Inequality, global imbalances and crisis

Tracing a connection between rising inequality and the Great Recession of 2008 is appealing to leftist economists. It suggests that what they see as two of the potential downsides of capitalism and in particular the neoliberal economic order can perhaps be mitigated via appropriate policies. Thus, a more egalitarian capitalism can become less prone to crisis or recession.

Of course, what is appealing as social and economic outcomes is not a good enough reason to investigate linkages between them, though I suspect that I am far from the only one who is drawn to particular ideas as a matter of bias.

Perhaps there is nothing wrong with that as a starting point, followed by economic analysis of the chosen object of study.

An article in the latest issue of the heterodox Cambridge Journal of Economics explores the potential linkages between the distribution of income and current account imbalances in a simplified model of the global economy consisting of the US, Germany and China, prior to the 2008 recession.

These three countries had the largest current account imbalances in absolute terms in the run-up to the recession. The US ran a deficit, and Germany and China were running surpluses. Since these imbalances have been pinpointed by some economists as a cause of the recession itself, analysing them is important. Continue reading


‘In the end, policies are decided on the street’

ha-joon-changIn this short video, which is (slightly annoyingly) only available directly on YouTube, development economist Ha-Joon Chang chats about a range of economic and political issues. He covers industrial policy, free-market ideology, the UN’s Millennium Development Goals (MDGs) and China.

I am a fan of Chang’s often iconoclastic work, and he has written a number of excellent non-academic books for the intelligent reader, including Bad Samaritans, 23 Things They Don’t Tell You About Capitalism, and Economics: The User’s Guide.

US-China industry and trade relations – what’s in store?

An interview with Professor John Weeks on Trump’s efforts to revive US manufacturing and the potentially tense international relations in store. Weeks describes how many nations adopt policies which promote their exports, so that the idea of ‘free trade’ is often misleading. Subtle industrial policies such as these are apparently quite common.

Chinese debt, inequality and the Eurozone: thoughts from Michael Pettis

Michael Pettis is a Professor at Peking University in Beijing, and writes lengthy but infrequent blog posts here. He is author of The Great Rebalancing, a fascinating take on global trade and financial imbalances as the cause of the 2008 recession and its aftermath and resolution. In this short video, he talks about the problems of Chinese private debt, inequality around the world, and the future of the Eurozone in the aftermath of Brexit, including its possible breakup.

Industrial policy and the world market: steel, China, trade, inequality and conflict

Steel_factoryJob losses in the European steel industry made headline news recently. Unions in the UK and elsewhere have been rendered deeply unhappy. The basic problem is huge overcapacity in Chinese state-owned enterprises (SOEs) producing steel, which has caused global prices for the commodity to drop. Some have called for the EU to impose tariffs on Chinese steel imports, in order to protect Europe’s steel producers. There are tariffs already, but at the relatively low level of 16%. By contrast, tariffs in the US have reached 266% on coiled steel imports from China.

The economics of steel have thus become highly political. As ever, the UK government is reluctant to support the imposition of higher tariffs, wedded as it is to a free-market position. It is therefore somewhat strange to see the US policy response in what is held to be the leader of the free (market) world. Continue reading

Working harder or smarter? Thoughts on economic progress and social welfare.

Production_LineShould the British work as hard as the Chinese? Jeremy Hunt, the UK government’s Health Secretary, seems to think so. While the Prime Minister, David Cameron, has subsequently called his remarks, ‘misinterpreted’, Hunt is implying that we as a nation should in general work harder in order to become more wealthy and successful. In comparing the low paid (and others?) in the UK with those in China and Asian economies more generally, he is also implying that longer working hours are something to aspire to.

It is well known that, on average, workers in the US work longer hours and take shorter holidays than the British, and many economies on the European continent in turn have shorter working hours and take longer holidays than the Brits.

In mainstream economics, the aim of working and earning is to maximise welfare, rather than simply income and wealth. Continue reading

China: consumption booms, industry falters

800px-Chinese_draakConsumption spending is booming in China, according to the Economist magazine. Rising household income is fuelling spending in the retail sector, which has grown 10.5% in the last year. This may even be an underestimate as it does not include service sector output.

Since retail sales are growing faster than the overall economy (officially around 7%), this is contributing to a rising share of consumption in overall output and a falling share of saving. While Chinese industrial output is falling, the service sector is still growing. Continue reading