Michael Pettis on the global economic outlook, negative interest rates and Charles Dickens

A short interview with Michael Pettis, an economist I greatly admire for his insights on the evolution of the world economy, economic history and especially China. He predicted that the Chinese economy, having boomed for most of the 30 years since Deng began reform in the late 1970s, would slow dramatically, and may even experience a ‘lost decade’ of slow growth due to its structural imbalances: excessive and poorly allocated investment, and now increasing financial fragility due to rising private sector debt. His work covers a broad range of issues, while his blog is mainly on China, and can be found here.

3 thoughts on “Michael Pettis on the global economic outlook, negative interest rates and Charles Dickens

  1. “In a country in which the state retains a growing share of GDP, the
    net impact on savings and consumption is almost identical to that of a country in which income inequality is rising. In both cases consumption tends to decline and savings to rise as a share of GDP.”

    (p. 200, The Great Rebalancing)

    I find this statement by Michael Pettis remarkable as he clearly acknowledges that the state can be a decisive factor in creating severe economic imbalances.

    It is important that those who envisage a significant role for the state in the economy remain vigilant at all times as to the dangers of state intervention.

    There is this unfortunate tendency for “free marketers” to be oblivious to the necessary and benign role of the state in the economy and society at large, while those on the “Left” easily forget about the enormous destructive potential of an interfering state.

    Here, too, hat tip to Nick Johnson for pointing me to the intriguing work of Michael Pettis.

    • Thanks for this comment and quote from Michael Pettis. I can’t find it in my own copy of the book on that page, so it must be a different edition. It is an interesting idea. Having read his work, I am not sure what he means by the state ‘retaining’ a growing share of GDP – simply overall taxation and public spending as a share of GDP, or a growing budget surplus, which is a form of national saving, so by definition will increase saving and reduce consumption as a share of GDP.

      Pettis often refers to the idea that rising inequality of incomes will reduce national consumption and raise national saving, so that state redistribution of income away from the rich and towards the poor can raise consumption and reduce saving. If investment is constrained by a lack of consumption rather than a lack of savings, then this can boost aggregate demand and growth.

  2. I take the quote from the Appendix of the 2013 version (subtitled “With a New Appendix”), perhaps you have an older copy, without the Appendix.

    Pettis does argue that a growing state share of GDP can have both positive and negative effects. What I find remarkable, speaking in Pettis’ favour, is that he looks at the actual “mechanisms”, deducing consequences not from ideological premisses but from the way economies work and interact.

    He is well worth reading, yet sometimes hard to follow for me, because his line of argument is often rather counter-intuitive, and I am neither conversant with balance of trade theory nor with national accounting, which he uses to explain national and international imbalances.

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