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17 September 2011

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John Ross

PB,

Thank you for your kind remarks. The test of any theory is not the fame of who put it forward (that idea went out when there was the scientific revolution) but whether it fits the facts. That is why this blog is very fact oriented and generally uses statistical sources not newspapers.

It is a continual frustration to me that I do not have time to study and write enough on India. India's development, together with that of China, is the most important question in the world economy today. Obviously I am able to write more on China as I am a Professor at a Chinese university. I follow India as closely as I can statistically and from its media but I don't believe in writing on a subject unless you have well substantiated facts and something which adds to knowledge. However I am currently looking at two issues in detail - India's place in the world economy, and comparisons of India and China's development. I hope to be writing on these in the near future.

John Ross

Nichol dealing with your definitional point,

Technically investment is divided into two parts: (i)inventories (stocks), (ii) fixed investment (machinery, buildings, software purchases etc.

Inventories are a relatively small part of GDP (1-2%)and do not significantly affect productivity, although fluctuations in their levels can play an important role in business cycles. By far the largest part of investment (15%-40%+ of GDP depending on the national economy) is fixed investment.

Infrastructure (roads, railways, bridges etc) is a specific sub-category of fixed investment.

PB

John,

You have been correct in your predictions throughout the last few years in your debate against some famous people. I feel lucky that I found your blog early and I have been following ever since.

I am just a bit worried about the quality of the fixed investment that is going on in China. Will this be an issue in the future?

Also, could you please, if you have the time, provide us some analysis of the situation in India.

Thanks for a great blog.

Nichol

what is your definition of 'fixed investment', as opposed to general investment, possibly in infrastructure? Maybe it is standard economic jargon .. but it might help to explain what the whole article is about.

My view on this is that (capitalist) economy depends on creation of money and capital, which is usually done largely by banks giving out loans, most of the money for which is then 'created' by central banks. If the private sector loses confidence, and stops taking out loans, while banks are afraid of giving them out .. the result is that the whole system grinds to a halt. Unless government can take that role of lender-of-last-resort, and spend it on general the kinds of infrastructure & education that is guaranteed to pay back in the long run.

In the background of this, our populations cannot continue to grow, while fossil energy is running out, getting expensive. Those to factors are the long-term drivers of change. This crisis is just one of the large blips on that path of change.

Glen

Its a good point that you make, but if Governments increased investment spending as you suggest, the trade balance might just go negative i.e. net imports (particularly in the USA) would jump. So the impact on GDP could be very muted. So perhaps the answer is More investment spending in the US/EU with tarrif barriers to prevent imports?

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John Ross

  • Is Senior Fellow at Chongyang Institute for Financial Studies, Renmin University of China

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