Question. When you relax at your morning coffee, do you entertain yourself by doing high math on paper napkins? You don't have to answer, it's clear that you do, and it's pleasing to know. That your "wonk" is worded for we non-wonks is much appreciated.
I suspect that he (like many other economists) is more likely to spend his morning coffee by pulling up charts on his laptop from this or that web site, just as you see him doing here. That is still mathematical thinking, but it's not the same kind as writing formulas on napkins. From time to time, a chart might be drawn on a napkin.
Where China is concerned I sometimes think we (the west aligned nations) kind of miss the point. Japan was a democracy that had at least a little political competition. China is an autocracy that only needs to keep the population happy enough not to revolt, while simultaneously working toward other goals (Taiwan - cough cough).
If that is the goal, keeping investment focus on militarily relevant projects, and employment high enough to avoid civil unrest is the goal…the goal is explicitly not about standard of living. When Xi tells youth to “eat bitterness” it may be that he is just preparing them for future conflict.
In March he told his military to prepare for conflict. He has also told the military to prepare for conflict by 2027 and followed that up with a number of corruption investigations of military personnel. He has step up drills around Taiwan and increased spending on military projects needed to meet this goal. The CCP has also required civilian shipping to build dual use ships (see their “civilian ferries”). Even popping the real estate bubble helps in this goal by re aligning resources that could help in that conflict (remember the roll construction played in the last pacific war). Demographically his best bet is to conduct the war between 2025 and 2035.
Long story short (and much like Hitler), Xi has told us what he intends to do, provided a timeline to do it, is fashioning his economy to support those goals, and is not doing the kinds of things that might improve his people’s standards of living if they impede the goal. Other factors like demography and the damage he is doing to the economy to prepare for war make conducting it basically essential (else the sacrifices made be wasted).
I think we are kind of ignoring the canary in the mine shaft and focusing on the wrong topic…what he is doing is rational if you accept the premise that he intends to go to war in the next five years.
There is another factor involved, the moral corrosion that fundamentally affects the views of the people. Everyone is a scammer, especially the govt (on multiple levels). There are no really safe investments, the market is full of fake gold, their food is adulterated, they haven't been paid in months, their wealth vanished with the property crash. They really have no one in which to believe, nowhere to preserve their wealth.
We're getting pretty close to les Miserables here . . .
Thanks for making these complex ideas so clear. It makes me think about S. Korea, another country that is going through a demographic collapse. I wonder if the recent political upheaval is in someways a response to macroeconomics difficulties that the country faces? All of our allies, Germany, Britain, Italy, Korea, Japan are dealing with a "birth dirth" We are only avoiding it because of our immigration policies which, apparently, are about to be radically worsened.
the mouse keeps saying: the real economic policy challenge going forward will be a model that is sustainable with NO population growth. A principle side effect of capitalism is workers not having babies. On the farm you needed lots of sons and daughters. Those days are not coming back. Immigration is a short term solution only. Working for money 10 or 12 hours a day is birth control.
The thing that's going to make a lot of people uncomfortable is that it requires more elderly people to continue working, at least part-time. That will offend both the "how dare you FORCE old people to continue working" crowd as well as the "how DARE these old people keep holding positions of power while they're in cognitive decline" crowd.
Complainers’ gonna complain! As long as I can continue to enjoy working from home with ever slightly more leave, it’ll be hard for me and I’m sure others to see the downside of continuing beyond the first chances to retire. Forcing us to trudge back into a central office setting will end it pretty quickly, though.
Japan also deals with very slowly changing cultural norms re: women in the workforce, and how women are expected to be (essentially) the sole parent once children are born.
Yours is the first comment to address women and how they interact with the economy. I will also add that the work from home model is good for neurodivergent people (quieter/easier to focus) or others who can't drive.
You credit Japanese economic officials with pulling off a smooth adjustment toward less reliance on investment and export-led growth, implying that it was their skilled analysis that made this happen. I agree that they played a role, but I think it was important that Japan was also facing strong pressure from the US to adjust in these ways in the late 1980s and early 1990s, culminating in the Structural Impediments Initiative talks wherein the US pushed Japan to shift toward consumption-led growth and threatened trade retaliation if they would not do so. I wrote about these talks back then in the book Bargaining with Japan (Columbia UP, 1997).
Superficially, the US seems to be doing something like this to China again today, but the difference in the strategic environment between then and now helps understand why Japan was able to adapt under pressure while China seems eager to resist. Back in the early 1990s, the US and Japan wanted to maintain their alliance, so both sides wanted a DEAL (not a trade war) and so helped nudge Japan toward adjustment (helped by officials in Japan who understood why this made sense). Today, there are too many US politicians and officials who think a trade war with China will help us win the security competition with them, so it is hard to see how US negotiators can play the kind of role they did back then with Japan in China today.
It's weird how you place the onus on US politicians and officials to make nice with China in that last part when it is very clearly AT BEST a two-way street and at worst China is the problem on that front.
Thank you for this. I have a hard time following since I am not trained in economics but am trying. I can't imagine that 45/47 and his people have any idea of the complexities you describe. And what that means for all of us.
Fascinating. Another object lesson on why not to let rigid control freaks run the world. We need people who can evaluate the effects of their policies and change course ahead of the collapses! Unfortunately a whole lot of humanity are going to be caught in the cross winds here.
My Chinese friends, mainly scientists and engineers, are elderly, like me, but I wanted to explore with them the economic performance issues you have raised. I could not get a response for this comment on your outstanding analysis but I wish that I could access accurate social and economic data on the quality of living in China, including a good poll of the Chinese households.
The thought-provoking message in this post could not have come at a better time and I hope that our "new China hands" on Congressional staffs and in the State Department will be spurred to continue developing a positive relationship with China. It would be utterly stupid to pursue policies that treat China as a military/hostile threat.
China has come a very long way since the 1990s and I am proud of the work of their planners in leapfrogging their economy with the most advanced technologies in the development of their logistics, public works, communications, and agriculture. I don't know Xi or his advisors, but the scientists and engineers who were planning their "commons" infrastructure are on the right track and have compressed the socio-economic development of China at remarkable speed.
In the absence of a U. of Michigan consumer confidence poll, I used the GINI coefficient to compare the quality of life in China and the U.S. The GINI coefficient measures income inequality within a population.
China's GINI index increased significantly from 2000 to 2010, indicating rising income inequality during its rapid economic growth. Since 2010, the GINI index has decreased, reflecting efforts to reduce inequality through social policies and poverty alleviation programs.
The initial rise in inequality was due to the uneven distribution of economic benefits, with urban and coastal areas benefiting more than rural regions. As inequality has decreased, the quality of living has improved for many, particularly in rural areas, due to targeted poverty reduction initiatives and better access to education and healthcare.
In comparison, The GINI index in the U.S. has generally increased since 2000, peaking around 2015-2020, indicating growing income inequality. The recent slight decline suggests some measures to address inequality, but it remains relatively high.
Increased income inequality has led to a wider gap between the wealthy and the less affluent. This has impacted the quality of living for many Americans, with higher costs of living, reduced access to affordable healthcare and education, and greater financial insecurity for lower-income households.
Efforts to reduce inequality, such as social welfare programs and wage increases, aim to improve these conditions.
China has seen a reduction in income inequality in recent years, leading to improved living standards for many, however, the U.S. continues to grapple with high-income inequality, affecting the quality of living for a significant portion of the American population.
Both China and the U.S. need to continue to develop a more egalitarian society. In my experience, Americans or Chinese, don't think of economic equality in terms of wealth and income, but rather as equality of opportunity. Access to public education, and affordable healthcare, housing, and affordable nutritious food is essential. This access is provided by commons logistics for the distribution of energy, water, waste treatment, roads, railways, waterways, and water.
If humankind is to make progress on the existential threat of climate change, China, India, Europe, Russia, Australia, and the advanced economies of North and South America must accelerate the development of energy-efficient technologies, systems for generating sustainable electric power and infrastructure systems to continue to improve the world standard of living, by market-based trade and encouraging the exchange of ideas and information about the lifestyles of other cultures by travel and entertainment systems. Thanks for the YouTube Japanese musical.
That's very interesting. China's Belt and Road plan seems to be an attempt to avoid stagnation by boosting manufacturing trade with other regions e g. the new port in Peru, while avoiding America.
Here in Australia we have continued solid economic growth through a combination of strong exports and a high immigration rate, which has added about 1% to GDP and kept our population growing and revitalised.
I predict Trump's tariffs will be an own goal, raising prices for American shoppers while causing other countries to bypass the USA and trade among themselves, to China's benefit.
China tried to punish Australia by imposing import bans, but our exporters just moved to other markets and China had to scrap the bans.
Xi can't afford to upset a solid trading partner like Australia, which has free trade policies and imports lots of Chinese products, including my caravan, incidentally.
Chinese-made EVs are pouring into Australia and Temu is doing great business while Amazon struggles.
Australia is also growing trade and military ties with the rest of Asia, including India, Japan and South Korea, and turning to Indonesia.
India is a huge growth market, and lots of Indians have been accepted into Australia, boosting ties. We are currently beating India at cricket, before packed crowds for both sides.
Australia used to hide behind high tariffs, but the costs became too high and we threw them off and went free trade in the 70s and 80s, with huge benefits.
Incidentally, we don't actually do much trade with the USA, our links are mainly investors, so we are fairly insulated from the coming American recession under Trump's foolish plans.
In summary, I think many of your comments about Japan are also true of Australia and I encourage you to make the comparison.
It's not surprising to see China and its leadership driving blind in its first full on challenge as an open(at least relative to pre-Tieneman) economy. It is a bit of a shock to see how cavalier Xi is about deflation. Perhaps his anti-intellectual style is better suited as cheerleader, but the Chinese people have no options so they need to buckle up.
As others have said, I appreciate enormously the way you are able to make difficult concepts legible to us ordinary mortals, even when you are being more wonky than usual. Also, I am in awe of your ability to come up with a propos musical codas.
In re "China hasn’t moved at all toward the kind of lower investment, higher consumption economy it needs to become."
My question would be: should this be happening *now*?
My knowledge is limited, but my understanding is that China is currently investing heavily in clean energy, semiconductors, health care, and the like - all of which are things that (at least arguably) we *all* should be investing in.
I would agree that the change you suggest needs to happen at some point, butit strikes me that continued investment (at least in the short-to-medium term) could be the most reasonable course of action.
For a country to "invest" in something can mean any spending priority of any kind, or it can mean specifically spending on infrastructure (either in the public or private sector). Krugman is saying that China is overspending on infrastructure, for example by building so many homes that tens of millions of them are unfinished or vacant. If you overspend in one category, then you underspend in another category. Krugman is saying that China's economic policies do not encourage enough consumer spending.
I agree that China should spend money on clean energy, but that is probably not the bulk of China's infrastructure spending. Like the US economy, the Chinese economy is so vast that it can spend vast sums on something even while it is only a small fraction of the total economy.
Health care is a case in point. Although infrastructure spending can be related to health care, health care can also mean consumer spending, in the guise of payments for medical care. Even though life expectancy in China is respectable, it's very possible that Chinese people need more health care.
But, as I understand it (corrections welcome) China is no longer overspending on housing, so that is no longer relevant.
And yes, at some point China will need to encourage more consumer spending. My question was: "should this be happening *now*" - given that there is so much need for investment now.
On your China article, I was struck by the evolution of total factor productivity—which seems to be stagnant in recent years—in contrast to a steady rising labour productivity (as depicted by the graph on constant GDP per working age persons). Is this an indicator of a downward capital productivity trend?
If so why—still excessive investment? And what are the implications?
Question. When you relax at your morning coffee, do you entertain yourself by doing high math on paper napkins? You don't have to answer, it's clear that you do, and it's pleasing to know. That your "wonk" is worded for we non-wonks is much appreciated.
I suspect that he (like many other economists) is more likely to spend his morning coffee by pulling up charts on his laptop from this or that web site, just as you see him doing here. That is still mathematical thinking, but it's not the same kind as writing formulas on napkins. From time to time, a chart might be drawn on a napkin.
Some of those charts are real laffers.
Although I wouldn't call myself humorless, I'm certainly not a "laffer".
Okay, there are good charts and bad charts, just as there is good math and bad math in general.
https://www.investopedia.com/terms/l/laffercurve.asp
Where China is concerned I sometimes think we (the west aligned nations) kind of miss the point. Japan was a democracy that had at least a little political competition. China is an autocracy that only needs to keep the population happy enough not to revolt, while simultaneously working toward other goals (Taiwan - cough cough).
If that is the goal, keeping investment focus on militarily relevant projects, and employment high enough to avoid civil unrest is the goal…the goal is explicitly not about standard of living. When Xi tells youth to “eat bitterness” it may be that he is just preparing them for future conflict.
In March he told his military to prepare for conflict. He has also told the military to prepare for conflict by 2027 and followed that up with a number of corruption investigations of military personnel. He has step up drills around Taiwan and increased spending on military projects needed to meet this goal. The CCP has also required civilian shipping to build dual use ships (see their “civilian ferries”). Even popping the real estate bubble helps in this goal by re aligning resources that could help in that conflict (remember the roll construction played in the last pacific war). Demographically his best bet is to conduct the war between 2025 and 2035.
Long story short (and much like Hitler), Xi has told us what he intends to do, provided a timeline to do it, is fashioning his economy to support those goals, and is not doing the kinds of things that might improve his people’s standards of living if they impede the goal. Other factors like demography and the damage he is doing to the economy to prepare for war make conducting it basically essential (else the sacrifices made be wasted).
I think we are kind of ignoring the canary in the mine shaft and focusing on the wrong topic…what he is doing is rational if you accept the premise that he intends to go to war in the next five years.
There is another factor involved, the moral corrosion that fundamentally affects the views of the people. Everyone is a scammer, especially the govt (on multiple levels). There are no really safe investments, the market is full of fake gold, their food is adulterated, they haven't been paid in months, their wealth vanished with the property crash. They really have no one in which to believe, nowhere to preserve their wealth.
We're getting pretty close to les Miserables here . . .
Thanks for making these complex ideas so clear. It makes me think about S. Korea, another country that is going through a demographic collapse. I wonder if the recent political upheaval is in someways a response to macroeconomics difficulties that the country faces? All of our allies, Germany, Britain, Italy, Korea, Japan are dealing with a "birth dirth" We are only avoiding it because of our immigration policies which, apparently, are about to be radically worsened.
the mouse keeps saying: the real economic policy challenge going forward will be a model that is sustainable with NO population growth. A principle side effect of capitalism is workers not having babies. On the farm you needed lots of sons and daughters. Those days are not coming back. Immigration is a short term solution only. Working for money 10 or 12 hours a day is birth control.
Post-1990s Japan is basically the model for that.
The thing that's going to make a lot of people uncomfortable is that it requires more elderly people to continue working, at least part-time. That will offend both the "how dare you FORCE old people to continue working" crowd as well as the "how DARE these old people keep holding positions of power while they're in cognitive decline" crowd.
Complainers’ gonna complain! As long as I can continue to enjoy working from home with ever slightly more leave, it’ll be hard for me and I’m sure others to see the downside of continuing beyond the first chances to retire. Forcing us to trudge back into a central office setting will end it pretty quickly, though.
Japan also deals with very slowly changing cultural norms re: women in the workforce, and how women are expected to be (essentially) the sole parent once children are born.
The work from home model could make it easier for women to become mothers while also maintaining employment.
Yours is the first comment to address women and how they interact with the economy. I will also add that the work from home model is good for neurodivergent people (quieter/easier to focus) or others who can't drive.
You credit Japanese economic officials with pulling off a smooth adjustment toward less reliance on investment and export-led growth, implying that it was their skilled analysis that made this happen. I agree that they played a role, but I think it was important that Japan was also facing strong pressure from the US to adjust in these ways in the late 1980s and early 1990s, culminating in the Structural Impediments Initiative talks wherein the US pushed Japan to shift toward consumption-led growth and threatened trade retaliation if they would not do so. I wrote about these talks back then in the book Bargaining with Japan (Columbia UP, 1997).
Superficially, the US seems to be doing something like this to China again today, but the difference in the strategic environment between then and now helps understand why Japan was able to adapt under pressure while China seems eager to resist. Back in the early 1990s, the US and Japan wanted to maintain their alliance, so both sides wanted a DEAL (not a trade war) and so helped nudge Japan toward adjustment (helped by officials in Japan who understood why this made sense). Today, there are too many US politicians and officials who think a trade war with China will help us win the security competition with them, so it is hard to see how US negotiators can play the kind of role they did back then with Japan in China today.
It's weird how you place the onus on US politicians and officials to make nice with China in that last part when it is very clearly AT BEST a two-way street and at worst China is the problem on that front.
Thank you for this. I have a hard time following since I am not trained in economics but am trying. I can't imagine that 45/47 and his people have any idea of the complexities you describe. And what that means for all of us.
Fascinating. Another object lesson on why not to let rigid control freaks run the world. We need people who can evaluate the effects of their policies and change course ahead of the collapses! Unfortunately a whole lot of humanity are going to be caught in the cross winds here.
Not too wonky - not too unwonky- just right.
My Chinese friends, mainly scientists and engineers, are elderly, like me, but I wanted to explore with them the economic performance issues you have raised. I could not get a response for this comment on your outstanding analysis but I wish that I could access accurate social and economic data on the quality of living in China, including a good poll of the Chinese households.
The thought-provoking message in this post could not have come at a better time and I hope that our "new China hands" on Congressional staffs and in the State Department will be spurred to continue developing a positive relationship with China. It would be utterly stupid to pursue policies that treat China as a military/hostile threat.
China has come a very long way since the 1990s and I am proud of the work of their planners in leapfrogging their economy with the most advanced technologies in the development of their logistics, public works, communications, and agriculture. I don't know Xi or his advisors, but the scientists and engineers who were planning their "commons" infrastructure are on the right track and have compressed the socio-economic development of China at remarkable speed.
In the absence of a U. of Michigan consumer confidence poll, I used the GINI coefficient to compare the quality of life in China and the U.S. The GINI coefficient measures income inequality within a population.
China's GINI index increased significantly from 2000 to 2010, indicating rising income inequality during its rapid economic growth. Since 2010, the GINI index has decreased, reflecting efforts to reduce inequality through social policies and poverty alleviation programs.
The initial rise in inequality was due to the uneven distribution of economic benefits, with urban and coastal areas benefiting more than rural regions. As inequality has decreased, the quality of living has improved for many, particularly in rural areas, due to targeted poverty reduction initiatives and better access to education and healthcare.
In comparison, The GINI index in the U.S. has generally increased since 2000, peaking around 2015-2020, indicating growing income inequality. The recent slight decline suggests some measures to address inequality, but it remains relatively high.
Increased income inequality has led to a wider gap between the wealthy and the less affluent. This has impacted the quality of living for many Americans, with higher costs of living, reduced access to affordable healthcare and education, and greater financial insecurity for lower-income households.
Efforts to reduce inequality, such as social welfare programs and wage increases, aim to improve these conditions.
China has seen a reduction in income inequality in recent years, leading to improved living standards for many, however, the U.S. continues to grapple with high-income inequality, affecting the quality of living for a significant portion of the American population.
Both China and the U.S. need to continue to develop a more egalitarian society. In my experience, Americans or Chinese, don't think of economic equality in terms of wealth and income, but rather as equality of opportunity. Access to public education, and affordable healthcare, housing, and affordable nutritious food is essential. This access is provided by commons logistics for the distribution of energy, water, waste treatment, roads, railways, waterways, and water.
If humankind is to make progress on the existential threat of climate change, China, India, Europe, Russia, Australia, and the advanced economies of North and South America must accelerate the development of energy-efficient technologies, systems for generating sustainable electric power and infrastructure systems to continue to improve the world standard of living, by market-based trade and encouraging the exchange of ideas and information about the lifestyles of other cultures by travel and entertainment systems. Thanks for the YouTube Japanese musical.
That's very interesting. China's Belt and Road plan seems to be an attempt to avoid stagnation by boosting manufacturing trade with other regions e g. the new port in Peru, while avoiding America.
Here in Australia we have continued solid economic growth through a combination of strong exports and a high immigration rate, which has added about 1% to GDP and kept our population growing and revitalised.
I predict Trump's tariffs will be an own goal, raising prices for American shoppers while causing other countries to bypass the USA and trade among themselves, to China's benefit.
China tried to punish Australia by imposing import bans, but our exporters just moved to other markets and China had to scrap the bans.
Xi can't afford to upset a solid trading partner like Australia, which has free trade policies and imports lots of Chinese products, including my caravan, incidentally.
Chinese-made EVs are pouring into Australia and Temu is doing great business while Amazon struggles.
Australia is also growing trade and military ties with the rest of Asia, including India, Japan and South Korea, and turning to Indonesia.
India is a huge growth market, and lots of Indians have been accepted into Australia, boosting ties. We are currently beating India at cricket, before packed crowds for both sides.
Australia used to hide behind high tariffs, but the costs became too high and we threw them off and went free trade in the 70s and 80s, with huge benefits.
Incidentally, we don't actually do much trade with the USA, our links are mainly investors, so we are fairly insulated from the coming American recession under Trump's foolish plans.
In summary, I think many of your comments about Japan are also true of Australia and I encourage you to make the comparison.
“When you share the road with an elephant, if anyone stumbles, everyone loses.” - Dean Ing “The Big Lifters”
It's not surprising to see China and its leadership driving blind in its first full on challenge as an open(at least relative to pre-Tieneman) economy. It is a bit of a shock to see how cavalier Xi is about deflation. Perhaps his anti-intellectual style is better suited as cheerleader, but the Chinese people have no options so they need to buckle up.
The premier is arrogant and stubborn. Witness how long he held onto the hated Covid lockdown as well as the refusal to use Western vaccines.
Given how much he and his family were persecuted in the Cultural Revolution, Xi probably thinks an extended recession or depression is child's play.
As others have said, I appreciate enormously the way you are able to make difficult concepts legible to us ordinary mortals, even when you are being more wonky than usual. Also, I am in awe of your ability to come up with a propos musical codas.
In the middle of the world we float
In the middle of the sea
The realities remain remote
In the middle of the sea
Kings are burning somewhere
Wheels are turning somewhere
Trains are being run
Wars are being won
Things are being done
Somewhere out there
Not here
Here we paint screens
"This is a nerdier, wonkier post than usual."
Good! Goes great with morning coffee. YMMV.
Thanks! I read it and understood it. I think.
Respectfully, it seems there is a missing table for comparison:
Real GDP at Constant National Prices For China … Working Age Population Total.
In re "China hasn’t moved at all toward the kind of lower investment, higher consumption economy it needs to become."
My question would be: should this be happening *now*?
My knowledge is limited, but my understanding is that China is currently investing heavily in clean energy, semiconductors, health care, and the like - all of which are things that (at least arguably) we *all* should be investing in.
I would agree that the change you suggest needs to happen at some point, butit strikes me that continued investment (at least in the short-to-medium term) could be the most reasonable course of action.
For a country to "invest" in something can mean any spending priority of any kind, or it can mean specifically spending on infrastructure (either in the public or private sector). Krugman is saying that China is overspending on infrastructure, for example by building so many homes that tens of millions of them are unfinished or vacant. If you overspend in one category, then you underspend in another category. Krugman is saying that China's economic policies do not encourage enough consumer spending.
I agree that China should spend money on clean energy, but that is probably not the bulk of China's infrastructure spending. Like the US economy, the Chinese economy is so vast that it can spend vast sums on something even while it is only a small fraction of the total economy.
Health care is a case in point. Although infrastructure spending can be related to health care, health care can also mean consumer spending, in the guise of payments for medical care. Even though life expectancy in China is respectable, it's very possible that Chinese people need more health care.
But, as I understand it (corrections welcome) China is no longer overspending on housing, so that is no longer relevant.
And yes, at some point China will need to encourage more consumer spending. My question was: "should this be happening *now*" - given that there is so much need for investment now.
On your China article, I was struck by the evolution of total factor productivity—which seems to be stagnant in recent years—in contrast to a steady rising labour productivity (as depicted by the graph on constant GDP per working age persons). Is this an indicator of a downward capital productivity trend?
If so why—still excessive investment? And what are the implications?