Political dogma limits US economic recovery

I have an article with the title ‘Political dogma limits US economic recovery’ at China Daily’s site, and a reply to Gavyn Davies on his Financial Times blog. Both deal with the current relative states of growth of the US and China’s economies.

The two pieces note that recent economic data confirms the analysis, made on this blog over the last three years, that the US economic recovery would be far slower after this recession than in previous post-war business cycles. This trend is not short term but part of a long term gradual but progressive slowdown of the US economy – more detailed statistical data for which can be found here.

This analysis was contrasted to those, for example those of Gavyn Davies or John Paulson, which earlier this year argued that a relatively robust US recovery was taking place. Recent factual data clearly shows this latter position was incorrect.

The situation of the US economy is considered in these pieces in terms of a classical Keynesian ‘liquidity trap’. Why China has not suffered from one is analysed, and therefore why its economic growth is continuing to be much higher than that of the US. The China Daily piece may be found here and the comment on Gavyn Davies’s analysis here.

Comments

[Glen Suarez]

John

The debate about Chinese over-investment (or not)is more I think about the quality of its investment, isn't it? If investment does not have an effect on the marginal cost of businesses then it is probably valueless in the long term. I am thinking of investment in bridges to nowhere or oil refineries and shipping terminals that you see in parts of southern Italy which no body uses because it did not meet quality standards etc. On the other hand, transport connecting large population centres can be very valuable in reducing the marginal cost of supplying one centre from the other.

I am not sure how much work has been done on this in the context of China. Certainly the (little) I have seen suggests that you are right in arguing that Chinese infrastructure spending has been very valuable indeed.