Wednesday, June 2, 2010

Dispatches from Asia

William Galston discusses some recent points made by Krugman claiming that people who are comparing the U.S. to Greece oughta be comparing it to Japan instead. Galston cites work by Toshihiro Ihori, Masume Kawade, and Toru Nakazato arguing that fiscal policy did not improve the situation in Japan. I have a huge amount of skepticism for the evidence that Galston presents for much the same reason that I've outlined in a few recent posts. What is their counter-factual? On what basis do they claim that output wasn't improved? It's not clear and right now I don't have time to track it down. My guess is it's just some more sloppy post hoc ergo propter hoc analysis. Why do I guess that? Because if these guys figured out some way to get around the endogeneity problem while using a sample of a single recession, I think I probably would have heard something about it. Even the best of the best of this empirical work - Barro using defense spending, Romer using unexpected tax policy changes, etc. - ends up being unsatisfying. I can guarantee you nobody has decisively proven anything about Japan's fiscal policy. What's also striking is that growth rates are positive for most of the fiscal stimulus period covered by the data that Galston presents. A couple dip negative, but not that low. What we seem to see is that fiscal stimulus can bolster employment and output, but that it's not necessarily going to permanently pull an economy out of crisis. This isn't especially surprising to me. Japan went through a lost decade, not a Great Depression - and perhaps that's all we can hope for out of fiscal policy.

Matt Yglesias has been in China, and blogging about the nature of the Chinese economy. I haven't been following this closely, but I thought I'd pull together the links. He starts by talking about the Chinese economic model, suggesting that Chinese growth is less dependent on liberalization or on Japanese style industrial policy than a lot of people think. It's a pretty mundane post, but Scott Sumner and Tyler Cowen take it and make a big issue out of it. Sumner claims that since Ezra Klein calls China's economy a "miracle" he's thinking in binary terms: "free market or communist, successful or unsuccessful", and that a nation as poor as China shouldn't be called "miraculous". Sumner completely misses the point - what's miraculous is the growth rate, not the wealth of the Chinese. Scott's post reads like his recent critiques of what Krugman said about the 1980-2010 U.S. economy - when other bloggers don't provide sufficient things for him to disagree with, he imputes things to them (parenthetically noting that "His post is no worse than 1000 other similar posts; I’m not even sure he disagrees with me"). Yglesias responds here with this:

"I don’t intend anything I’ve said about China to be read as saying “China has a lot of state-owned enterprises and also rapid growth, therefore we should emulate that in America.” Or as saying “China has a lot of state-owned enterprises and also rapid growth, therefore we should conclude that state-owned enterprises are the reason China is growing quickly." I’m simply saying that I think most American discussions of China overrate the extent to which the Chinese economy has been liberalized."

You would think that would settle it. Of course not. Sumner responds here, but I've already lost interest.

1 comment:

  1. Sort of related...

    Mainly I think most discussions of China dramatically overrate the role of the central government in China's economic growth ... it is more of a story of the tail wagging the dog than vice versa.


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