The Parties’ Flip-flops on Deficit Spending
Joseph Stiglitz is editor of The Economists’ Voice and has this article in its inaugural edition. He notes that long-term fiscal stimulus crowds out investment – a theme he also dubs Rubinomics. He further notes that the Bush tax cuts have provided little short-term stimulus for reasons similar to what Kash noted.
Stiglitz also noted that investment demand tends to follow opportunities where the return is highest, which appears to many to be in places like China. Indeed China is enjoying an investment led boom, which is being partly financed by a current account surplus. My question is why is the United States not exporting more to China as it appears we are suffering from weak exports.
Co-editor Brad DeLong summarizes all four paper in this inaugural edition, including one of his own.
Update: The Chinese Investment Boom (I misspoke)
As I was asking commenting on Stiglitz’s paper, I queried why the U.S. is not exporting more to China given Stiglitz’s observation that China has an investment boom. Thanks to Calmo for reminding me of the fixed exchange rate mercantilism being practiced by their Central Bank (as well as other Asian Central Banks).
But the error of suggesting a current account surplus is financing investment in part deserves me harsh criticism from anyone who does not write for NRO. Let me correct myself for noting some Chinese GDP data for 2002 from this source:
National savings as a share of GDP = 43.8%
Investment as a share of GDP = 41%
China is therefore running a current account surplus equal to approximately the difference as they save more than they invest per the World Bank data. Exports as a share of GDP were 29.5%. And the World Bank is suggesting real per capita growth of 8% per year for a sustained period of time. I have seen some that doubt the reliability of Chinese GDP statistics. Any thoughts on what the World Bank is reporting?