Play (78th and the River)

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Several investment banks have recently downgraded their growth forecasts for China in response to mounting debt crises, the closure of major real estate firms, and rising youth unemployment. 

In a 2013 book, MICHAEL PETTIS examines the fundamental imbalance in China’s post-reform economic model, which prioritizes exports over domestic consumption.  

From the text:

Policies that force households to subsidize growth are likely to generate much faster growth in production than in consumption. In that case even with high investment levels, large and growing trade surpluses are needed to absorb the balance because the investment share of GDP cannot increase quickly enough to absorb the decline in the consumption share. This is what happened in China in the past decade until the crisis in 2007–8, after which Beijing had to engineer an extraordinary additional surge in investment in order to counteract the contraction in current account surplus. As Chinese manufacturers created rapidly expanding amounts of goods, the transfers from the household sector needed to subsidize this rapid expansion in manufacturing left them unable to purchase a constant share of the goods being produced. The result was that China needed to export a growing share of what it produced, and this is exactly what it did, especially after 2003. As long as the rest of the world—primarily the United States and the trade deficit countries of Europe and Latin America—have been able to absorb China’s rising trade surplus, the fact that domestic households absorbed a declining share of Chinese production didn’t matter much. But by 2007 China’s trade surplus as a share of global GDP had become the highest recorded in one hundred years, perhaps ever, and the rest of the world found it increasing difficult to absorb it. The global financial crisis sharply reduced the ability and willingness of other countries even to maintain current trade deficits, and this downward pressure on China’s current account surplus is likely to continue. Once China reaches its debt capacity limits, growth will come crashing down.

 + “Many local states in China act ‘developmentally’… The totality of these efforts combined, however, entails anarchic competition among localities, resulting in uncoordinated construction of redundant production capacity and infrastructure.” By Ho-fung Hung. Link. And read a PW interview with Xiao Ma on localized bargaining and China’s high-speed railways. Link

+ “Administrative decrees rather than monetary instruments such as reserve requirements, interest rate adjustments, and open market operations play the dominant role in controlling China’s money supply.” By Victor C. Shih. Link

+   “In spite of relatively poorer legal protection and standard financing channels, the private sector has been growing much faster than the public sector and has been contributing to most of the Chinese economy’s growth.” By Franklin Allen, Jun Qian, and Meijun Qian. Link.


Labor market disparities

CAITLIN HEGARTY is an assistant professor in economics at Williams College. In her job market paper, she explores the relation between firm heterogeneity and racial labor market disparities.

From the abstract

“This paper introduces a new channel to explain the excess sensitivity of Black employment: employer heterogeneity in hiring. There are persistent differences in the job-finding and separation rates of Black and white workers across firms of different sizes. Black workers face higher separation rates and lower job-finding rates on average, with more extreme disparities at small firms. Meanwhile, when the labor market is weak, the job-finding rate falls more for Black workers, with the biggest drop coming from large firms. The second half of the paper introduces a search model with employer size-specific information frictions that captures these patterns. The abundance of available workers during downturns encourages firms to be more selective about the workers they hire, leading to worse hiring outcomes for minority workers at all firms. This selection effect can produce larger changes in hiring rates for the disadvantaged workers at firms with better screening technology, because these firms are able to capture a higher share of the matching market and they are more susceptible to general equilibrium effects.”

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations:


+ “Bidenomics is a new legislative and macroeconomic policy mix, developed by Democratic Party elites to contain the threat of Trumpism.” New on the Polycrisis, a conversation with Ted Fertik, Daniela Gabor, Tim Sahay, and Daniel Denvir on Bidenomics. Link

+ “The greatest impact of BRICS will likely not be in creating eye-catching new institutions or ballooning membership, but rather, if it can achieve it, in provoking more meaningful cooperation from the richest countries.” Also new on the Polycrisis, from Kate Mackenzie and Tim Sahay. Link.

+  Yuhan Zhang on China’s 5G industrial policy. Link

+  “To account for the evolution yet persistent relevance of Corporate Planning, we analyze the content of Harvard Business Review since its foundation in 1922 until 2021.” By Hannah Bensussan, Cédric Durand, and Cecilia Rikap. Link.

+  A report from Autonomy on the growing shortage of care provision in the UK. Link.

+  “The multiplier effects of government expenditures on social protection” in 42 countries, from our friends at MADE at the University of Sao Paolo. Link

+  David Rosenfeld on public debt distress in the Southern Africa Development Community (Malawi, Mozambique, Zambia and Zimbabwe). Link

+  A conversation with Ilze Monasterio Zabala and Zoren Álvarez Salazar about gendered violence, precariousness, and the power of cattle ranchers in Bolivia’s lowlands. Link

+  The Merchant of Venice derives its drama from a series of formal contests between antinomies: Gentile and Jew, woman and man, country and town, young and old, hatred and love, friendship and advantage, mercy and justice. Yet parallel to these contests are monetary polarities so evident that one is tempted to look to them for the chief drama: Antonio and Shylock, real property and moveable property, usury and participatory risk, lead and gold. Both sets of contests are epitomized in the contest of the gold, silver, and lead caskets from which, under the terms of her father’s will, Portia’s suitors must choose. Portia, Antonio, and Shylock are all rich, but their riches distinguish their views of the world. Portia is ‘richly left’: she has inherited a fortune, no doubt from a merchant forebear ten times more villainous and crude than Shylock, but her family has followed the investment scheme laid down in antiquity: their riches are not for accumulation but for disbursement in pursuit of happiness, hospitality, love, and charity. Antonio is a merchant, but his business practices—a readiness to lend without interest or stand surety for a friend—arise in notions of commercial honor that are already hopelessly old-fashioned.” By James Buchan. Link

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations:

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