China’s Economy Is in Worse Shape Than You Think

The estimate of 4.3% GDP growth is below Beijing’s lowest projection—and it’s probably far too high

By Joseph C. Sternberg. Excerpts:

"Beijing’s statisticians on Wednesday said the gross domestic product grew 4.3% year-on-year in inflation-adjusted terms in the April through June quarter. China’s economic data are notoriously prone to fiddling for political purposes. And only this March, the Communist Party set a GDP growth target range of 4.5% to 5% for the year, its most pessimistic since the 1990s."

"Meanwhile there’s accumulating evidence that the country’s true GDP growth rate may be zero, or that the economy is in outright recession. Retail sales were a bright spot in the latest data, increasing 1% year-on-year in June, but looking across recent months this measure of domestic household consumption may be stuck in neutral. Measures of investment are in free fall: Fixed-asset investment has declined 5.7% year-to-date and real-estate investment is down 18%."

"Crude imports in July hit their lowest level in roughly a decade."

"refinery output also is declining"

"demand for energy within China . . . is dropping rapidly."

"it’s hard to find anyone who thinks any of this (more economic “stimulus”) would launch a durable economic recovery. One reason domestic consumption is dipping is that previous iterations of the consumption subsidy (a trade-in scheme, akin to the Obama-era “cash for clunkers” in the U.S., that rewards replacement of old items) pulled forward in time purchases that households would have made anyway, without setting in motion a Keynesian virtuous circle of new corporate investment to meet higher demand. As for public works, China has enough and Beijing’s more important fiscal priority remains bailing out heavily indebted local governments." 

"Domestic consumption is unlikely to revive until the real-estate market has found its bottom." 

Chuck Schumer’s Chip Shortage

A Micron plant in New York is years behind schedule for all the reasons you’d expect

WSJ editorial. Excerpt:

"Consider Micron’s massive fabricator project in upstate New York, which it announced in October 2022. “With the CHIPS and Science bill I wrote and championed as the fuse, Micron’s $100 billion investment in Upstate New York will fundamentally transform the region into a global hub for manufacturing,” New York Sen. Chuck Schumer boasted."

"The 2022 Chips Act provided some $53 billion, plus a 25% investment tax credit, to subsidize U.S. chip-making."

"Congress in 2024 passed a law exempting some semiconductor projects from the National Environmental Policy Act’s stringent environmental reviews. But the exemptions don’t apply to Micron’s project."

"it includes hundreds of acres of wetlands and forestland that are nesting areas for endangered bats. This makes permitting and building more complicated. Trees can only be chopped down when bats aren’t nesting—i.e., from November to March."

"Construction was supposed to start two years ago, but tree clearing didn’t begin until this past January"

"environmental impact statement numbered more than 700 pages" 

China’s Last Moonshot

China’s ghost cities are like a mocking glimpse of the Chinese century we were told to expect, and for which we are still waiting.

By Aaron Sarin at Quillette.

"Our rockets can find Halley’s Comet and reach Venus.
But our fridges don’t work.
~Mikhail Gorbachev 

In the hills of northeast China, the “State Guest Mansions” sit empty and silent, like the well-preserved ruins of some lost civilisation. There are 260 of these mansions, huge but tediously uniform, each of them close to completion. The project was abandoned a couple of years after launch in 2010. Now local farmers plough the surrounding land. Cattle roam the villas, along with the occasional feral dog. Inside, urban explorers climb through the open jambs and fly their drones down marble hallways, creating creepy home movies.

Similar sights can be seen all over the country, of course, in China’s famed “ghost cities” (or sometimes “ghost districts”). The skyscrapers in Tianjin’s Binhai New Area may rise no higher than in any other major city, but the silence and emptiness of the surrounding neighbourhood makes the buildings feel truly enormous: looming, forbidding, watchful. In his 2024 book Vampire State, Ian Williams describes a “ghostly conurbation” on the other side of the country, near Dongguan, that boasts the world’s largest shopping mall:

Cavernous dusty halls, layer upon layer of meandering marble-lined walkways beside the shells of hundreds of shops, but not a soul to be seen. Wires hung from ceilings like an infestation of snakes. An artificial river wound through the complex, its water stagnant and dark green.

These vast monuments to state folly provide an apt picture of the Chinese economy: the speed and scale, the single-minded vigour, and then the waste left behind. The latter feature is partly due to China’s modern problem (communists with their central planning) and partly due to China’s ancient problem (a kowtowing mandarin culture that rewards impressive visible display over efficiency).

The rot spreads far beyond the ghost-city phenomenon. Georgetown professor Ning Leng carried out research in fifteen cities across China. She found that local governments had prioritised the building of expensive wastewater treatment plants over the construction of underground sewage pipes and drainage systems. They had focused on big treatment facilities because these looked more impressive to their bosses in Beijing. Without a vital subterranean root system of pipes and drainage, the treatment plants were operating far below capacity, and pollution was pumping into rivers and lakes.

And so on, and so on. China’s vaunted high-speed rail network piled up a trillion dollars in debt; most lines now run at a loss. In 2024, 90.6 percent of the country’s regional airports had fewer than one flight per day on average. Something similar is even happening in the wake of China’s protracted real-estate downturn, as the CCP tries to rescue the Chinese economy by pouring billions into a small handful of strategic industries—AI, robotics, chips, green energy.

This bold strategy is the Communist Party’s last great moonshot (itself actually the name of a major Chinese AI startup). The fear is that if Beijing can’t dominate in these industries then it will become technologically dependent on foreign powers. The hope is that high-tech sectors can replace the fallen giant of real estate and together constitute a new driver for the Chinese economy, while simultaneously enabling Beijing to “seize the commanding heights of technological competition and future development,” leapfrogging Washington into the position of global hegemon."

Mamdani vs. Bodegas

His socialist supermarkets could put New York’s little grocers out of business

By Faith Bottum of The WSJ. Excerpts:

"Many bodega owners say the mayor has betrayed them by pushing ahead with his plan to create city-owned supermarkets. The government “should be working with us,” says Francisco Marte, 59, owner of Green Earth Food in the Bronx and president of the Bodega and Small Business Association of New York. “That type of business run by the government, they never succeed. They always fail, and they fail big and with a lot of money that could have been used for something better.”"

"But five grocers are already within a two-block radius of that proposed Harlem store, with 10 more within five blocks."

Cuban infant mortality and longevity: health care or repression?

Gilbert Berdine, Vincent Geloso & Benjamin Powell. Excerpts:

"Centralized planning has disadvantages. Physicians are given health outcome targets to meet or face penalties. This provides incentives to manipulate data. Take Cuba’s much praised infant mortality rate for example. In most countries, the ratio of the numbers of neonatal deaths and late fetal deaths stay within a certain range of each other as they have many common causes and determinants. One study found that that while the ratio of late fetal deaths to early neonatal deaths in countries with available data stood between 1.04 and 3.03 (Gonzalez, 2015)—a ratio which is representative of Latin American countries as well (Gonzalez and Gilleskie, 2017).² Cuba, with a ratio of 6, was a clear outlier. This skewed ratio is evidence that physicians likely reclassified early neonatal deaths as late fetal deaths, thus deflating the infant mortality statistics and propping up life expectancy.³ Cuban doctors were re-categorizing neonatal deaths as late fetal deaths in order for doctors to meet government targets for infant mortality."

"physicians who worried that a mother’s behavior might lead to missing the centrally established targets will prescribe the forceful internment in a state clinic (casa de maternidad) so that they may regulate her behavior.⁴ Physicians often perform abortions without clear consent of the mother, raising serious issues of medical ethics, when ultrasound reveals fetal abnormalities because ‘otherwise it might raise the infant mortality rate’"

"Coercing or pressuring patients into having abortions artificially improve infant mortality by preventing marginally riskier births from occurring help doctors meet their centrally fixed targets. At 72.8 abortions per 100 births, Cuba has one of the highest abortion rates in the world.⁶ If only 5% of the abortions are actually pressured abortions meant to keep health statistics up, life expectancy at birth must be lowered by a sizeable amount. If we combine the misreporting of late fetal deaths and pressured abortions, life expectancy would drop by between 1.46 and 1.79 years for men."

"car ownership is heavily restricted in Cuba and as a result the country’s car ownership rate is far below the Latin American average (55.8 per 1000 persons as opposed to 267 per 1000) (Road Safety, 2016). A low rate of automobile ownership results in little traffic congestion and few auto fatalities." 

"The maternal mortality ratio of Cuba in 2015 was higher than in Latin American countries like Barbados, Belize, Chile, Costa Rica, Mexico and Uruguay (Trends in Maternal Mortality 1990 to 2015, 2015). In terms of healthy life expectancy, Cuba ranked behind Costa Rica, Chile, Peru and Bermuda and marginally surpassed Uruguay, Puerto Rica, Panama, Nicaragua and Colombia"

The Credit Engine Behind China’s Economy Is Sputtering

Cheap lending to low-quality borrowers renders one of Beijing’s prime policy tools less efficient.

By Joseph C. Sternberg. Excerpts:

"Beijing itself doesn’t believe the economy is improving. Officials this month promulgated a series of economic plans centered on a GDP growth target of 4.5% to 5%, the lowest since 1991. In part that target sends a signal from the senior Communist Party leadership to other officials that Beijing will tolerate some of the pain of an economic adjustment. Local cadres shouldn’t rush to juice the stats with excessive lending and white-elephant public-works projects."

"It’s widely understood that the government economic data concerning GDP growth are a lie intended to flatter the party."

"Since Mr. Xi embarked on the property correction in August 2020, Beijing has tried to steer the economic rebalancing carefully—sometimes allowing fate to run its course by bankrupting some companies or stressing some local governments overexposed to off-balance-sheet real-estate lending, other times arresting the decline with old-style policy hacks such as credit subsidies."

"Evidence is accumulating that Beijing’s firepower is running down"

"the total rate of credit growth is slowing dramatically: to 6.1% year-on-year in January, compared with an average of 9% a year in 2017-24 and 18.1% in 2007-16."

"Some 58% of loans in December were made at interest rates at or below the official benchmark lending rate of 3%"

"that proportion has risen steadily over the past couple years"

"This suggests banks are struggling to find borrowers (read: in the private sector) that could generate returns above 3%, which is remarkable in a developing economy with enormous potential for catch-up growth"

"banks are lending to inefficient state-owned enterprises and investment pools linked to local governments. Cheap lending to low-quality borrowers then weighs on bank profits, hindering future productive lending" 

Opinion: No matter how good AI gets, it won’t beat markets

The economy isn't a vast set of equations. It's a complex discovery process done in real time. Even the best computers aren't up to that

By Peter Boettke. 

"Whenever we see big leaps in computation, would-be central planners come out of the woodwork, claiming this finally makes it possible to organize the economy better than markets do — optimizing tax rates, producing enough to meet our needs, and allocating resources in a way that maximizes well-being for all.

Such arguments gained theoretical prominence in the early 20th century, saw a resurgence with the mid-century advent of modern computing and operations research, and have emerged again with the impressive advance of artificial intelligence (AI).

But this line of thinking rests on a false premise: that an economy is nothing more than a computational problem to be solved with accurate equations and enough data and processing power.

As I argue in a recent paper for the Montreal Economic Institute, this error was understood as far back as the 18th century by Adam Smith (1723-90). In his Wealth of Nations, which just had its 250th birthday, Smith observed that producing even simple goods requires the co-operation of so many different hands that the full network of exchanges would “exceed all computation.” Even the making of a woollen coat, for instance, required farmers, spinners, dyers, merchants, shippers, and so on just to get from raw materials to market.

Such complexity doesn’t stop the coat from being produced. But Smith’s point is that there is no single mind directing every step of production, from raising the sheep to selling you a brand-new peacoat. Instead, it is through the spontaneous co-operation of the many hands and minds that make up the “invisible hand” of the market that such production is possible.

In the late 19th century, Italian economist Vilfredo Pareto (1848-1923) expanded on this point, observing that co-ordinating even a modest economy and matching resources to uses and preferences would soon cause an explosion in the number of equations to be solved. But today’s computers can handle quintillions of computations per second, more than Pareto could possibly have imagined. Doesn’t that make a difference?

This is where Nobel laureate economist Friedrich Hayek (1899-1992) comes in. Hayek explained that the problem is not merely that the relevant knowledge is decentralized — spread out across millions of individuals — but that it is often tacit. Local shopkeepers’ understanding of their customers’ buying habits cannot be translated into one data point to feed into an AI or any other kind of model. Nor can we predict the emergence of an entrepreneur dreaming up a product that did not exist before.

Most important of all is the phenomenon of prices — indispensable signals that guide our decision making. Prices are neither set in stone nor arbitrarily fixed. Instead, they emerge from real exchanges. When the price of wheat rises, it is because buyers and sellers are competing for a limited supply. This price increase signals something about relative scarcity. It also provides an incentive to adjust consumption and conserve the resource, to look for a substitute, to increase production and to innovate.

In short, prices are not lying around in the wild, waiting to be harvested and fed into an algorithm. Rather, they are the result of constantly evolving discovery. Without this process of discovery, the knowledge embedded in a price simply doesn’t come into existence.

Hayek called the price system, with its ability to generate knowledge in the market, a “marvel.” He described competition as a “discovery procedure” that does much more than allocate resources. When entrepreneurs bring new products to market, for instance, they are making informed bets. If they’re wrong, they bear the cost. If they’re right, they reap the rewards. Through this process, we all learn a little more about what is possible, what is valued and what works.

As for AI, it can process truly vast quantities of historical data to detect patterns, forecast trends and optimize within given parameters. But it can only look backward to find data, whereas economic life is forward-looking and creative. The growth of the social-media influencer market, to choose but one example, could hardly have been predicted by an algorithm 20 years ago. In the same way, today’s algorithms can’t accurately predict what or how much we’ll consume tomorrow, since much of what will matter tomorrow hasn’t been imagined yet.

As powerful and helpful a tool as AI can be to improve logistics, better manage inventories and analyze markets, it remains just that, a tool. It can help us gain a better understanding of markets but only markets themselves can predict and co-ordinate the results of the billions and billions of voluntary exchanges that take place every day."

Philadelphia’s Avenue of the Arts 2.0 Is a Risky Revival

A $150 million campaign to restore the run-down street that is host to many of the city’s performing-arts institutions is noble—but could well backfire

By Michael J. Lewis of The WSJ. Excerpts:

"The sad truth is that Philadelphia’s commercial streets have been ailing for some years. Online shopping has ravaged retail in Center City (true Philadelphians do not say “downtown”), and it is not as if there is a surfeit of boutiques searching for fashionable new quarters. One of Jane Jacobs’s other insights is that a city’s most vibrant neighborhoods have a mix of new and old buildings, because it is the low-rent older ones that let the entrepreneur take risks and try something new." 

"A city is an infinitely complex organism, where commerce, urban amenities, street traffic and pedestrian life interact in mysterious ways. Decisions made with the noblest of ideals can have unintended consequences. Philadelphia has been here before. In 1975, on the eve of another national anniversary, the city created the Transitway, a sweeping transformation of Chestnut Street—then the city’s most successful commercial corridor. It would be closed to automobile traffic during working hours, with the exception of buses, turning it into a pedestrian mall by day. After an initial flourish of activity, commercial life declined. Ultimately, it succeeded only in shifting business a block south. A few decades later, the Transitway was abandoned, traffic resumed, and the concrete planters with their shriveled pear trees and ginkgoes were quietly removed." 

Steven Pinker on the disaster of communism

From Twitter.

"I spoke with @LaulPatricia about Marxism:

One is: What’s remarkable is that Marxism has been tried. Now, of course, defenders of Marxism say it hasn’t really been tried anywhere, but certainly the people who implemented it claimed they were implementing Marxism. 

And this is a massive experiment—a global experiment—with a very clear outcome. Namely, the Soviet Union was a disaster. The imposition of communism on Eastern Europe was a disaster. The imposition of communism in Venezuela was a disaster. The imposition of communism in Maoist China was a disaster. Disaster in terms of both poverty and oppression and genocide and stupid wars. So the world has told us what happens under communism, and it’s a sign of how out of touch intellectuals can be that there are still people who defend it despite the entire world giving a very clear-cut answer.

One more is: would you rather live in North Korea or South Korea? Would you rather live in the old East Germany or West Germany? We have an experimental group and a matched control group in terms of culture, language, and geography, and the answer is crystal clear. So this is a sign of, I think, the pathology of intellectual life—that Marxism can persist.

The other is, you did call attention to one of the appeals of Marxism, though, and more generally of heavy, strong influence of government guided by intellectuals, which is that there are certain kinds of reforms that you can state as principles. You can articulate them verbally as propositions—like equality, human rights, democracy—but there’s other kinds of progress that take place in massive distributed networks of millions of people, none of whom implements some policy. But collectively, there is an order, an organization that’s beneficial.

So that can happen organically through, for example, the development of a language. No one designed the English language. It’s just hundreds of millions of English speakers. They coin new words. They forget old words. They try to make themselves clear. And we get the English language and the other 5,000 languages spoken on earth.

Likewise, a market economy is something where knowledge is distributed. You don’t have a central planner deciding how many shoes of size 8 will be needed in a particular city, but rather information is conveyed by prices, which are adjusted according to supply and demand. And you’ve got a distributed network of exchange of information that can result in an emergent benefit.

Now, intellectuals tend to hate that. They like rules of language—of correct grammar. They like top-down economic planning. They like cultural change that satisfies particular ideals described by intellectuals. And so rival sources of organization, like commerce, like culture—traditional culture—tend to be downplayed by intellectuals.

And this can be magnified by the fact that many dictatorships give a privileged role to intellectuals, which may be why, over the course of the 20th century, and probably continuing to the present, there has not been a dictator that has not had fans among intellectuals—including the mullahs and ayatollahs of Iran, but also the communist dictators: Mao and Castro, even Stalin in his day. And every other dictator has had, actually, often fawning praise from Western intellectuals."

China’s Sprint for Tech Dominance Can’t Hide an Economy Full of Holes

Self-sufficiency push has made China a tougher competitor to the U.S., but it comes with enormous waste

By Brian Spegele of The WSJ. Excerpts: 

"Factory robots run by artificial intelligence churn out products that jobless college graduates cannot afford. State technology funds throw billions of dollars at money-losing startups even as the national debt surges to unprecedented levels."

"Beijing’s gains are coming at a steep cost, with the state’s heavy-handedness in directing investments wasting colossal amounts of money. The hundreds of billions of dollars China spends each year on domestic technology also eats away at the money for rural education, reinforcing the social safety net and other programs economists say are needed to put growth on a firmer footing."

"Of the 129 brands selling electric cars and plug-in hybrids in China as of last year, only 15 are expected to be financially viable by 2030"

"Home prices are down 17% since the pandemic"

"Per capita disposable income in cities is less than $700 a month, while in the countryside as many as several hundred million people subsist on just a few dollars each day."

"In Mianchi County . . . spending on science and technology rose nearly 50%, even as government revenue fell more than 10%."

"Yet some government workers aren’t getting paid."

"Government debts across China are estimated to have roughly doubled between 2019 and 2024, hitting as much as $23 trillion"

"productivity growth is slowing"

"state aid, such as cash subsidies, tax breaks and cheap credit to businesses, has reduced China’s overall GDP by as much as 2%, and cost around $800 billion in 2023"

"Throttling back state support for companies would allow the market to play a bigger role in more efficiently directing China’s money to where it is needed, she said." [IMF Managing Director Kristalina Georgieva]

"Provincial officials poured tens of billions of dollars into government-favored sectors. Much of it has gone to waste"

"tech investments and state subsidies are flowing to sectors that aren’t creating nearly enough jobs. One out of six young people in Chinese cities is out of work." 

The Constitution of Innovation: A New European Renaissance

"The regulatory bicycle is pedaling at full speed. But it is pedaling towards a wall of bureaucracy created by its own policies." 

 "To face the great transformation ahead, Europe needs both an innovation system and creative destruction." 

By Luis Garicano, Bengt Holmström & Nicolas Petit. Holmström is a Nobel Prize winning economist. Excerpts:

"While the United States maintained a remarkably constant 2 percent growth rate in average income, the European core economies decelerated, slowly and then sharply. Since 1995, Europe’s average annual growth has been just 1.1 percent; since 2004, it has been a mere 0.7 percent – all while the United States has continued on its steady track. By 2022 the relative gap in output per head has returned to where it was in 1970. Decades of convergence were surprisingly wiped out" 

 

"Last year, Enrico Letta found the European market critically fragmented, while Mario Draghi concluded that Europe’s competitiveness had fallen so far it now required ‘radical change’ just to survive."

"The European Union does not need a new treaty or powers. It just needs a single-minded focus on one goal: economic prosperity."

"The European Union currently pursues a long list of goals, including (as given by the Commissioner titles): promoting the ‘European way of life,’ ‘health and animal welfare’, ‘environment, water resilience and a competitive circular economy’, ‘intergenerational fairness, youth, culture and sport’ or ‘social rights and skills, quality jobs and preparedness’. Meanwhile, the internal market has become so fragmented that, according to recent IMF analysis, internal trade barriers are equivalent to a 44 percent tariff on goods and 110 percent on services."

"With peace secured, the European institutions began to look for new problems to solve."

"From the 1980s Europe began legislating on topics with little to no connection to economic integration or peace – the amount of fruit in marmalade, the conditions under which a piece of clothing could be considered sustainable, or what constitutes appropriate political advertisement. What started as functional integration – removing barriers to trade – morphed into the superstition of regulation for the sake of integration. Each new regulatory text justified the next"

"This regulatory overkill has culminated with the response to the digital and environmental challenge, which led to an avalanche of rules"

"the General Data Protection Regulation (GDPR), favors US tech giants which can shoulder the burden of massive compliance costs but undermines European startups. A recent study shows that GDPR reduced European Union technology venture investment by 26 percent relative to the US."

"These rules raise the cost of innovation and slow the dissemination of digital technology across the European Union."

"it must work with the Member States to complete the internal market.

The internal market has only one definition: the free movement of goods, services, capital, and workers. It is against these standards that it should be judged, exclusively and fully."

"The European Union needs to stop wading into new policy areas like housing or animal welfare and get serious about enforcing basic internal market rules."

"To face the great transformation ahead, Europe needs both an innovation system and creative destruction. We lack in both areas, but we are particularly weak in creative destruction. The ECB has pointed out repeatedly that Europe’s failure to kill zombie firms crowds out credit for healthy firms.¹⁵ We must stop defending legacy assets and build a system that accepts both market entry and exit as the basic conditions for innovation."

"we must actively seek and eliminate barriers to entry that favor incumbents, such as special rights, subsidies, or skewed regulations from banking to telcos, from energy to agriculture. We must support market exit through streamlined bankruptcy laws and flexible labor rules. Market exit is not failure; it is how we reallocate assets, people, and resources from old businesses to new ideas."

"supported by secure property rights"

"If a product is safe enough to be sold in Lisbon, it should be safe enough for Berlin. We should not burden traders with the task of removing local barriers to trade through judicial remedies in the target country"

"European Union law in reality allows Member States freedom to restrict imports of goods and services and only forces them to demonstrate why imports are not good enough for the home market under a specific procedure. Traders are therefore subject to ‘an unstable litigation-driven trading environment of inter-State regulatory diversity’.¹⁷ The business of business is business, not litigation."

"We must create simple and clear rules that free competition instead of centrally planning our economy by regulatory fiat."

"Europe’s frenzy of regulation has been predicated on the existence of free lunches. For instance, climate laws have been sold as leading to job creation and innovation (the ‘green deal for jobs’) not just as the solution to climate change. Citizens were asked to swallow make-believe propositions, like the idea that fighting global warming would be free of economic cost.

Similar Nirvana fallacies have been observed in other domains, like migration, trade policy or digital regulation."

Legal reforms

1.  Eliminate the usage of directives

[A court in 1979 ruled that] "goods lawfully produced and marketed in one Member State must flow freely to all others."

"Member States cannot enforce their own domestic laws to bar imported goods."

 "businesses must still comply with a maze of national barriers. France imposes unique carbon tests on imported diesel. German Länder require separate fire safety certifications for construction materials already approved elsewhere in the European Union."

"The solution is to abandon directives entirely"

"Businesses end up facing 27 different versions of supposedly ‘common’ rules."

2. Specialized Commercial Courts

"The internal market’s main weakness is enforcement. When Italian regulations illegally block a French trader, that company faces only bad options. It can file a complaint with the Commission and wait years for action that may never come; sue before Italian courts only slightly familiar with European Union law; operate illegally and hope to reach the European Court of Justice through proceedings brought against it; or simply give up."

"We propose that the European Union create Specialized Commercial Courts with exclusive jurisdiction over internal market violations by Member States."

3. Federal field preemption

"traders face a regulatory thicket, which only gets denser as more national, regional, and local regulations are introduced. Right now, banks answer to European supervisors, national central banks, and local regulators simultaneously. According to the Draghi report, there are over 270 digital regulators in the European Union, each interpreting “common” rules individually."

"The solution is that when the European Union regulates in areas of exclusive competence and internal market legislation, all national, regional, or local rules in that specific area cease to apply."

4. A 28th regime that is appealing to businesses

"give up on harmonizing 27 different corporate systems"

"In practice, Portugal would not need to adopt German corporate law or vice versa, as there would be a European alternative that companies can embrace if it serves them better."

"statutory conditions for the formation of SEs require businesses to incur high set-up costs and follow time-consuming and complex procedures for incorporation. This has tended to favor large firms.²⁸ Moreover, the law embodied a high number of referrals to national law and burdens in terms of employee participation.²⁹ This forced companies and investors to navigate a complex web of rules"

"This self-inflicted flaw stripped the SE of its core utility: giving small and medium-sized firms scale through simple and swift pan-European incorporation."

The US demonstrated the power of this solution when it allowed companies to bypass state securities laws by being regulated at the federal level – late-stage firms became four times more likely to attract out-of-state investors.³¹ The European Union could achieve similar results by letting businesses opt into European rules rather than forcing all Member States to abandon their national systems. This would also go some way towards unifying capital markets.

Countries that wish to maintain their legal traditions can keep them. Businesses seeking European scale can bypass them.

5. Rely on existing institutions when possible

"much of the European Union’s expansion has taken place in areas where existing institutions already operate."

"a worthwhile policy would consist of systematically determining which other existing institutions the European Union could use to discharge some of its core missions." 

6. Reform legislative practice

"Many temporary law and policy programs have become permanent. New regulatory structures entrench interests and are hard to dismantle. National regulatory authorities (NRAs) in network industries like telecoms illustrate this problem. Created to open monopolistic markets, they were supposed to hand over their powers to national competition authorities (NCAs) following liberalization. Decades later, the European Union has both NRAs and NCAs, adding compliance costs to industries no longer in need of market opening reforms."

"review clauses should be replaced with sunset clauses. Unless evidence shows a persistent market failure requiring maintenance or reform of a regulation or directive, the presumption should be that once a set period has elapsed, the instrument is no longer useful."

"the European Union fails at submitting new rules to a rigorous analysis of their costs and benefits. The Commission does have the duty to run an initial cost and benefits analysis of draft legislation. However, the Parliament and the Council, when they rewrite the law, often in private meetings (called ‘Trilogues’), are not required to check the costs and benefits of their own changes." 

"Whenever a change is proposed to a law that alters its purpose, key terms, or costs, the team must produce a short, public report on the effects."

"Whenever a change is proposed to a law that alters its purpose, key terms, or costs, the team must produce a short, public report on the effects."

[there were] "13,000 legal acts between 2019 and 2024"

"Poland entered the millennium at 47 percent of the European Union average income and today stands at 93 percent."

[that was not] "achieved through the competencies that have been layered on in the last twenty five years." 

[it was because of] "economic integration and solid European institutions."

Trump’s Deals With Companies Aren’t Un-American. That’s the Problem.

The president’s wheeling and dealing with the likes of Intel and Nvidia echoes the bad old days for stock investors

By Jason Zweig. Excerpts:

"history suggests the likely results will be massive misallocation of capital and a surge in waste, corruption and conflicts of interest. For centuries, government has been the ultimate buy-high-sell-low investor, and that doesn’t bode well for anybody’s stock returns."

"In the 1820s, states competed furiously to fund banks, canals and railroads.

During the brief boom, dividends of stocks they’d invested in were one of the biggest sources of revenue for many states. After the bust, eight states plus the territory of Florida defaulted on their bonds.

In 1844, Pennsylvania began trying to unload its stock in local railroads. Fourteen years later, it had gleaned total proceeds of $11 million on its more than $75 million of investments. That loss is probably equivalent to something like $40 billion today.

After the states got burned, the federal government stepped in.

On July 4, 1828, President John Quincy Adams scooped out the first shovelful of the Chesapeake and Ohio Canal. The U.S. government was the largest shareholder, with a $1 million investment, roughly equivalent to $1.2 billion today.

Other than a flicker of prosperity in the 1870s, the canal “never paid any return,” a later historian concluded. The U.S. bought it out of receivership in 1938 for approximately $2 million." 

"stocks earned an annualized rate of return before inflation of less than 6% in the 19th century." 

With Intel, U.S. Has a Stake Without a Strategy

Trump’s forays into private business appear driven by money rather than an overarching plan to bolster American competitiveness

By Greg Ip. Excerpts:

"Intel’s problems date back decades. It grew fat designing and making the chips that power personal computers, then missed the boat on mobile phones and the graphics-processing units that drive artificial intelligence, where Nvidia leads.

Meanwhile, it lost the lead in manufacturing prowess to Taiwan Semiconductor Manufacturing Co., which pioneered the “foundry” model: making chips designed by companies such as Nvidia, Apple, AMD and Qualcomm.

Intel has since set out to compete with TSMC in foundry services. To help it finance the necessary fabrication plants (fabs), the Biden administration contributed $11 billion in grants and defense contracts from the CHIPS and Science Act, of which $2 billion has been disbursed. But Intel has struggled to attract foundry customers, and it has pushed back completion of a $28 billion fab complex in Ohio from 2025 to 2030."

"the U.S. would help Intel “to create the most advanced chips in the world.”

And yet the deal doesn’t provide Intel with new resources to accomplish that."

Why Americans Should Fear Washington in Intel’s Boardroom

Turning Intel into a government partner undermines competition and national prosperity.

By Vance Ginn. Excerpts:

"But once government crosses the line into equity ownership, the game changes. It’s no longer about setting fair rules of the road—it’s about Washington joining the race as a participant. That undermines competition, politicizes corporate decisions, and exposes taxpayers to risks they never agreed to take."

"Every dollar the government spends buying shares is a dollar it cannot use to reduce taxes, retire debt, or provide genuinely public goods. 

The resources are scarce, and putting them into Intel stock means less available for other, possibly more valuable, uses. Economists from Adam Smith to Milton Friedman have warned that when governments redirect capital for political reasons, the result is misallocation."

"Private investors demand efficiency because their money is on the line. Government officials, by contrast, make decisions based on politics. If Intel falters, will Washington push for restructuring and accountability—or will politicians double down to save face? History suggests the latter. 

From Amtrak to Solyndra, government ownership often locks in inefficiency rather than driving improvement."

"Once government owns part of a firm, special interests swarm. Lobbyists push for favorable regulation, subsidies, and procurement contracts that tilt the playing field. This breeds cronyism—where success depends on political access instead of innovation. 

Thomas Sowell put it plainly: “The first lesson of economics is scarcity. The first lesson of politics is to disregard the first lesson of economics.”"

"This kind of industrial policy is not new. Japan’s Ministry of International Trade and Industry (MITI) famously tried to steer the country’s industries in the 1980s, funneling state resources to “strategic sectors.” Yet the results were mixed at best. Japanese chipmakers, once dominant, fell behind precisely because competition gave way to cozy relationships with bureaucrats.

Closer to home, the federal government nationalized passenger rail with Amtrak in 1971, promising efficiency and profitability. Fifty years later, Amtrak still relies on billions in subsidies and remains unable to compete with private alternatives where they exist. 

Similarly, the 2009 federal bailout of GM and Chrysler made taxpayers temporary shareholders. The firms survived, but at the cost of distorting the bankruptcy process and politicizing capital allocation."

"Conservatives long criticized Democrats for pursuing industrial policy through the CHIPS and Science Act. Yet now, under Republican leadership, we see the same tactics—only bigger. 

If the right normalizes government equity stakes in the name of security, they will have no credibility left to oppose similar measures when the left expands them to other industries."

The Nationalization of Intel?

A 10% federal stake in the computer chip maker would be another dive into corporate statism.

WSJ editorial. Excerpts:

"The Biden Administration tried to ride to the rescue last year with up to $8.5 billion in direct grant funding and $11 billion in low-cost loans for Intel from the Chips Act. But as always with government largesse, it came with political strings attached. The Commerce Department press release touted in great detail Intel’s plans to expand child care for its workers. Scant mention of its plans to improve manufacturing.

Most of Intel’s award hasn’t been disbursed because the company has slowed its expansion plans amid weak demand for its chips. Biden Commerce Secretary Gina Raimondo tried to drum up demand from tech companies but found few takers."

"Intel ran a $18.8 billion loss last year and $3.8 billion during the first six months of this year."

"The company cut 15,000 jobs last year and plans to slash more than 20,000 this year."

"the Administration’s conditions for the equity investment may also make it harder for Intel to undertake needed changes to become more competitive. Politicians don’t like to preside over plant closures or employee layoffs. See Renault, the French car maker, for that political lesson."

"See the antiquated air-traffic control system, which Canada has shown could be better managed by a private operator. Or consider Amtrak, which has struggled to end money-losing routes owing to opposition from Members of Congress in rural areas."  

The U.S. Marches Toward State Capitalism With American Characteristics

President Trump is imitating Chinese Communist Party by extending political control ever deeper into economy

By Greg Ip. Excerpts:

"There are reasons state capitalism never caught on before. The state can’t allocate capital more efficiently than private markets. Distortions, waste and cronyism typically follow. Russia, Brazil and France have grown much more slowly than the U.S.

Chinese state capitalism isn’t the success story it seems. Barry Naughton of the University of California, San Diego has documented how China’s rapid growth since 1979 has come from market sources, not the state. As Chinese leader Xi Jinping has reimposed state control, growth has slowed. China is awash with savings, but the state wastes much of it. From steel to vehicles, excess capacity leads to plummeting prices and profits.

The U.S. hasn’t fared any better. Interventions made in the name of national security or kick-starting infant industries lead to boondoggles like Foxconn’s promised factory in Wisconsin or Tesla’s solar-panel factory in Buffalo, N.Y."

The Problem of “We” (Dominic Pino reviews Abundance by Ezra Klein and Derek Thompson)

Click here to read it. Excerpts:

"In Abundance, authors Ezra Klein and Derek Thompson clearly state their thesis in the introduction: “To have the future we want, we need to build and invent more of what we need. That’s it.” And that’s the problem. Their thesis doesn’t make sense because they fail to consistently define the word that appears three times in that statement: “we.”

Klein and Thompson see their book as a missive to the American left and an antidote to the “degrowth” ideology that has taken hold in parts of it. Their vision for “abundance liberalism” is more about a shift in focus and emphasis than an entire ideological overhaul for the left. It has spurred debate within the left about whether it presents an opportunity to correct some of the mistakes that cost Kamala Harris the 2024 election or is merely a “neoliberal” wolf in sheep’s clothing.

It is neither. People who are more favorable to free markets may be tempted to applaud left-wing authors, conceding that government isn’t always the answer, but Klein and Thompson still don’t understand the role of individualism and markets in creating the abundance they desire."

"They are clear about what they want. Their vision of the future involves a lot of green energy, mass transit, housing construction, and research and development investment. They want vertical farming, lab-grown meat, automated technology, and supersonic airplanes.

Some of this vision sounds attractive to me. Some of it does not. That’s fine, and it’s true of all visions of the future. But they assert that this vision is the future that “we” want. I should be included in “we,” but I am not."

"Individuals are the ultimate decision-makers in a society. They are naturally part of groups (families) and often choose to organize themselves into other groups (corporations, governments, religious institutions, etc.) in ways that are healthy and beneficial. But individuals in the end have to choose to show up to work, use their brains to come up with new ideas, and persuade others that those ideas are worth developing.

One reliable way to get other people to do things for you is to allow them to make money from doing it. And there is already a mechanism by which that happens: markets. People get paid for coming up with good ideas and providing goods and services that make other people’s lives better. The development and expansion of markets around the world have delivered more abundance than thousands of years’ worth of human thought possible.

One reason markets work is that they do not need there to be “a single set of answers.” They work with decentralized information spread throughout society that is possessed and used by different individuals. That information condenses into a price, which is a signal to others that informs their decisions. They allow for the appearance of top-down coordination where none exists, and they perform better than attempts at top-down coordination because they incorporate information that top-down planners cannot access.

The answer Klein and Thompson are yearning for is markets. But they are respected American liberals, and respected American liberals can’t run around referencing Adam Smith or F. A. Hayek or Milton Friedman. So they’re just lost, aimlessly writing about stuff they want other people to do for them."

The AI Market Debate Is Old

Oskar Lange’s utopian—or dystopian—idea 80 years ago was to have a computer power the economy.

Letter to The WSJ. 

"Regarding Marian L. Tupy and Peter Boettke’s op-ed “Algorithms Can’t Replace Free Markets” (July 22): Economists have already debated whether AI could replace the market some 80 years ago when they argued over the Lange model.

Polish-American economist Oskar Lange’s utopian—or dystopian—idea was to have a big, futuristic computer replace market dynamics so that an economy could be centrally planned.

The idea of using AI to run the economy instead of an organic web of individual choices is inextricably connected to a socialist model of central planning and control. As Hungarian economist János Kornai contended, such centrally-planned systems inevitably result in a “shortage economy.” And we’ve seen that, time and again.

Vladimir Zwass

Editor in Chief, Journal of Management Information Systems" 

Related post:

AI Can’t Replace Free Markets: Algorithms process data from the past while economic decisions are dynamic and forward-looking 

AI Can’t Replace Free Markets

Algorithms process data from the past while economic decisions are dynamic and forward-looking

By Marian L. Tupy and Peter Boettke. Excerpts:

"Prices enable people to engage in economic calculation, which forms the basis for the rational allocation of scarce resources among alternative ends. Prices also function as decentralized feedback loops. “A price is a signal wrapped up in an incentive,” note Tyler Cowen and Alex Tabarrok. This dual signal communicates information about relative scarcities and simultaneously encourages economic actors to adjust their plans accordingly. When lithium prices rise, producers and consumers conserve, recycle, innovate, and explore alternatives.

The belief that AI can achieve comparable results to free markets, let alone surpass them, reflects a misplaced confidence in computation and a misunderstanding of the price system. The problem for the would-be AI planners is that prices don’t exist like facts about the physical world for a computer to collect and process. They arise from competitive bidding over scarce resources and are inseparable from real market exchanges. Moreover, prices aren’t fixed inputs to be assumed in advance. They are continually being discovered and formed by entrepreneurs testing ideas about future consumer wants and resource constraints.

Economic models that treat prices as given overlook the entrepreneurial actions that create them in the first place. Ludwig von Mises made this point in 1920: Without real market exchange, central planners lack meaningful prices for capital goods. Consequently, they can’t calculate whether directing steel to railways rather than hospitals adds or destroys value.

AI can process vast amounts of data—but always from the past. Economic action, by contrast, is forward-looking. An algorithm may extrapolate trends, but it can’t anticipate innovation and changing tastes. It can’t discover what hasn’t been imagined."

"The very data planners rely on become unreliable as people adapt their behavior to avoid being captured by the system. Our research on post-socialist transitions shows that meaningful price signals only re-emerged after private exchange and budget discipline were restored. Computational power didn’t restore order—institutional reform did." 

So it is interesting to see Robert Heilbroner in his essay Socialism that he says motivation was the problem:

"The effects of the “bureaucratization of economic life” are dramatically related in The Turning Point, a scathing attack on the realities of socialist economic planning by two Soviet economists, Nikolai Smelev and Vladimir Popov, that gives examples of the planning process in actual operation. In 1982, to stimulate the production of gloves from moleskins, the Soviet government raised the price it was willing to pay for moleskins from twenty to fifty kopecks per pelt. Smelev and Popov noted:

State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomtsen [the State Committee on Prices] twice to lower prices, but “the question has not been decided” yet. This is not surprising. Its members are too busy to decide. They have no time: besides setting prices on these pelts, they have to keep track of another 24 million prices. And how can they possibly know how much to lower the price today, so they won’t have to raise it tomorrow?

This story speaks volumes about the problem of a centrally planned system. The crucial missing element is not so much “information,” as Mises and Hayek argued, as it is the motivation to act on information. After all, the inventories of moleskins did tell the planners that their production was at first too low and then too high. What was missing was the willingness—better yet, the necessity—to respond to the signals of changing inventories. A capitalist firm responds to changing prices because failure to do so will cause it to lose money. A socialist ministry ignores changing inventories because bureaucrats learn that doing something is more likely to get them in trouble than doing nothing, unless doing nothing results in absolute disaster."

German Business Is Tangled in Red Tape

Companies in Germany complain that the demands of bureaucracy are costing them time and money that would be better spent building their businesses.

By Melissa Eddy of The NY Times. Excerpts:

"Last year, four new laws and 14 amendments to existing ones governing energy use took effect, each bringing fresh demands for data to be reported and forms to be submitted — in many cases to prove the same standards that the company has already been certified as reaching since 2012, Mr. Wingens said [Markus Wingens who runs a metal heat-treatment company].

“We have the Renewable Energy Act, we have the Energy Efficiency Act, we have the Energy Financing Act, and each comes with an administrative burden,” he said. “It’s madness.”"

"In a report last month, the International Monetary Fund called “too much red tape” one of the major impediments to reviving the German economy.

For example, it takes 120 days to obtain a business license in Germany — more than double the average in other Western economies. Germany also lags behind the rest of the European Union in the digitization of government services, still requiring written forms for certain tax refunds and building permits."

"German companies spend 64 million hours every year filling out forms to feed the country’s 375 official databases, according to industry estimates. When the Stuttgart chamber of commerce asked its 175,000 members to name their biggest challenges, red tape topped the list.

Even Germany’s chancellor, Olaf Scholz, has publicly acknowledged that the demands have become too much. “We have reached a situation where, in many places, no one can carry out all of the laws that we have created,” Mr. Scholz said last month."

"The red tape drain on time and resources is felt especially by small and midsize firms — those with fewer than 500 employees and annual revenue below €50 million (about $54 million) — that are the backbone of the German economy.

These businesses often lack in-house legal departments dedicated to filing audits, recording statistics and deciphering which information is wanted by which authorities"

[at one store] "deli workers would take cold cuts that were nearing their expiration dates and use them in sandwiches for quick sale, until a regulation that required detailed lists of all ingredients in all items sold took effect. Now, instead of making new sandwiches — and lists — every day based on what is about to expire, they have a more limited sandwich offering and throw away more meat."

"At the seafood counter, fishmongers must now ensure that each variety of fish is labeled in both German and Latin. They also must take the temperature of every fish or fillet, as well as the overall temperature inside refrigerator cases, twice a day."

"To set up an online registration system for 20 school districts, his firm needed the approval of five regional data protection officers. Each had a separate interpretation of the European Union’s data security regulations; one told Mr. Wirkner [Michael Wirkner, who founded an advertising agency in Göppingen nearly two decades ago.] that he could use a Google tool, while another insisted it was not allowed." 

He noted that German regulators had imposed the European Union’s sweeping data privacy law on rules governing even professional etiquette. “In Germany, we have regulations about handing over business cards at business meetings and whether it’s still allowed,” he said. [said Andreas Kiontke, a lawyer who works with the chamber of commerce.]

Related posts:

The Soul-Sapping Grind of Doing Business in Bureaucratic Germany (2025) 

EU Aims to Cut Red Tape, Boost Funding to Lure Tech Startups: Officials want to simplify labor and tax laws so startups can launch rapidly in Europe (2025)

The Tech Industry Is Huge—and Europe’s Share of It Is Very Small: A risk-averse business culture and complex regulations have stifled innovation on the continent, weighing on its future  (2025)