NGDP slumps, ebb tides, skinny dipping

I see reports that NGDP growth in China is falling sharply. What would a market monetarist expect to result from this sort of monetary policy? Pretty much exactly what has happened:

1. High unemployment
2. Financial distress

There are two ways to think about this issue:

1. Focus on the skinny dippers (dumb borrowers)
2. Focus on why the tide went out (monetary policy)

I’d guess that 99% of pundits focus on the first, while market monetarists focus on the second. (Both are valid concerns.)

PS. For those who don’t know, I’m referring to Warren Buffett’s famous remark:

You only find out who is swimming naked when the tide goes out.



6 Responses to “NGDP slumps, ebb tides, skinny dipping”

  1. Gravatar of David S David S
    1. September 2023 at 14:05

    I think that you’re approaching this too objectively. Xi has demonstrated no interest in actual economic problems in China, and is instead focusing on the creation of a spiritual nationalism that can be used to oppose every neighboring country. His model for governance and economic management is drawing its inspiration from North Korea–perhaps he admires the grit and gumption of the dynastic rule there and its technical achievements in developing weapons of mass destruction.

    Because of data restrictions on economic conditions in China it may soon be impossible to derive any useful conclusions about what is going wrong. It’s not a case of shooting the messenger, but of getting rid of all messengers who could potentially deliver bad news.

    They’re beating us in the race to become a banana republic. I’m not even certain a second Trump presidency could help us catch up.

  2. Gravatar of ssumner ssumner
    1. September 2023 at 15:26

    “I think that you’re approaching this too objectively.”

    I’ll take that as a compliment.

  3. Gravatar of David S David S
    2. September 2023 at 06:10

    You’re welcome—I come to this blog for the objectivity, and I stay for the optimism.

    Tyler Cowen’s recent post on China gets it right. Xi has an opening to declare that henceforth the country will practice “consumption with Chinese characteristics.” The alternative is to follow the precedent our Fed set between 2005 and 2008. The recent rate “cut” by the Chinese central bank feels eerily familiar.

  4. Gravatar of Ray Lopez Ray Lopez
    3. September 2023 at 10:16

    Both David S and Scott miss the point: CHN demographics are failing. CHN is geared for “dumb growth” that depends on rising populations. Since the USA is now off-shoring to Mexico and Vietnam, maybe even India, China is seeing their economic prosperity decline. David S is right about CHN economic data being bad. I’ve concluded that CHN economic data is primarily in two areas: Beijing area (and Tainjin) and Shanghai area (and Fuzhou, Guangzhou). Everything else doesn’t matter, like the famous New Yorker cartoon “the view outside of NYC” showing a wasteland outside of NYC.

    I’ll give Sumner partial credit for focusing their worldview on just monetary policy. It’s like somebody who informs themselves on world news just by watching the sports channel. I guess you could learn about current events second-hand that way, but it’s a poor substitute for the real thing. And what is that real thing? Studying economic history. A number of good economist do this; Douglas Irwin et al. And what do you learn from reading them? History rhymes but rarely goes exactly the same. Economics is like human history, unpredictable, nonlinear, but does seem to obey certain archetypes.

  5. Gravatar of ssumner ssumner
    4. September 2023 at 15:35

    “primarily in two areas: Beijing area (and Tainjin) and Shanghai area (and Fuzhou, Guangzhou).”

    LOL, geography is not your strong suit.

  6. Gravatar of Jim Glass Jim Glass
    15. September 2023 at 13:51

    >>> “I think that you’re approaching this too objectively.”

    >>I’ll take that as a compliment.

    > You’re welcome—I come to this blog for the objectivity, and I stay for the optimism.

    All who seek objectivity about China should use sources that report from the original Mandarin, from within China — free of the “game of telephone” delays, biases and and misrepresentations that result from items being selected and passed to us through layers of whoever’s agenda. Two I recommend are:

    China Update. 10 minutes every day on economics and politics, rigorously objective, with references and links to primary sources. Everything I see in the media I saw first and earlier here, usually better and deeper, and a lot more too. This is what some of us hoped, 30 years ago, the internet would become (instead of the horror it too often is.) By a young New Zealand lawyer educated and working in China. He deserves support…

    Lei’s Real Talk. Very different, ground up reporting. She goes through China’s social media, internet and publications to report stories that aren’t offic1al yet (and may never be). E.g.: When the Covid lockdown was lifted she had pictures of long lines of vehicles waiting outside of crematoriums while nobody was dying. And in the video below she last week reported rumors of the Defense Minister disappearing, confirmed only today. She did the same with the late Foreign Minister. And she has more fun quotes from US Ambassador Rahm Emanuel! 🙂 …

    Of course, rumors often prove untrue — but the strange stories that “top trend”, and how the CCP allows and often encourages them, is revealing. How the other side thinks (especially when they are “wrong”!) is always worth knowing.

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