So the NY Times ran an extended report on the dysfunctional US-China Trade relationship which provided the topic for the last two posts on this same blog. Now Wonks Anonymous wonders what this seeming ability to channel the Times means. Does this indicate that he has somehow developed a nose for news and topics of general importance or should he simply see his doctor and get his meds adjusted.

Well the article itself describes the US dependence on loans from China and makes some broad hints about the need that the upper classes in China seem to have to invest in US securities. It describes it all as if it were some newly discovered sub sea current or a canyon system on Venus - a purely natural phenomenon that no one could have known about and that has only just been discovered.

Which depiction has some major problems. While the Times pretends that most of the economic analysis of this issue is pure hindsight, this is mere fiction. Wonks Anonymous would suggest that the intrepid reporters at the times google deindustrialization or simply look it up in Wikipedia. Here they should pay particular attention to definitions 3 and 4 in the article:

1. Deindustrialization can mean that manufactured goods comprise a declining share of external trade, so that there is a progressive failure to achieve a sufficient surplus of exports over imports to maintain an economy in external balance.
2. Deindustrialization can be defined as a continuing state of balance-of-trade deficit (as described in the third definition above) that accumulates to the extent that a country or region is unable to pay for necessary imports to sustain further production of goods, thus initiating a further downward spiral of economic decline.

But Wonks Anonymous guesses that this debate was never reported in the WSJ and he knows that Paul Krugman - who represents the left in the Times view of economics - was never a strong proponent of these arguments. It probably didn't really happen.

This is not, however, the major literary accomplishment of the article which rises from simple fiction to conclude in positive flourishes of poetry. Describing the high Chinese savings rate, the lack of demand by this rich economy for the mass produced consumer goods that are the foundation of its prosperity, The Times speaks of the Chinese consumer:

Mr. Bernanke viewed such international investment flows through a different lens. He argued that Chinese invested savings abroad because consumers in China did not have enough confidence to spend. Changing that situation would take years, and did not amount to a pressing problem for the Americans.

and a bit further down:

China kicked off its own campaign to encourage domestic consumption, which it hoped would provide a new source. But Chinese save with the same zeal that, until recently, Americans spent. Sworn of the social safety net of the old Communist state, they squirrel away money to pay for hospital visits, housing or retirement. This accounts for the savings glut identified by Mr. Bernanke.

Now Wonks Anonymous is sure that there are many moderately well off people holding administrative and technical jobs in China. He knows several who managed to work there way here to take programming jobs. These are people who could be called "consumers" in our sense of the word and whose choices and worries could be easily viewed through the prism of the US middle class.

The report treats these lucky people as if their decisions determined Chinese economic outcomes.

Wonks Anonymous is, however, under the general impression that these fine people are hardly the majority of the Chinese population. He actively seeks correction for his errors, but he is under the general impression that the majority of Chinese are industrial workers, often migrants, and/or peasants. He had thought that they toiled for miserable wages and went home to live in cramped apartments - if they were lucky. He had seen pictures of migrants returning to the country from their industrial jobs, carrying all of their possessions in large sacks, rather like the homeless of San Francisco.

Wonks Anonymous would be surprised if these people were able to save anything, no matter how insecure they felt. He is instead, under the general impression that they would live from hand to mouth. Indeed, because they were deprived even of secure title to the land that they may have come from in the countryside, he believed that they would be unable to make even the simple peasant investments in more chickens or another goat.

If the majority of Chinese are not really capable of saving then who is buying all of the US securities? Wonks Anonymous would suggest that the major Chinese investors are members of the ruling classes. Those political and economic demigods who control the government and who have been granted the lions share of economic opportunity in China. These people have ample surplus, over and above their needs, and they are well aware that they must restrict growth in order to preserve order and low wages for the masses of industrial workers and peasants.

They need to change their profits into secure assets and they have convinced themselves that the US is a safe haven. The imbalance reflects their choices and not the choices of a relatively weak handful of Chinese consumers.

If we define the problem in this way then the solution becomes rather simple:

The Chinese need to raise wages. Since management will never willingly raise wages this implies independent trade unions or real pressure from government unions. This would increase current consumption and help to sustain demand for goods.

The Chinese people need to have real rights to property, not just the ability to occupy land that someone in the government has not yet taken a fancy to. This would provide migrants with a secure place to live and promote the sorts of micro investment, home building and farm improvement, that create demand in the short run and increase society's ability to meet human needs in the long run.

Which is easy for Wonks Anonymous to say but difficult to implement.