6 Comments

Exceptional work on this piece Matt!

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Great piece. Bang on. But you can't weaponize underconsumption (the US lever for our own investments is their overproduction/dominance) nor can you get Xi to do much about it if he doesn't want to, which apparently he doesn't as he seems to be stuck in some variant of Austrian thinking, apparently.

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I'm so pleased to see that "saving" goes completely unmentioned here. For me at least, it makes this far more comprehensible. The focus on spending is v good (cuz…spending is what causes production).

Also v good: "To be fair, fixed asset investment in China’s manufacturing industry has been growing." This avoids the very confusion that befuddled Keynes and innumerable econs since: investment spending *is also spending*. https://wealtheconomics.substack.com/p/john-maynard-keynes-doesnt-seem-to

But then: what's the *ratio* of consumption spending to investment spending? Again, nailed it: "manufacturers...seem to be increasing their capacity to produce far faster than their actual production." But isn't this better (or equivalently) called over-investment than underconsumption? (Econs I think find it hard to comprehend that there could be too much investment...)

That over-investment was obviously strategic — capture and dominate global (manufacturing) market share and capacity (taking much from the U.S.), while paying off 1. US workers with low consumer-goods prices, and 2. US asset holders with holding gains. (Class wars indeed.)

And this all at the expense of Chinese workers/consumers (relative to a less investment-heavy counterfactual in which lower tiers would have accumulated much more of the wealth-increase pie — and power.) Again, you're right on:

"...if Chinese demand for *all* goods and services were not structurally suppressed by the party-state’s anti-consumer political economy" … "ordinary Chinese are deprived of spending power commensurate with the value of what they produce."

So just to say, that's a story I can really understand — both the mechanics and their import. I may just be inordinately dense, but I do understand national accounts' saving measures darn well. And trying to tell that story via various "saving" remainders/residuals (HHs? "National" saving?) … utterly befuddles me.

Thanks for listening as always.

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Very insightful and helpful reframing of the usual neo-mercantile tendencies in our and china’s leaders. Pieces like this is why I subscribe! Thank you!

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That should of course be ‘austerian’ but the autocorrect hates that. More seriously this is exactly what your book with Michael P would predict. It’s a shame so many read it but seem to have missed that fundamental insight. M

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matt, this has led me down a youtube rabbit hole. look at this guy https://www.youtube.com/@telescopesh

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