1/8
This seems like a pretty important study on the decline of manufacturing in the US: "The loss of U.S. manufacturing," the authors argue, "is not due to some inexorable shift to a post-industrial economy."
@ITIFdc itif.org/publications/2…
2/8
Instead, "it is due to a failure of U.S. policies (for example, underinvestment in manufacturing technology support policies and a corporate tax rate that is increasingly uncompetitive) and the expansion of other nations’ mercantilist policies."
3/8
One of the lines in the report that struck me was this one: "While manufacturing has declined as a share of GDP in some nations (notably Canada, Italy, Spain, the United Kingdom, and the United States), it is stable or growing in...
4/8
many others (including Austria, China, Finland, Germany, Japan, Korea, the Netherlands, and Sweden)."

Regular readers of mine will quickly recognize that the former group is dominated by deficit countries and the latter by surplus countries.
5/8
This isn't a surprise at all. Surplus countries run surpluses mainly because they are internationally "competitive", which is another way of saying that their wages are repressed relative to their productivity levels. This is true of all the countries on that list.
6/8
As a result, these countries have necessarily absorbed manufacturing away from countries that have not repressed wage growth to the same extent. Countries that repress growth in wages the most, in other words, "win" the global trade competition.
7/8
Of course one consequence of this kind of beggar-thy-neighbor globalization is that wages stagnate everywhere. The authors didn't include France in the first group, but in one of my recent tweets, I discuss just this problem in the French context.
8/8
This is a broken system. Either the countries that want both to retain manufacturing and encourage higher wages should create a new global trading regime along the lines proposed by Keynes in 1944, or they should begin to impose capital controls.
carnegieendowment.org/chinafinancial…

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More from @michaelxpettis

Feb 11
1/7
This is a case of incremental thinking, when trade only makes sense systemically: "Some economists have pointed out that Biden could have done more to ease inflation by cancelling tariffs on Chinese goods introduced by his predecessor Donald Trump."
ft.com/content/a13504…
2/7
I disagree. Although I agree we should drop the tariffs, that's because the tariffs had no impact on overall trade imbalances. All they did was rearrange US bilateral deficits and Chinese bilateral surpluses without affecting either country's domestic imbalances.
3/7
But that's also why dropping them will have no impact on inflation. I think that becomes obvious when you recognize that external imbalances are always the consequences of domestic imbalances.
carnegieendowment.org/chinafinancial…
Read 7 tweets
Feb 11
1/7
Very interesting and very timely book, although I'm not sure it has a sufficient explanation of the costs of debt.

On China: "The world’s second largest economy is in many ways a poster child of the dangers of credit booms gone bust."
voxeu.org/content/debt-e…
2/7
Although "barring major policy mistakes, there are convincing arguments why a ‘hot’ crisis can be avoided. The Chinese government remains in firm control of the financial sector and has ample fiscal resources to deal with any major fallout."
3/7
I think that's right: a crisis was always very unlikely, but, they continue, "the economic effects of a waning credit impulse, financial deleveraging and a resetting of expectations will likely have very real macroeconomic effects on the Chinese economy."
Read 7 tweets
Feb 10
1/7
"While Finance Minister Nirmala Sitharaman is betting infrastructure spending can have a multiplier effect on job creation and drive overall prosperity, the reality is it will take time for benefits to trickle down to those who need it most."
scmp.com/week-asia/poli…
2/7
Unfortunately that's the way this growth model works. In a country that is severely under-invested, like India, one of the main growth constraints is the unavailability of domestic savings to fund badly-needed investment. In that case policymakers must boost savings.
3/7
One way is to welcome foreign capital and to ensure that this capital is directed mainly to investment, and not towards funding increased consumption. This requires capital controls to direct investment and to protect the Indian economy from speculative inflows and outflows.
Read 7 tweets
Feb 10
1/4
Even Chinese newspapers are now warning in editorials about the extent of wasted infrastructure spending in China, suggesting that there is a consensus among economic policymakers in Beijing, although perhaps not among local politicians.
yicaiglobal.com/news/opinion-e…
2/4
According to Yicai: "Poor-efficiency investment has not been uncommon in past years, wasting resources to some extent. Thus, local governments should not blindly boost their investments, expecting better outcomes."
3/4
The editors also acknowledge that the purpose of increasing infrastructure investment is to "help stabilize growth". China's problem is that it has relied too much for growth on non-productive activity, and this must stop.
Read 4 tweets
Feb 10
1/5
Interesting piece by Joe Zhang. He notes: " If Beijing wants to engage in expansionary fiscal or monetary policy, or inflate away its debt burden, there are no institutional checks and balances."
scmp.com/comment/opinio… via @scmpnews
2/5
He adds: "Despite having a much smaller economy than the US, China has a money supply as big as the US and European Union combined. So, it is truly remarkable that China has brought inflation under control over the past two decades."
3/5
He goes on to argue that rapid urbanization has been what has kept inflation down. "The huge pool of cheap labour has helped offset an enormous amount of inflationary pressure."
Read 5 tweets
Feb 10
1/5
More evidence of the exorbitant burden the US dollar creates for the US economy? This interesting paper by @BenignoGianluca, @LucaFornaro3, and @mw_econ argues that unfettered capital inflows into the US reduce American productivity growth.
crei.cat/wp-content/upl…
2/5
The reason, they say, is because, paradoxically, cheap access to foreign capital "leads to a contraction in economic activity in tradable sectors, which are the engine of growth in our economies."
3/5
They discuss this in terms of a "resource curse" in which an overvalued dollar causes a shift in economic activity from manufacturing to services.

This part so far is pretty well understood and Matt Klein and I wrote about it.
Read 6 tweets

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