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Nick on Chinese stimulus

September 6, 2012 Leave a comment Go to comments

Why isn’t China post-2008 considered a great real world experiment of Keynesian stimulus?

-It was large enough (roughly 3x US stimulus as % of GDP iirc)

-The govt was starting from relatively low levels of public debt (reported anyway) so there wasn’t a crisis of confidence issue as in Europe today

-It was invested heavily into infrastructure and projects (like solar) slated to improve long run efficiency in an economy that arguably had room to increase capital stock per capita

-The political leadership directing the stimulus spending is made up of engineers, scientists, and other highly educated politicians who did not need to run for public election and thus could focus on longer run trade-offs

-The goal was to bridge a period of weak external demand rather than fundamentally alter the economy

Is this not a Keynesian’s dream scenario? My guess is that now Keynesians would say the spending was misguided and wasteful. But that’s the point! Western elites constantly praise Chinese leadership for their acumen — even today there’s an incredible amount of faith inside and outside the country that they will thread the needle — but they too were wasteful when it came to rapidly expanding government spending.

I have greatly enjoyed the recent pieces on China as I currently live in REDACTED…Fwiw, my take is that yes, the 2009 Chinese stimulus was a great test of large-scale govt stimulus and that we are seeing the results of what this looks like *in practice* rather than *in theory*. In practice, large-scale government stimulus is an invitation for corruption and a diversion of resources that builds up knowledge and capital in unproductive areas. As Obama said after the US stimulus package: there’s “no such thing as shovel ready projects.” Even in China.

via Nick on Chinese stimulus.

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