Poland's economic experiment based on Thomas Piketty
bloomberg.com
bloomberg.com
Sad to read this. Most LatAm leftist governments tried the same formula over the past 2 decades, with disastrous consequences. Focusing public borrowing on the domestic market means that the government will compete with households and businesses for capital, which have a much harder time raising capital internationally.
This will make it much harder (and raise interests) for households and businesses to secure capital for new investments (especially when the domestic savings rate is so low), restricting supply growth and possibly leading either to inflation or to an increase in imports.
That, coupled with a low or nill savings rate, an over-reliance on government for retirements and a low retirement age, means an economic disaster, exactly like the one in Argentina and Brazil.
At least up here in Canada, inflation-adjusted wage growth has been negative in the past two years.
Part of wealth that's stored in cash or fixed-rate debt instruments. Most other assets - real estate, equities, floating-rate debt instruments - adjust accordingly.
Inflation is taxation only for those who can’t afford to invest their “wealth” in assets like real estate. How progressive!
Not really. Inflation is a tax on those who don't have access to inflation-adjusted returns. If inflation is steady, wealth isn't taxed.
But unexpectedly increasing inflation is a tax on wealth.
From https://www3.nd.edu/~cwilber/econ504/504book/outln13c.html
"One important redistribution of income and wealth that occurs during unanticipated inflation is the redistribution between debtors and creditors. a. Debtors gain from inflation because they repay creditors with dollars that are worth less in terms of purchasing power."
Poland is a developing country (high capital requirements) with no accumulated capital and negative savings, its foreign reserves are 10% of Japan's.
Korea, Taiwan, Japan and china tried it with spectacular results. Also, latin america is a especial situation because they are within the US sphere of influence. Their economic situation is far more complex because of it.
> exactly like the one in Argentina and Brazil.
Brazil and especially argentina's financial problems were a result of international borrowing, not domestic borrowing.
Patently false. The public debt in Brazil has been almost entirely internal for the past 10 years. Should I show you a chart to settle it?
> Korea, Taiwan, Japan and china tried it with spectacular results.
Quite the opposite, actually. They received massive inflows of foreign investment, and very high domestic savings rate.
That's the difference you're not seeing: the Asian countries you mentioned have a history of very high savings rate, this generates a stock of capital that the government and companies can borrow at low costs to develop. Poland (and the LatAm countries I mentioned) have very low or negative savings rate, and almost no capital stock, so any increase in borrowing by the government has to be met with foreign capital or it will cause inflation and higher interest rates.
Why not show it rather than asking for my permission? But since you asked, please do. And show me the one for argentina while you are at it. Here is brazil's external debt. Increased 250% in 10 years.
https://tradingeconomics.com/brazil/external-debt
> Quite the opposite, actually. They received massive inflows of foreign investment, and very high domestic savings rate.
Foreign investment != external debt. So their high domestic saving rates means they had little need to borrow internationally? That was my point.
> the Asian countries you mentioned have a history of very high savings rate, this generates a stock of capital that the government and companies can borrow at low costs to develop.
But you wrote that it was quite the opposite just a sentence ago? I'm saying that korea, taiwan, japan and china did not depend on foreign borrowing. You conflate foreign investment with borrowing. Then you contradict yourself.
> Poland (and the LatAm countries I mentioned) have very low or negative savings rate, and almost no capital stock, so any increase in borrowing by the government has to be met with foreign capital or it will cause inflation and higher interest rates.
Well then they need to increase their savings rate or limit their borrowing?
That number is irrelevant, look at the composition:
http://www.tesouro.fazenda.gov.br/ca/web/stn/a-divida-em-gra...
I guess that settles it then. Maybe you shouldn't talk about the economic situation of a country you seem to know nothing about.
> Foreign investment != external debt.
Indeed, but foreign investment creates local stocks of capital, lowering internal interest rates and allowing for the government to borrow internally without significantly impacting businesses and households.
> But you wrote that it was quite the opposite just a sentence ago? I'm saying that korea, taiwan, japan and china did not depend on foreign borrowing. You conflate foreign investment with borrowing. Then you contradict yourself.
As you said yourself, Foreign investment != external debt. Forgot about that?
> Well then they need to increase their savings rate or limit their borrowing?
Both. Increasing savings rate takes many years to generate a stock of capital. In the meantime, they need to reduce government spending and borrow internationally.
https://www.economist.com/news/americas/21704824-battle-over...
https://www.economist.com/blogs/americasview/2014/06/argenti...
Almost a decade of average zero growth, declining quality of life, crumbling infrastructure. It is sad to see the state of destruction the country was left in after Christina left.
And the state of the country when she arrived? Let's not forget what happened between 1998-2002.
From your last article: >Many of Argentina’s problems are familiar. Inflation has plagued Argentina for much of the past decade; it still grew by an average of 5.6% from 2005-2013.
Not a fan from Christina, but the situation is way more complex than just one (or 2 with Nestor) president.
Poland has its own currency which its banks create as required.
There can be no shortage of financial capital in a country with a free floating exchange rate and no dollarised sovereign debt. There can only be a shortage of stuff.
Printing money won't increase the stock of capital. That is so absurd that you're not even wrong.
Have you ever lived with 4000% inflation per year? I have.
It's the savings stupid. You forgot about them.
In 2001 so called 'Belka's Tax' was imposed, which is annulling the capital gains tax (19% or something). This makes any placing to actually lose money (even more if you count inflation in). So saving money in sock's drawer is out of question because of inflation, in banks it's even worse, that's been going on for 17 years. How we're suppose to save then?
https://en.wikipedia.org/wiki/Capital_gains_tax
You _can_ save and invest in Poland.
so putting 10k PLN (2k EUR) for 24 months in, you'll gain 50 EUR and small text at the bottom says it's BEFORE taxation! Average gross wage depends on region, but it's around 1k EUR per month. I cannot find median, values but it's much lower, most people here don't have two cents to rub together not to mention to put twice the average salary for 24 months to get 50 EUR
Isn't it because majority of Germans rent and majority of Poles buy?
Half, because usually the total mortgage cost for 30 years is about 100%.
So generally 100% more is a lot. However after 30 years you can sell the house, and what you get is still much more than renting, when you get nothing at the end.
No. Economically, it doesn't make a difference. Although renting is better to society as a whole.
When you buy a house, you're essentially becoming your own landlord.
Taxes aside, it doesn't make a difference if you rent, buy a house and live in it, or buy a house, rent it out, and rent another house for yourself.
The issue isn't being a landlord, but blocking the building of new housing when demand is going up so you can extract economic rents from society.
Care to explain?
I would say that widespread renting is actually quite terrible. It means that property is kept in the hands of class of landowners (and when wealth is concentrated, this also tends to concentrate power); that instead of investing one's income, renters are basically paying off the owner's mortgage; that generally, people prefer to own, and so widespread renting is a sign of being unable to participate in the real estate market; that it generally is associated with a rentier economy.
So, no, I do not think renting is better. At all.
Sure!
Caveat: please ignore taxes, emotional value and a few other country-specific details.
When you're buying a home, you're doing 3 independent things:
1) Borrowing money (optional)
2) Making a capital investment into an illiquid, immovable asset
3) Renting an asset that you own to yourself for you own usage
Give how much little money you have (compared to a company) and how your earnings and spending might oscillate, having so much of your assets locked up in an illiquid, immovable, single piece is a bad idea. It prevents you from moving around and taking a new job, for example.
Also, given your individual risk, you have to pay interest rates much higher than what you'd expect from an institutional investor. Also, you don't have any economies of scale for renting out, selling, doing maintenance, etc.
Now if an institutional investor bought a large stock of housing and rented it out, it is:
1) Borrowing money at lower rates than you
2) Making capital investment in thousands of individual, immovable assets
3) Renting an asset to you
With a much larger scale, the institutional investor has massive gains in economies of scale on selling, buying, renting, fixing, etc. Also, it is able to spread the risk of a single house or resident across its entire base, essentially transforming the individual risk into a financial cost to the renters, reducing the exposure to extreme events.
Finally, renting increases an individual's mobility, allowing for better allocation of jobs to different places in a country, improving economic growth and enabling the economy to adapt faster to changing situations.
PS: NIMBYism fucks this up. This only works if new housing is allowed to be built freely based on supply and demand, which is not the case in the most "progressive" parts of the US (Bay Area, for example).
It doesn't really prevent you from moving to another job, one could always rent out the owned property and rent in your new location. (Though if the area you own in has crashed in prices that's a more difficult proposition...)
Again, that's irrelevant from a financial perspective. The rates are priced to account for the risk of increase, and in this case the markets are liquid and competitive enough to allow correct market pricing.
> It doesn't really prevent you from moving to another job, one could always rent out the owned property and rent in your new location. (Though if the area you own in has crashed in prices that's a more difficult proposition...)
There is a large overhead cost to renting out, which is significantly higher than the overhead cost of renting a home. Renting out is essentially a part-time job.
The markets can be irrational for longer than you can stay solvent. You can pull out silly tropes like some concept of "correct market pricing". Which means "correct" according to some group of concerns vs some other group of concerns. Rarely do we get to directly design markets, and designed changes often go vastly wrong with unintended side effects.
It's not irrelevant from a life stability perspective if you get priced out of your domicile for rent increases, vs keeping it for an owned property. People can individually value that stability or not, but it's a real consideration.
There is also large overhead in not choosing the time that one wants to move if rents increase uncontrollably.
Cute quote, now show me the data.
> You can pull out silly tropes like some concept of "correct market pricing". Which means "correct" according to some group of concerns vs some other group of concerns. Rarely do we get to directly design markets, and designed changes often go vastly wrong with unintended side effects.
Correct market prices are the cost plus risk-adjusted returns. Essentially, the point at which economic profits are zero.
> It's not irrelevant from a life stability perspective if you get priced out of your domicile for rent increases, vs keeping it for an owned property. People can individually value that stability or not, but it's a real consideration.
That only happens if there is an artificial constraint in supply, generated by NIMBY policies.
> here is also large overhead in not choosing the time that one wants to move if rents increase uncontrollably.
Again, with freedom to build, prices won't move like that.
First off, immobility is a problem only when there is a scarcity of jobs. It is a bad sign when lots of people have to move frequently to get jobs. Optimizing for mobility is kind of like treating a symptom instead of the cause and will likely deepen the problem because, hey, we can always count on people moving. People don't generally move around just to move around. Appealing to "better allocation" and "adaptation" as ways to defend mobility is, again, the result of having adopted some kind of dehumanized economics that treats people like units of goods in a distribution chain. Mobility is really not the thing you should be most worried about.
Second, it's not an either/or proposition. We can have renters and owners. Renting can cater to those who are mobile. But when a market is dominated by renters, then your market is fucked (see above).
Property tax is highly variable from location to location. But if you give me an example of property tax, I can tell you which makes more sense.
> an economics stripped of human beings and divorced from the social and the political is not economics, just some Procrustean nonsense cooked up in an armchair
Sure, and if I don't like the law of gravity, it should be abolished!
> immobility is a problem only when there is a scarcity of jobs
Which in the long term is everywhere.
> Appealing to "better allocation" and "adaptation" as ways to defend mobility is, again, the result of having adopted some kind of dehumanized economics that treats people like units of goods in a distribution chain. Mobility is really not the thing you should be most worried about.
You argument boils down to: "I don't like what you're saying, you're mean". I don't care, that's how life works. Not liking it won't change it.
> Second, it's not an either/or proposition. We can have renters and owners. Renting can cater to those who are mobile. But when a market is dominated by renters, then your market is fucked (see above).
Sure, that's the ideal market. Don't provide any incentives to owning or renting, and let people decide freely.
It is illiquid. How long do you think it takes to sell a house?
The median home takes 60+ days to sell.
Don't let your limited view shape how you see the world. The world isn't the Bay Area or similar locations.
First paragraph:
>> "Poland: reasonable strategy roiled by leftist impulses."
The current government is a far right Catholic party that has just enacted a law partly denying the Holocaust (somewhat related to this, one of their senator sparked a scandal by posting actual Nazi propaganda online), and the country may have its EU voting right suspended due to the administration's attacks against the judiciary. But yeah the most important thing is that one of their economical policy happens to be left-leaning.
On the economist Thomas Piketty:
>> "Last month, the anti-capitalist economist wrote about ..."
Piketty is left-leaning, not "anti-capitalist".
Caption of a Piketty photograph:
>> "Only academic. Until now."
Piketty has been a (prominent) advisor for politicians on the French left for at least a decade.
You go Bloomberg "News". You keep doing you.
More like "far center, a little to the left", with a twist for religion and nationalism. It doesn't have that much with being pro capitalism.
W.r.t. aliens, that's nonsense. Even the article mentions Ukrainian immigration. For the record, Poland took in what were effectively ~1 million Ukrainian refugees and immigrants because of, you know, that war still being waged by Russia that the West keeps forgetting about. Germany and other Western countries didn't take in any Ukrainians. Poland refused to take in migrants during the migrant crisis for a number of reasons, including: refusal to acquiesce to Merkel's dictates after having she had utterly bungled that affair (most migrants aren't even Syrian refugees); migrants who had arrived in Poland and elsewhere eventually left and moved to Germany or Sweden anyway; Poland is largely homogeneous and having witnessed cultural-religious friction in the West decided not to subject itself to that experiment esp. given the precarious geopolitical place the country occupies; Poland diverts significant funds to efforts on Syrian soil to help Syrians on the ground; Poland is already in the Schengen zone and so what's this business with no aliens?
> perfectly willing to break the rule of law for the good of society
The current judiciary is full of law-breaking and less than savory people with ties to the old Communist establishment. That whole affair with the Tribunal (a Communist invention instituted by Jaruzelski during martial law to protect Communists, basically) is more complex. Every party had put its own candidates in and the previous ruling party, the Civic Platform, just before office, had exploited incoherent and unsatisfiable laws to create a situation that could only be resolved it seems the way it had been. Needless to say, it is far more complex than the way you claim it is. There is a general problem with Polish laws looking like Swiss cheese and issues with the Polish constitution. And even if it were the case that the rule of law was being violated for "the good of society", then perhaps there's a problem with the system if it needs to be violated to make necessary changes?
> They gave everyone with more than one child free money.
Not everyone agrees with that policy, but what is so wrong with it that you had to mention it as if it were an evil thing? The goal is to help slow or counteract the negative birth rate of the country. Europe in general is facing serious demographic issues. "Importing" large numbers of people from totally different cultures is not a great solution (see Germany, France).
> They also call everything 'national' instead of 'public'.
No, they don't. And when they do, so what? That's how state-owned institutions and programs are often labelled in Poland and elsewhere outside the US. The National Theatre, the Polish National Opera, the National Institute of Remembrance. What a silly grievance.
> They think that the EU is a hindrance and an enemy, as if Putin didn't exist (that the part I can't understand the most.)
They don't have issues with the European Union as such. They have issues with some ways the EU operates today and the way it relates to the countries of the former Eastern bloc. And who do you think makes up a good chunk of "Poland's owners" in this article? Hint: they're on the other side of "the river" and they own 80% of the Polish media. The current party, if you'll recall, signed the Lisbon Treaty in 2007. And w.r.t., Putin, Poland, and this party, are more keenly aware of the threat Putin poses than anyone, hence being one of very few countries actually meeting NATO defense quotas, hence trying to increase NATO presence in the region, hence pushing for the Three Seas Initiative with American support, hence previous attempts at installing a missile shield. The EU has done little to counter Putin. The West shows little solidarity with the countries most threatened by Putin. For example, Germany continues to carry on with its backroom deals and gas pipelines circumventing Poland, even though it would be cheaper to run the pipeline through Poland instead of through the Baltic.
So, I really have no idea what you're talking about.
"W okresie PRL ustanowienie sądu konstytucyjnego stało się postulatem formułowanym przez wiele środowisk w okresie przełomu politycznego lat 1980–1981[2]. Powołania TK domagała się m.in. adwokatura oraz Niezależny Samorządny Związek Zawodowy „Solidarność”. "
Yes, someone does not have the idea what they are talking about, the Tribunal was established because Solidarity movement wanted it. A lot of the information you posted is at least inaccurate to high degree and can be verified easily.
> The current judiciary is full of law-breaking and less than savory people with ties to the old Communist establishment.
Can you name at least a few high profile members of judicary that would fit this description? I can name a few in PIS Kryże, Piotrowicz (you know the communist era prosecutor that now reforms law in Poland... oh the irony) - even people like Cenckiewicz the historian clearly state that they should not be there.
> And even if it were the case that the rule of law was being violated for "the good of society", then perhaps there's a problem with the system if it needs to be violated to make necessary changes.
I agree, can you point me to the parts of the laws that will improve the system for the citizens instead of currently ruling party?
I was under the impression that most of the people that were working as judges during the Soviet occupation are now dead or retired..?
It's nice to think that the fall of Communism automatically led to the wholesale liquidation of the Communist establishment, but that's fabular, and after you think about it, quite a silly thing to expect. It would be disastrous to simply remove them without having prepared to replace them. When a certain establishment had been running the state for half a century, with all its ties and knowledge and competencies, you couldn't just expel them all just like that. They and they alone have been running the state for almost 50 years! (Especially given that the pre-War elites were either exterminated by the Nazis and the Soviets, or fled the country, or whatever, but outsiders unless they joined the ranks of the People's Republic).
So, unless you manage this transition somehow with the end goal of reducing if not disrupting the continuation of that corrupt establishment[0], an establishment known for profiting for its own selfish gains[1] and trained by Moscow to function as essentially colonial puppets of foreign interest, you still have a problem.
[0] Not everyone in that establishment was corrupt, of course.
[1] Hence the actual way in which state assets were privatized, often for funny money to foreign owners, sometimes for liquidation and removing domestic sources of competition, and in ways where former party apparatchiks and the like profited from their sale.
I'm not Polish so I don't know the situation exactly, but it's also been 30 years. I live in Poland and I see nothing even remotely resembling communism (besides the ugly Soviet buildings they haven't demolished yet). I think the government is using this as a scapegoat to push their agenda, but that's just an impression.
It is incredibly naive to think that a regime change somehow means all of the social and status networks just magically change. That is as silly as believing that a change in President == a change in bureaucracy.
I dream of living in Poland, or Czechia, someday. I know it isn't perfect, but it seems honest.
Polish history is fraught with calumny and misunderstanding. Sometimes they are apathetic, anti-Semitic fools, other times they are reasonable and intelligent hosts of a hard pressed diaspora population. None of this has any bearing on the fact that the Poles are in a three-way tie for most fcked up by WWII. IMO they were hurt the most. On top of the travails of WWII they were then thrust into the Soviet sphere. I know this will seem like a reprehensible statement, but if you want to learn about a group fuked by their neighbors and shunned by the world with their history erased and their culture besmirched internationally, it is the the children of Rejtan, not Judah. Consider that both groups lost roughly the same numbers (gross total) but one group gained a Homeland as well as an upward trajectory that apparently has no ceiling while the other was doomed to the orbit of the worst political and social experiment in recorded history.
So, I say to you: before you vomit up some BS you acquired on r/postcapitalism look into the deep history of a person, place, or people when they seem to act atypically or illogically. Sometimes the history can illuminate.
If you think my remonstration is misplaced or my recounting of history sloppy or inaccurate, I'd love to carry on a deeper conversation.
... assuming I'm not shadow banned for thoughtcrimes ;)