In this environment, we must diligently pursue policy coordination at the global level. To achieve an orderly realignment of consumption and investment worldwide, policies that boost investment in one part of the world should match policies that boost consumption in other parts.
In particular, advanced economies should implement fundamental productivity-enhancing reforms, the eurozone should strengthen the currency union, and emerging market and developing economies should boost their domestic sources of growth. And these policies should be consistent with fiscal and external stability. Moreover, financial-sector policies and regulatory frameworks should be coordinated at the global level, in order to design and implement consensus-based rules – thereby addressing the problems posed by very large, global institutions that are considered too big or too complex to fail.
Only with such global coordination can we reduce, and possibly eliminate, economic instability and disorderly adjustments both at home and abroad, even as we seek to maximize the benefits of the inevitable changes in the global economy.Project Syndicate
The Global Economy’s New Path
Zhu Min | Deputy Managing Director of the IMF and a former deputy governor of the Peoples’ Bank of China (2009-2010)
12 comments:
lord have mercy! this is subtly and insidiously wrong
This makes a mockery of evolution. Reality is that investment and consumption have to be fully interleaved EVERYWHERE in order accelerate the rate of growth of net cultural agility - our Adaptive Rate. That will come from comparing competing national models, not by constantly meddling and "coordination" across the uncontrolled experiments we call nation states.
No culture can be a beacon to others if it doesn't develop practices worth emulating.
Boosting production here and consuption there is code word for mercantilism. The plan is for middelemen to prosper? That too always occurs in all known evolutionary case studies - but is NEVER the dominant resource exchange path. Arbitrage & looting are outlets for failed organization and other dead ends, not dominant organizational methods for accelerating natural selection.
I interprete him to be saying that the global economy is a closed system and we had better start realizing it and treating it as such by increasing coordination instead of competing with each other in a race to the bottom that will end badly for everyone.
Yes, but the only coherent way to optimize that approach is to develop diverse models and then compare outcomes. Standardizing is a non-biological myth, and idiocy - rather like equilibrium theory in economics.
We NEED insanely rapid diversification and natural selection. NOT standardization. The only way to have equilibrium is to kill evolution.
We really need to yank all the idiots off stage. Their act got stale 80 years ago.
Roger, that's not going to happen, and if it does the option that will rise to the top will be war. Just like always. I'd say we had better have Plan B ready.
"Moreover, financial-sector policies and regulatory frameworks should be coordinated at the global level, in order to design and implement consensus-based rules – thereby addressing the problems posed by very large, global institutions that are considered too big or too complex to fail."
No "global institution" (bank) should be too big to fail.
"advanced economies should implement fundamental productivity-enhancing reforms"
What do you reckon he means by that?
What actually going on is a game of King of the Mountain among the Great Powers and emerging great powers, with the US the king at the moment.
The players are the elites of the various countries and they are like rutting bull elephants, some at the height of their power, some having crested and in decline, and others adolescents just coming into their own and challenging the older bulls.
Left to competition alone, the game gets rough and ends in war, with some of the elephants getting wounded and some killed before it is over. At the international level the law of the jungle prevails when the "going gets tough and the tough get going" (John Ashcroft). Then the rules go out the window.
Animal husbandry people know this, of course, so they isolate bulls from cows and coordinate reproductive opportunity for the good of the herd.
Zhu Min sees the potential for disorder absent coordination of consumption, investment, and saving in the closed global economy. But I don't that international elites are either smart enough to know what to do or have the will to overcome self-interest enough to do it if they did know what to do.
One thing of which I am sure. They are not going to explore options. There is just no history of that and no suggestion that anything is changing now. In fact, I see positions hardening as times get tougher.
"advanced economies should implement fundamental productivity-enhancing reforms"
What do you reckon he means by that?
Loose the emphasis on rent-seeking and get back to production instead of relying on imports. Aimed at the West, chiefly the US.
He is telling China's leaders to loose the emphasis on investment for export and build the consumer economy.
Technically, it's called "rebalancing."
"fundamental productivity-enhancing reforms"
Sounds more like "cut wages".
Studies generally show that higher productivity is associated with higher wages and lower costs through efficiency and technological innovation. Efficiency and innovation mean fewer low skill, low pay workers are required to product the same output. The skill needed for operation of the new technology actually result in higher wages for the fewer workers that remain.
Otherwise, cutting wages results in a race to the bottom and undercuts domestic income, effective demand, and consumption. Only would work by increasing exports and every country cannot do that.
Zhu Min seems to be saying to pay Chinese workers more, that is, increase the labor share, to increase Chinese consumption, and reduce levels of private indebtedness in the West to increase saving and investment. That would be though reducing rent-seeking activity.
The basic problem is that the exporting countries are using financial repression to keep domestic wages and consumption down, committing saving to investment for export, and the importing countries are running on debt to finance imports at the expense of exporting jobs, which the Triffin dilemma suggests is not sustainable.
MMT would say that Triffin was confused in that he saw the rise in public debt as the limiting issue, whereas it is private debt financing and job losses from demand leakage that is the Achilles heel. This could be counteracted by increasing the govt deficit to a full employment budget, which would allow the country to enjoy the benefits of real terms of trade without demand leakage to consolidated nongovt saving desire.
But this still leaves net exporters practicing financial repression domestically, so it is not a healthy situation. Moreover, financial markets are still public debt phobic, in spite of the facts, and that problem of perception would be in the mix, too.
My view is that TPTB need to look at the global economy as a closed system and figure out how to coordinate to unfold inherent potential as quickly and safely as possible, basically through effective and efficient management. This has to be don cooperatively since there is no formal governance internationally.
This would involve rebalancing as quickly as possible consistent with development. That would mean the developed countries being net importers for some time and running budget with large enough net contributions to offset demand leakage and exporting knowledge and technology as well in order to get the ROW up to speed as fast as possible in a sustainable way. This would involved huge govt contribution to sustainability of real resource use thru a "green revolution." The world also needs to robotize as quickly as possible, too, while distributing leisure gains in order to increase leisure across the board for broader and deeper education and creativity, such as R&D.
Obviously, the obstacles to this would be ignorance, self-interest and vested institutions that would have to be changed. Unfortunately, overcoming this drag will be nearly impossible due to powerful opposition and a general level of consciousness that is still too low.
"What do you reckon he means by that?"
Worst case, & most likely case: he means guarantee survival of the CCP at any cost.
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