not from anyone who hopes to maintain a bureau.

Bloomberg has a conflict of interest between broadcasting information and selling terminals. It also has a conflict of interest between broadcasting information and maintaining a bureau.

Maybe Bloomberg will inspire investors to take the long positions in opposition to your successful short positions?"
Corporate and state-run media isn't able to be honest about how bad problems are. It's always happytime. Subprime is contained, the spring selling season will come, Janet Yellen will prevail over Senate critics.

Ron Unz has an article, Our American Pravda, about how only the internet can provide reliable information.
"In many respects, the non-detection of these business frauds is far more alarming than failure to uncover governmental malfeasance. Politics is a partisan team sport, and it is easy to imagine Democrats or Republicans closing ranks and protecting their own, despite damage to society. Furthermore, success or failure in public policies is often ambiguous and subject to propagandistic spin. But investors in a fraudulent company lose their money and therefore have an enormous incentive to detect those risks, with the same being true for business journalists. If the media cannot be trusted to catch and report simple financial misconduct, its reliability on more politically charged matters will surely be lower."
As I've said before, any investor who has CNBC on in the background is hopeless. A correspondent who went to J-school under deep cover writes in with observations,
"Nearly all practicing 'journalists' come from the same few 'elite' institutions where they get a healthy dose of patronizing elitist thinking, 'gatekeeper' mystique and ideology (they are the sacred gatekeepers of knowledge and truth in society and it is their unique responsibility to decide what is ripe for public consumption), statism and economic ignorance. Most journalists have a poli sci background if they have a double major. They don't have rigorous economic training and if they do that soup would be poisoned, too. The most dangerous thing about journalism students is they are self-righteous by nature. They are world changers and they really believe all the B.S. that is fed to them about their special duties. So they'll never have enough self awareness to consider how their actions might not be selflessly but rather selfishly motivated. You won't find a libertarian amongst them and yet they truly believe they and they alone can objectively define the public debate.

The next problem is of course implicit and explicit government censorship. From the FCC and radio spectrum control to the 'shouting fire in a crowded theatre' findings of the Supreme Court, journalists know there are certain rules to the ball game and saying what's really happening is not one of them if you hope to have a long career. Most of these people have big student loan debt, material ambition, and pint-sized egos. A career covering and therefore being a part of 'big stories' is definitely in their interest. Stirring [elite interests] up is not.

At the end of the day, people don't value the truth that highly. If they did the market would serve it up, even despite the regulations and interference from the government. Journalists serve an important role in the political economy. It's not a sustainable or actually productive one (they're leaches like all the rest), but it is important. They know where their bread is buttered."
If you look at journalist students' SAT scores and political affiliations, you'll know why they can't figure out peak oil, climate non-change, or just generally ask the right questions about what is going on.


Taylor Conant said...

And yet, there are a lot of people with quite high SAT scores who nonetheless can't figure out the right questions, nor answers. Which is why they get the political affiliation part "wrong", too.

Incentives and upbringing are a much stronger mental prison than genetic intelligence, methinks. That's not to say I think imbeciles have some kind of advantage, or lack disadvantages.

eah said...

If you look at journalist students' SAT scores and political affiliations, you'll know why they can't figure out peak oil,...

Funny, as a math/physics major I would've, and did, make the same observation about "business" students. At least accounting seemed good for something.

Aharon said...

Keep in mind that all journalism is not CNBC. It's a refreshing voice, anyway, that declares the Internet to be the bastion of reasonable opinion...

Aharon said...

And just as an add-on, does the NY Times article (one of many) on China's disastrous policies square with the idea, expressed elsewhere in the post, of crony journalism?

I think the best idea is to bring a skeptical eye to everything. To say that the media is wrong except when it jibes with your impression of what's really going on is a dangerous stance.

None of us (least of all I) can fully overcome our cognitive biases, but we can at least attempt to be as aware of them as possible.

CP said...

Just look at the Christopher Helman articles in Forbes last year about Chesapeake.

Wordmongers don't have the analytical chops (SAT-M) to think about stuff like Chesapeake.

Anonymous said...

@CP: I guess the question is whether Helman is 100% representative of journalists. Bethany McLean majored in English and math at a liberal arts college, and you could argue she did a pretty good job of understanding what most people didn't (who knows, you could probably make a good argument she didn't get it either). You could say that her few years at an investment bank give her a free pass. But then I've met one or two investment bankers who were a little challenged...

As a general rule, yes, don't trust journalists. But also don't trust bankers, central or otherwise, shipping magnates, gold miners/hoarders...

CP said...

I stand by my basic point that you are all quibbling with. Journalists screw up energy and climate and scientific questions because they are (a) dumb and (b) Marxist.

Anonymous said...

I will 100% grant you that point if you'll grant me the point that energy companies are screwing up climate and scientific questions because they are (a) dumb and (b) greedy. With maybe, for good measure, (c) rich.

Anonymous said...

And from these two complementary screwups we'll get, who knows, some sort of compromise...or is that too much of a Marxist synthesis?