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Todd's avatar

Great post Peter. Especially noteworthy section on the economics profession’s perennial infatuation with and marriage to socialist command and control economics, and monetary policy. Makes one think again of all that has been gained and lost forever since 2008– great monetary crisis. As to China’s debt pile funded economic growth model you note “It just doesn’t add up”, yet the problem on both sides is that — It Does Add Up ! :) Exhibit A 36 Trillion US debt pile. Questions remain as to where and when the fissures may emerge triggering the cascade through and across markets inflated in price and leverage.

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David R.'s avatar

Looking closely at China over the last decade and a half, it seems very clear that the open economy model is vastly better for ordinary people excepting a relatively brief phase in developing economies when fiscal repression and industrial subsidy is the only way to produce durable comparative advantages beyond just "cheap labor," which historically is insufficient to attract capital and its know-how on its own.

Once that window closes, the only durable way to facilitate productive investment and enhance productivity is to closely align output to demand, which means curtailing fiscal repression, aligning infrastructure spending to the needs of the citizenry, transferring income to broad-based social programs in a progressive fashion...

But doing that in a world where major economic/security competitors do not, you cede a form of comparative advantage to them.

It would be better for the US and its developed-world allies to systemically decouple from China if it allowed them to maintain the open nature of their economies internally and in trade relationships with countries other than China, than to adopt the China playbook wholesale in their trade relations with everyone.

It's the only way to inoculate ourselves against being systemically deindustrialized and denuded of advanced services enterprises while not just embracing full autarky, and probably the only way to break the vicious cycle of debt accumulation.

That it would force the Party-state to completely reevaluate their own development strategy and finally invest in my friends and family at home instead of propping up negative ROIC enterprises to capture export market share... is just icing on the cake.

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