Tyler Cowen: observation

Transcript context

…Well, the overall lack of economic development and the lack of physical capacity was a part of that. But the bigger picture is, by our own data, the Chinese state . . . In the 19th century, China was no longer inventive. It forgot the inventions that it was able to make many, many centuries before. It didn’t have a naval power as it used to have back in the Song Dynasty [960–1279]. In the Ming Dynasty [1368–1644], there was a famous event, the Seven Voyages, where the Chinese ships were able to travel to Africa, to Arabia. China relinquished all that naval power by the 19th century. I read so many experts insisting that China should rebalance its economy toward consumption, yet China never seems to do this. Are the experts right? Is China right? No, the experts are not wrong, but the problem is that the low consumption to GDP is a symptom. It is not a cause of the imbalances of the Chinese economy. The bigger issue, I believe, is the fact that the household income share of the GDP is very low. You have to save a fixed proportion of your household income. When the household income relative to GDP is low — and at some point, it was declining — the consumption, out of the mathematical necessity, is accounting for a smaller and smaller share of the GDP. The issue is really the household income. If you look at the government and the corporate sector and the household, the household sector, as a proportion to the GDP, was never high. During certain periods in Chinese history, it was a losing sector relative to the other sectors of the economy. That gets to a deeper issue about, essentially, the power of the government vis-à-vis the household, the power of the corporate sector vis-à-vis the household. That’s a bigger political economy question rather than a narrow fiscal issue.…

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