Counterparties: Growth is not enough
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The consensus says that China’s fourth quarter growth will come in at 7.8%, lower than the government’s targets of 8%. But even at a growth rate that’s more than double America’s, the world’s Very Serious People believe this is a precarious moment in China. Both Ian Bremmer and Nouriel Roubini list China as one of their top risks for 2013.
China is in the middle of one of the biggest Keynesian economic experiments in history. Last fall, after spending roughly $580 billion in post-crisis stimulus, China tried to bring its economy back to life with $156 billion more for the kind of roads, bridges and trains that Keynesians love. It’s also spending $250 billion a year, the NYT writes, to produce “college graduates in numbers the world has never seen before”.
While China is applying Keynesian solutions to its current problems, however, Tyler Cowen says China’s problem are more of the Hayekian variety. What Hayek called malinvestment — things like disastrously-constructed high-speed rail, bridges to nowhere and ghost towns — seems to be helping China’s political elite to become increasingly rich. All that stimulus, the argument goes, could lead to a bubble-ridden, half-finished wasteland.
A few other problems with China’s focus on government-driven growth. Besides the usual inflation worries, China, Nick Edwards writes, has one of “the world’s widest rich-poor gaps”, which threatens the country’s stability. To Peter Orszag, this is is particularly worrisome: researchers have found that no other country has made “the transition from middle to high income with high levels of inequality”. Though there’s some disagreement on whether China’s income inequality is improving or “dangerously high”, we still don’t have official data, nor will we get it in tomorrow’s promised figures. China’s government hasn’t released official income inequality statistics since 2000. — Ryan McCarthy
On to today’s links:
We’ve made Too Big to Fail approximately 3 times worse – Andy Haldane
Spending billions of dollars on mortgage settlements fails to boost Bank of America’s earnings – Reuters
Citi spent $1.3 billion on settlements and legal expenses in the fourth quarter - NYT
Things We Are Not Linking To
Wearing plaid = liberals embracing gun culture. BuzzFeed’s fake trend story