Sunday, December 18, 2011

Agreeing With Krugman on China - Truly Scary

Paul Krugman is the economist/columnist that I love to hate. He is probably brilliant in some way that I cannot understand, because I almost never see it in his work at the New York Times. He is a Nobel Prize winner, but I often wondered if his award was not politically motivated, in much the same way that Obama's clearly was. I was surprised to find his analysis of China's economic situation quite penetrating. I had argued against Glenn Beck and others that China was not the formidable foe they thought. My unlikely ally in this regard is Krugman. Some key points.

Still, even the official data are troubling — and recent news is sufficiently dramatic to ring alarm bells.

The most striking thing about the Chinese economy over the past decade was the way household consumption, although rising, lagged behind overall growth.

. . .China increasingly relied on trade surpluses to keep manufacturing afloat. But the bigger story from China’s point of view is investment spending, which has soared to almost half of G.D.P.

. . .it [the motivation for this investment] depended on an ever-inflating real estate bubble. Real estate investment has roughly doubled as a share of G.D.P. since 2000, accounting directly for more than half of the overall rise in investment.

Do we actually know that [Chinese] real estate was a bubble? It exhibited all the signs: not just rising prices, but also the kind of speculative fever all too familiar from our own experiences just a few years back — think coastal Florida.

. . . it’s impossible not to be worried: China’s story just sounds too much like the crack-ups we’ve already seen elsewhere.

Krugman also takes to task those who think that China's "strong, smart leaders" who don't have to bother with democratic niceties will somehow handle the situation. He points out that endemic bribery at the local level limits the central government's ability to govern. I would add that even dictatorships are subject to political pressures, which ultimately cannot be ignored.

We have a good news, bad news situation. Despite all of the troubles of the Unites States, there is no other nation close to being able to challenge our leadership, not the Europeans, not China and not Russia. However, if China also starts to suffer serious economic hardship, then a global depression seems possible.

1 comment:

  1. China's massive population of poor is a political and physical threat to the regime. A regime that sprung from the discontent of the poor. The Chinese communists have made promises that cannot be kept and are a model for American progressives for holding power at all cost. Power tapped from misery, ignorance and dependence upon the state.