Counterparties: Growth is not enough

January 17, 2013

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Tomorrow, the world’s second-largest economy will release its economic growth figures. China’s growth, as Keith Bradsher writes, is expected to pick up again, for the first time in seven quarters.

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:

Alpha
On the trail of SAC’s alleged “black edge” in its trades – Businessweek

TBTF
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

Explained
Markets step in from stage left and have a McLuhan moment with DC - Neil Irwin

Anti-Goldbuggery
“The S&P has beaten gold over every 30-year period of history, ever” – Noah Smith

Oxpeckers
“These constructions acknowledge a truth: our actions are increasingly passive online” – Choire Sicha
How Pete Peterson captured the mainstream media – Remapping Debate

Wonks
“Even the driest definitions of human social development will inevitably carry a strong whiff of ideology” – Jay Ulfeder

New Normal
Running away to join the circus no longer a path to job security – LAT

Correlation
Party identification and gun ownership – Nate Silver

Listicles
“Genuine apocalyptic events” and 149 other things that scare smart people – Motherboard

Video
Extreme pogo sticking exists, and it’s rad – Devour

Facebook
Facebook is launching free calling for US iPhone users – WSJ

The Fed
Are you there, Ben Bernanke? It’s me, Matt – Not Graphs

Things We Are Not Linking To 
Wearing plaid = liberals embracing gun culture. BuzzFeed’s fake trend story

Comments
2 comments so far

Tyler Cowen understands the Chinese situation? Please stop me before I kill myself laughing.

Posted by Chris08 | Report as abusive

China isn’t the only nation to have built a rail line to nowhere. Look at the US with its wasteful government spending on transcontinental railroads, heavier than air flying craft, steam powered water transport and the idiotic interstate highway system which linked ring road to ring road and went nowhere. It’s called nation building. Right now economic theory argues for liquidation, but that never turns out well in the long run.

Given the record of the private sector in allocating resources over the last few decades, I’d say that China would do better with a new Cultural Revolution than relying on the free market.

Posted by Kaleberg | Report as abusive
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