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A simple model of China's model of China
Compared to the U.S. economy, the Chinese economy has fewer automatic stabilizers, such as welfare programs and unemployment insurance. That implies their fiscal policy should, if possible, be especially countercyclical, compared to what is called for in most richer countries.
Chinese leaders view volatility as serially correlated and increasing from the source outwards. Given Chinese history, they expect that shocks grow and spread rather than dampening down. So when a shock comes, the demand to hold and indeed hoard very safe assets increases rather than decreases. Chinese fiscal policy ends up being pro-cyclical rather than countercyclical. And it is hard to succeed with fiscal policy in the first place.
Fortunately, I'm just making that model up. Why should we expect lots of mistakes to be made?
Posted by Tyler Cowen on November 11, 2008 at 07:22 AM in Political Science | Permalink
Comments
The Chinese are far more sensitive to worker anxiety than either the Democrats or Republicans. You can find plenty of "hands clean" comments from Republicans who are happy to pin the coming economic crisis on the Democrats. For the CCP, there are no clean hands.
On the flip side, the worst Democrats can expect is some kind mutant hybrid in the form of a country run by a redneck-libertarian Palin-Paul alliance. Whereas if the CCP falls, almost anything could happen.
Posted by: 8 at Nov 11, 2008 8:37:08 AM
Perhaps we need even more "economic stabilizers" here in the US.
Luckily, congress is now discussing confiscating all 401ks and IRAs. I suppose this is "better than nothing"...kinda like than Paulson plan.
Perhaps you guys could put in a good word with the academic community(they can be so unpragmatic)?
Posted by: Gabe at Nov 11, 2008 9:01:50 AM
Everyday we read some worrying news about Chinese economy. If it turns into ChinaDown the Chinese Government will face a difficult situation just in time for the 20th anniversary of the 1989 protests in Tiananmen Square.
Twenty years ago some intelectuals and university students led those protests. Next time workers could take their place.
Posted by: Pablo Martínez-Almeida at Nov 11, 2008 10:16:16 AM
they expect that shocks grow and spread rather than dampening down
=========
A Shenzhen manufacturer who recently tried to close by informal agreement describes the process as almost impossible. He had to negotiate separately with over a dozen government agencies, including tax, labour and even the fire department; each had demands that changed by the day. Then there were skittish suppliers, one of whom blockaded his firm’s entrance. “Everyone just wanted more money,” he says. “That is why most people just shut down overnight.” The only thing everyone agreed on was the need to avoid the local courts.
http://www.economist.com/business/displaystory.cfm?story_id=12380989&fsrc=rss
Posted by: Amicus at Nov 11, 2008 12:33:44 PM
"Fortunately, I'm just making that model up"
This is the most honest thing that has ever been said on this site and by economist in general. Economics field uses math like English department uses obscure words to sound profound and hide shallowness. Tyler won't respond to Krugman on Great Depression and instead write a new post opening on a new terrain when original terrain has not be covered and no final conclusion has been reached. What a coward and intellectual charlatan.
Posted by: gloucester12000 at Nov 11, 2008 2:22:43 PM
This is more critical now. If China misses a step then we are all goner!
The only way to get the saving population to start spending and kick-start consumption is to let them buy brands that have build up aspirations in their minds. This will be possible with letting CNY appreciate and letting the products be available freely.
The trouble is this will make non-china manufacturing cheaper - leading to job loss from manufacturing sector. However if China really wants to move to a consumption driven economy then there will be job shift to services and out of manufacturing.
The question is will china bite the bullet!
Posted by: Rahul Deodhar at Nov 12, 2008 6:50:28 AM
I am very confused by your posts on China. It's as if you can write
something clearly about any other issue but China.
If you don't understand the issues deep enough related to China, then don't
write about it.
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#3 7th November 2008, 11:35 AM
njadhikari
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