Ah, the joy of being an economist who deals in frictionless markets, no transaction costs, immediate adjustments to supply and demand etc.
The dismal lot have twigged that either China must engineer a massive increase in domestic demand or must shrink its manufacturing capacity. Alas, it can only be the latter, and not because of the normally cited reason of Chinese cussedness. It will be because the demand in the west for running shoes, sundry toys and the rest of that generally low value added rubbish has been destroyed.
The Chinese probably want to consume more health care, education, entertainment, maybe even household goods - but toys and running shoes and bras? And factories are not frictionless - they cannot switch overnight from stuffed toys to cosmetics. Capital required to switch them is not mobile (at least not any more). Time is definitely not mobile - even barefoot doctors take time to learn.
It will be pain all round, then, and that pain will be transmitted through lower exchange rates, protectionism etc.
So the idea of the Chinese building lots more roads, ports and so on is not as daft as mainstream economists make it sound. The roads etc. may lead to nowhere, but a coolie on the road gang is no different really than a coolie on a toy line, and paying him/her is a good idea to make sure that consumption does not drop further.
In the meantime all us non friction free folk are wondering how the hell to cope with the brown stuff hitting the fan.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment