Confusions and policies…let’s keep the players in mind all around
Chinese Confusions
by Paul Krugman
These days, China seems to play the same role in much of our discourse that Japan did two decades ago. We look at our own follies — which are immense — and then look at the Chinese, and ascribe to them all the virtues of foresight and determination we lack.
But just like the Japanese, the Chinese are human, and their policy makers are subject to the same kinds of confusion and inability to make hard choices that are part of the human condition. And Chinese macroeconomic policy is in the process of becoming a cautionary tale.
Basic economics says that by deciding to keep the renminbi undervalued, the Chinese put themselves under inflationary pressure; and sure enough, inflation is rapidly becoming a serious problem.
But political considerations seem to be ruling out all the reasonable responses. They won’t revalue, because that would hurt politically influential exporters. They’re reluctant to raise interest rates, because that would hurt politically influential real estate developers. They’re trying to impose quantitative limits on credit, but are finding that borrowers have enough influence to circumvent the limits. And now they’re trying price controls — which will inevitably come apart at the seams unless they do something about the underlying pressures.
It’s an edifying spectacle.
Now, schadenfreude should not lead to any complaceny on our part; China may be corrupt and unable to make sensible short-run choices, but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down. Still, it’s worth remembering that all giants have feet of clay.
The comparison between China and Japan becomes more clear once you look at demographics: Japan shows where demographically China will be in 30 years with a shrinking population. The US does not have the problem in nearly the same degree. Note that Mexico will also start shrinking in population in the 30 year time frame as well.
Note that China is having to move inland to get more workers cheap as the well along the coast is about dry. However since it appears to take them as long to build infrastructure, except for those above the 3 gorges dam transport proves to be a problem. Note that I have also read that due to transport and other issues China is about at peak domestic coal production, so its clear why it is pushing renewables so much.
The US by contrast has a lot of coal, and also recently we have found a lot of natural gas.
Paul Krugman – “China may be corrupt and unable to make sensible short-run choices, but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down.”
Paul should explain in more detail what his statement means.
There was wom pushback on Krugman’s comment thread. For starters, this response caught my attention:
mickeyrad Centerville IowaDecember 17th, 20101:36 pm”China’s problems are just cosmetic. America’s problems are life-threatening. China will manage inflation by beheadings, if necessary. America is in for a severe deflationary shock that will only be exacerbated as demand falls further next year after state and local governments cut budgets and slash payrolls while housing prices continue to drop.
Our China policy – instituted by Bill Clinton and continued unchanged by Bush and Obama – is an utter failure. All we’ve done is to destroy our national economy while enabling China to become a superpower in fact, not potential.
American corporations lusted after China for decades. Presidents from Eisenhower to GHW Bush all could have given China the “deal” Clinton gave them, but those presidents were too wise and too patriotic to sell out their nation for the few dollars American corporations can reap in China.
Clinton sold the American Middle Class down the river to China. Clinton eviscerated the little safety net we had. Clinton deregulated Wall Street and oversaw the “swap” of American manufacturing and all of its good jobs for Wall Street financial schemes, where a handful get rich and everyone else suffers.
All told, Clinton earns Alan Greenspan’s “praise”: “Bill Clinton is the best Republican president of my lifetime.” And when the US needed a true Democrat to restore some semblance of balance in our economy, we got another turncoat saboteur, Barack Obama.”
Paul Krugman – “China may be corrupt and unable to make sensible short-run choices, but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down.”
Paul should explain in more detail what his statement means. I don’t believe that the U.S. has China “beat hands down”. The floodgates of offshoring U.S. production of goods and services are still far too low.
There was some pushback on Krugman’s comment thread. For starters, this response caught my attention:
mickeyrad Centerville IowaDecember 17th, 20101:36 pm”China’s problems are just cosmetic. America’s problems are life-threatening. China will manage inflation by beheadings, if necessary. America is in for a severe deflationary shock that will only be exacerbated as demand falls further next year after state and local governments cut budgets and slash payrolls while housing prices continue to drop.
Our China policy – instituted by Bill Clinton and continued unchanged by Bush and Obama – is an utter failure. All we’ve done is to destroy our national economy while enabling China to become a superpower in fact, not potential.
American corporations lusted after China for decades. Presidents from Eisenhower to GHW Bush all could have given China the “deal” Clinton gave them, but those presidents were too wise and too patriotic to sell out their nation for the few dollars American corporations can reap in China.
Clinton sold the American Middle Class down the river to China. Clinton eviscerated the little safety net we had. Clinton deregulated Wall Street and oversaw the “swap” of American manufacturing and all of its good jobs for Wall Street financial schemes, where a handful get rich and everyone else suffers.
All told, Clinton earns Alan Greenspan’s “praise”: “Bill Clinton is the best Republican president of my lifetime.” And when the US needed a true Democrat to restore some semblance of balance in our economy, we got another turncoat saboteur, Barack Obama.”
Paul Krugman – “China may be corrupt and unable to make sensible short-run choices, but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down.”
Paul should explain in more detail what his statement means. I don’t believe that the U.S. has China “beat hands down”. The floodgates for offshoring U.S. production of goods and some services are still far too low. We’re not out of the woods.
There was some pushback on Krugman’s comment thread. For starters, this response caught my attention:
mickeyrad
Centerville Iowa
December 17th, 2010 1:36 pm
“China’s problems are just cosmetic. America’s problems are life-threatening. China will manage inflation by beheadings, if necessary. America is in for a severe deflationary shock that will only be exacerbated as demand falls further next year after state and local governments cut budgets and slash payrolls while housing prices continue to drop.
Our China policy – instituted by Bill Clinton and continued unchanged by Bush and Obama – is an utter failure. All we’ve done is to destroy our national economy while enabling China to become a superpower in fact, not potential.
American corporations lusted after China for decades. Presidents from Eisenhower to GHW Bush all could have given China the “deal” Clinton gave them, but those presidents were too wise and too patriotic to sell out their nation for the few dollars American corporations can reap in China.
Clinton sold the American Middle Class down the river to China. Clinton eviscerated the little safety net we had. Clinton deregulated Wall Street and oversaw the “swap” of American manufacturing and all of its good jobs for Wall Street financial schemes, where a handful get rich and everyone else suffers.
All told, Clinton earns Alan Greenspan’s “praise”: “Bill Clinton is the best Republican president of my lifetime.” And when the US needed a true Democrat to restore some semblance of balance in our economy, we got another turncoat saboteur, Barack Obama.”
Paul Krugman – “China may be corrupt and unable to make sensible short-run choices, but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down.”
Paul should explain in more detail what his statement means. I don’t believe that the U.S. has China “beat hands down”. The floodgates for offshoring U.S. production of goods and some services are still far too low. We’re not out of the woods.
There was some pushback on Krugman’s comment thread. For starters, this response caught my attention:
mickeyrad
Centerville Iowa
December 17th, 2010 1:36 pm
“China’s problems are just cosmetic. America’s problems are life-threatening. China will manage inflation by beheadings, if necessary. America is in for a severe deflationary shock that will only be exacerbated as demand falls further next year after state and local governments cut budgets and slash payrolls while housing prices continue to drop.
Our China policy – instituted by Bill Clinton and continued unchanged by Bush and Obama – is an utter failure. All we’ve done is to destroy our national economy while enabling China to become a superpower in fact, not potential.
American corporations lusted after China for decades. Presidents from Eisenhower to GHW Bush all could have given China the “deal” Clinton gave them, but those presidents were too wise and too patriotic to sell out their nation for the few dollars American corporations can reap in China.
Clinton sold the American Middle Class down the river to China. Clinton eviscerated the little safety net we had. Clinton deregulated Wall Street and oversaw the “swap” of American manufacturing and all of its good jobs for Wall Street financial schemes, where a handful get rich […]
Movie Guy,
You have to read Krugman carefully, he says” “but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down.” It’s a clumsy “double positive” that is wrong as well:
First he talks about how the former planned-economy wunderkind, Japan, parallels China, then he talks about the problems in China, then he drops that poorly worded and unsupported clunker.
Movie Guy,
You have to read Krugman carefully, he says” “but in terms of fundamental inability to deal with long-term problems, we still have them beat hands down.” It’s a clumsy “double positive” that is wrong as well:
First he talks about how the former planned-economy wunderkind now stagnant, Japan, parallels China, then he talks about the problems in China, then he drops that poorly worded and unsupported clunker.
MG,
Check this out. Apparently in China “There’s city after city full of empty streets and vast government buildings, some in the most inhospitable locations
http://www.businessinsider.com/pictures-chinese-ghost-cities-2010-12?slop=1#slideshow-start
Thanks.
sammy,
You’re right. I misread it.
MG,
The only thing China has going for it is hordes of cheap labor. The reason labor is cheap is because of that abomination – Communism.
In order to maintain this competitive advantage they have to keep their people POOR, which they are doing. The per capita income in China is $6000 per year. This is not a model which we should be following.
The people that keep scaring you with the China boogeyman are just the people that want the government to have more control over the economy.
No one suggested following the model sammy. It has some big contradictions of its own to solve. If the Chinese do not shift in time to domestic consumption you might have a point, but to claim that poverty in China is a communist plot over the last decades is simply ignorant of its history and the huge transition being attempted.
I assume you see trade policy as another government takeover manuver?
I can’t speak for Krugman, but I’ll try and answer what he means by “we still have them (China) beat hands down.” Republicans will be taking over the House in January, and have enough power in the Senate to enact policies that will make our current economic problems much worse. The call to get control of the defecit will be priority number one. The recent extension of the tax cuts for another 2 years will add around 800 billion to the deficit. How the Republicans plan to pay for the tax cuts, aside from the majic of supply side economics, will be the tell. We can forget about cutting the defense dept. budget, and will continue to fund the wars without paying for them. There will be a concerted effort to go after “entitlements” with a vengance. And, I’m afraid the Republilcans will get help from the second best Republican president since Clinton. Just as Nixon goes to China, as Clinton effectuated “free trade”, Obama will be the one to try and “fix” SSI and Medicare. Furthermore; there will be no attempt at the federal level to help States that are in serious financial trouble. In the end, I suspect Krugman is saying that we can expect the federal government to squeeze the economy to death at an accelerated rate, in the name of fiscal responsibility and to stop inflation that is feared to materialize at some unknown time in the future.
As Mark Twain noted: “there is not really a criminial class in America; except in Congress.”
Sounds like the U.S.A. has been neutered, or am I reading this wrong? Of course, the leadership in todays Congress show signs of this being true. Oh whoe, what are we to do? Where is the benevolent strongman when he’s needed? We find that the new leader of the house along with the minority leader of the senate, cry! What does this foretell for the country? What a mess we’re in today. Sad, watching this great country going down the tubes, at an excelerated pace at that. What kind of legacy are the Grandchildren to inherit?
http://www.calculatedriskblog.com/2010/12/spanish-ghost-towns.html
Greed is good comes in all political persuasions.