Prehistoric Picasso and the case of Western recipe for Chinese governance reform
- By Ali Biniaz
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E-mail China.org.cn, March 14, 2016
I focus on examples from two popular American economists, Lawrence H. Summers and Paul Krugman. Summers, in an article published in Foreign Policy, talks of "the age of secular stagnation," a borrowed concept from economist Alvin Hansen in the 1930s. He explains that the post-2008 recovery from the financial crisis both in the United States and around the globe has fallen significantly short of expectations and is far weaker than its predecessors in achieving a return anytime soon to "normality."
In Summers' view, the key to understanding this situation lies in the concept of secular stagnation, where the main idea is that suffering from an imbalance resulting from an increasing propensity to save and deceasing propensity to invest, the excessive saving acts as a drag on demand, reducing growth and inflation, pulling down real interest rates.
Therefore, the problem is demand-driven. To cure, he calls for fiscal policy and emphasizes that the G20 summit in Hangzhou this year should prioritize on promoting global infrastructure investment, hence, commending the Chinese-led Asian Infrastructure Bank, AIIB.
Paul Krugman, an American economist and Nobel Prize winner in 1999, has a different view, however, saying: "China scares me. [It] has a huge adjustment problem. They have an economy that is based upon unsustainable levels of investment and needs to radically shift from investment to consumption. They don't seem to be managing it."
However, what apparently scares Krugman in regard to China stands paradoxically against what he suggests for the U.S. economy. When asked what announcement he would like to see in future that could affect U.S. markets, he says: "I'd like to see the next President of the United States, having won a surprise victory that gives one party control of Congress as well as the White House, announce a massive infrastructure program."
Back to the main argument in this commentary, it appears the Western recipe for economic reform should be seen in terms of the elegant artistic works and even pre-historic Western performance and edge over the easterners. Therefore, China in principle has categorically two general options to choose from: Either it trusts the West and tries to continue along the past nearly four decades of gaining momentum and enjoying economic progress, or, more challenging but effective and perhaps satisfactory in terms of long term national security and benefit, try to explore and learn from past accumulated knowledge and experience of the West and define home-made and made in China theories of economic governance.
Ali Biniaz, with a PhD in economics, is IPIS representative and first counselor for research, Embassy of the Islamic Republic of Iran in Beijing.
Views expressed here are totally personal and don't have anything to do with the official Governmental positions.
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