Two paragraphs in particular jumped out at me, excerpted by Pettis from a response he wrote to an Op Ed by Niall Ferguson:
Today it is China who is exporting overcapacity and it is the US who is consuming too much, fed by Chinese financing. With the collapse of bank intermediation US households and businesses are cutting consumption and raising savings. This is a necessary adjustment. Calling on the US government to engage in massive fiscal expansion to replace lost private demand is crazy. It means that we should continue the current game that has led us into so much trouble, but instead of having US over-consumption and rising debt at the private level we must have it at the public level. If Keynes were around today he would probably make the same point he did over 60 years ago. Demand must be created by the current account surplus countries, which have, to date, relied on net exports to protect themselves from the consequence of their overcapacity. They must force demand up quickly in order to close the gap, and since expecting private consumption to rise quickly enough is unrealistic, it has to be public consumption - a large fiscal deficit.
If Keynes were around today he would probably make the same point he did over 60 years ago. Demand must be created by the current account surplus countries, which have, to date, relied on net exports to protect themselves from the consequence of their overcapacity. They must force demand up quickly in order to close the gap, and since expecting private consumption to rise quickly enough is unrealistic, it has to be public consumption - a large fiscal deficit.
Is that true? Would Keynes have objected to the US government's trying to engage in massive fiscal expansion to replace lost private demand?
As for the second paragraph, as Pettis must surely know already, China is following the Keynesian prescription exactly. I don't quite understand why Pettis does not acknowledge that China is already doing what he recommends it should do, or at least the first half of his recommendation:
China needs to resolve this problem by expanding fiscally, not by stimulating exports.
His complaint about stimulating exports and restricting imports is well taken, though, and I will be paying more attention to that issue especially in light of headlines like "'China, US should fight protectionism'". Truth unfolds in time through a communal process.
Many migrant workers in south China's Guangdong Province returned to their home provinces in the wake of the global financial crisis. But it is not the only reason, officials of the local labor and railway authorities said. China's latest decision to expand transfers of land-use rights held by farmers also attracted some migrant workers to rush home. Liu Hong, a farmer of Sichuan, was waiting for a home-bound train with his wife at Guangzhou Railway Station this week. "We need to finish some sub-lease documents and come back to work as soon as possible," he said. The trip was made after China issued a breakthrough rural policy last month, allowing farmers to lease their contracted farmland or transfer their land use right, which will give farmers opportunities to conduct scale management and new business operations. In the past, farmland was collectively owned, but meted out to farmers in small plots on long term leasing contracts.
Many migrant workers in south China's Guangdong Province returned to their home provinces in the wake of the global financial crisis. But it is not the only reason, officials of the local labor and railway authorities said.
China's latest decision to expand transfers of land-use rights held by farmers also attracted some migrant workers to rush home.
Liu Hong, a farmer of Sichuan, was waiting for a home-bound train with his wife at Guangzhou Railway Station this week.
"We need to finish some sub-lease documents and come back to work as soon as possible," he said.
The trip was made after China issued a breakthrough rural policy last month, allowing farmers to lease their contracted farmland or transfer their land use right, which will give farmers opportunities to conduct scale management and new business operations.
In the past, farmland was collectively owned, but meted out to farmers in small plots on long term leasing contracts.
