"When American economists advise China to boost consumption and cut saving, they are merely peddling the bad habits of American culture, which saves and invests far too little for America’s future": I fully agree.
Consumption is the objective of growth, but not a driver of growth. The long-run growth can only be driven by investment, not by consumption.
Historical data also show that in the long run, a higher investment rate is the necessary condition for higher GDP growth, while countries with higher consumption rates, such as most developed economies, would register lower GDP growth.
In China's case, given the already high investment rate as percentage to GDP), the challenge is not to replace investment by consumption as the new growth driver ( which is impossible), but to improve the efficiency of investment, namely the return on investment.
The arguments seem to have mainly based on the continued debate in the West between the Keynesianism and the Supply-side economics, ignoring in reality the significant difference between China and the US in the way of their governments in controlling the economy. For example, the tax revenue relative to GDP may be lower in China than in the US, but the direct and indirect allocative power of the Chinese government over its economic resources, unlike in the US, goes far beyond its taxation. The overcapacity in the US would mostly be the result of market failure, or mistakes by firms, but overcapacity in many industries in Chins is mainly a result of government failure: local governments' push for over investment for the purpose of gaining political and economic power while ignoring the market demand.
From an over view approach, China's economic slow down is due to multitude of reasons - slow down demand from EU & US of Chinese exports, delay resolving issues due to complicated transition from export-led growth to a domestic-demand-driven economy in China, wasted time and resources from mis-allocated resources due to centralized planning, and over leveraged provincial and municipal governments and property developers pushing excess commercial and residential properties. Ineffective government communications with domestic and foreign investors and financial media is not helping either.
"One reason that the global economy is so sluggish is that, seven years after the collapse of Lehman Brothers, financial stability is not yet assured". One may question the logic of this statement: when the world economy was growing at a much stronger rate in the years before the eruption of the finciancial crisis, was the financial stability assured?
Most discussions on inequality issues have been based on findings from positive studies, such as the trends of inequality in distribution of income and wealth as measured by Gini coefficient, Palma index, or other indicators.
Quite a few studies have also been focused on analyzing the relationship between these inequality indicators and other economic and social variables, for example, GDP growth, international trade, employment, education, etc.
All these positive studies are important, but not sufficient.
Gini coefficient and Palma index, no matter how sophisticatedly constructed, can provide neither sufficient nor necessary basis of social justice for the discussion of inequality issues. These indictors can hardly be used as the just guidance for policy making.
For example, when Gini coefficient of a country increased from 0.3 to 0.4 in the past three decades, we cannot claim this country has necessarily become less just, or more unjust.
Similarly, among countries, if a country has higher Gini coefficient than another, we cannot sufficiently claim the former is a more unjust society than the latter.
We need to place the discussion of inequality in the context of social justice.
For that, we would need to revisit some theories of social justice.
For example, John Rawls' two principles can be a good benchmark for discussing inequality in the context of social justice.
See my remarks on inequality at http://blog.sina.com.cn/s/blog_9cc0e6840102wpun.html
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