Tuesday, November 17, 2009

The imbalance between production and consumption: a tale of US and China

Robert Reich has a neat observation:
Both societies are threatened by the disconnect between production and consumption. In China, the threat is civil unrest. In the U.S., it's a prolonged jobs and earnings recession that, when combined with widening inequality, could create political backlash.
Reich makes a great point that China's export-driven, Yuan-pegged-to-the-dollar, approach that is so much focused on production is a social policy.  Of course, this is not anything new; Friedman, in his metaphor-driven style, compared this to the movie Speed where a minimum speed has to be maintained or else the bus blows up.

But, what is China's endgame in this approach?  Let us say that in 2039 China is one rich country.  Will it still be the Commie-facade economy?  I simply do not understand what is next in China's speeding bus.  The more I think about this, the more I think of my nutty bottom line, and the next game-changing event of history.  And neither one is a good scenario to look forward to.

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