Re: Chinese ham handedness and monopolies

On 12/4/2012 9:02 AM, Dan Minette wrote:
>   I sent this to a single person instead of the list due to Killer B being
> changed (probably automatically) from the sender to a cc.  I think this
> happened a couple of other times.  I've gotten replies, but will not post
> them, because they aren't my emails.  But if the sender would, or would give
> me permission to, that would be great.
> In reply to Kevin, I wrote:
>
>> The Chinese were extremely ham-handed about this.  In particular,
>> their stoppage of rare earth shipments in response to an incident
>> involving their extrodinary claims to ocean territory (basically any
>> territory claims of the Chinese over the last 1000 years are
>> considered valid and enforceable by the the Chinese government)
>> generated strong reaction.  Given the fact that consumers rightfully
>> believed that the Chinese were untrustworthy suppliers, as well as
>> expensive ones, it was reasonable for them to sacrifice a little
>> performance to switch to a more reliable and cheaper supply.  The Chinese
> overplayed their hand, as they have overall the last year.

And if the Chinese try to raise further, it only creates more incentives 
to look into alternatives.

I think this may be one of the reasons why the Club of Rome predictions 
failed (there are clearly numerous reasons). As an economist named 
Hotelling pointed out early in the 20th century, there are good reasons 
in economics to expect the prices of non-renewable resources to rise 
over time at approximately the same rate as the interest rate. (I'm just 
giving a simplified explanation here, see the Journal article if you 
really like this sort of thing.) But any time a resource has rising 
prices it creates incentives to look for substitutes, and the higher the 
price, the higher the incentive. So a lot of products are no longer made 
with steel, but with plastics or composites, for instance. The other 
price obviously is to stimulate the search for new sources of supply. 
Put those together and you can see why those predictions of disaster 
have not materialized.

By similar reasoning, any attempt to monopolize a resource or product 
can only succeed if there is some way of preventing and competitor from 
entering the market. Most commonly this requires government action to 
create and sustain the monopoly. Since that will not happen in the case 
of rare earth elements, I doubt there can be a lasting monopoly problem 
here. In a similar way, recall how the oil prices hikes of the 70s 
turned into the price collapse of the 1980s as both fuel efficiency and 
increased exploration responded ot the market price signals.

> They can probably drive Western companies out of the solar cell business.
> Their entire ecconomic model, with artifically low value on their
> currency, and the disdaining of IP right of other countries, fits
> this.  They may very well increase prices after becoming a near
> monopoly, but the alternatives are oil and gas and coal and wind.
> And, for certain remote applications, solar power actually works best.
Well, they can drive them out, perhaps, but can they keep them out? One 
of two things seems likely:

1. China creates a temporary monopoly, then tries to raise prices to 
profit from it. See above for how market forces respond.

2. China creates a monopoly, then subsidizes solar panel producers 
permanently to maintain that monopoly. And permanently low prices for 
solar panels cause terrible devastation to the U.S. economy...Wait, that 
doesn't quite make sense. I think I rather like low prices for solar 
panels. And this could create a boom in low-cost, non-polluting energy 
which only benefits us.

> So, I'm guessing that it will not be the big win they see.  But, they
> are caught at a GDP level where Huntington has pointed out that
> totalitarian goverments begin to get pushed by the growing middle
> class.  Their reaction is to clamp down harder....especially with the
> new leadership, where all the leaders are both well filtered and the
> result of nepotism.  It is a dangerous mixture.  Putting this together
> with their demographic window of opportunity (the 1-child policy has a
> big demographic bubble that will be old in 20 years), a surplus of
> males, and one has a classic situation where countries become aggressive.
OK, this is where my "economist" hat no longer gives me any particular 
aid. I will say that indeed it will get interesting, but the factor that 
is most likely to cause aggression on a large scale is water. That is in 
short supply, unless we can access abundant cheap energy to desalinate 
ocean water to make potable water.

Regards,

-- 
Kevin B. O'Brien
[email protected]
A damsel with a dulcimer in a vision once I saw.