The Macroeconomics of Chinese Kleptocracy
Damn, Krugman beat me to this yesterday. I thought I would be bringing in a fascinating piece from the fringes of the Australioblogosphere.
Bronte Capital: The Macroeconomics of Chinese kleptocracy.
My basic take is the same as Paul’s:
I have no idea whether this John Hempton piece on China is at all right, but it’s a terrific read, and provides food for thought.
The logic of the piece is very much dependent on the loanable-funds model:
The Chinese kleptocracy – and indeed several major trends in the global economy – depend on copious quantities of savings at negative expected rates of return by middle and lower income Chinese.
As we saw quite clearly in The Great Keen-Krugman Debate, Paul is a firm believer in that model (and obviously Hempton is too). I and many others (notably Keen) have suggested that the model is ridiculous and nonsensical on its face.
If we look at the Hempton piece through other eyes — MMT for instance — does it still hold up? How can we rewrite it to explain things better while retaining its rather convincing insights?
Now here’s what’s fascinating: my hat tip goes to a post two days ago by Craig Tindale at … Steve Keen’s blog — a blog where you find little patience for the loanable funds model.
1. Why do we find an implicitly approving link over there?
2. How did Krugman come across this piece? Has he taken to reading Keen?
Cross-posted at Asymptosis.
As far as “how did Krugman come across this piece”, it was all over the blogosphere including common sites like business insider!!
Ah: missed it.
The piece does seem to conflate the issues of a high savings rate and real negative yields. I don’t believe the Chinese kleptocracy depends on a high savings rate any more than the Russian one does. I think it has been able to mask problems because borrowing as an SOE is so cheap and loans can be repaid in inflated renmibi. There is a real risk of slowing growth and deflation revealing an awful lot of the Chinese economy as a house of cards. The political result is not likely to be a popular uprising, but increasing problems with regional dukes and barons.
The high savings rate does suggest that China does not have as robust an internal market as it might, but China has always had a very high savings rate. In fact, most of Asia has long been noted for high savings rates and financial conservatism. This doesn’t have much to do with the availability of loans to mask troubled SOEs, but it implies China is much more dependent on exports than many other nations.