Archive for January, 2009

Crisis has hit China’s economy

People say that China needs to have GDP growth of over 6% a year to ensure enough job creation to prevent social and political unrest. I mean the high economic growth in China can legitimize almost everything that the CCP has done since reforms in 1978. Ending the Democracy Wall movement? Well, they countered that by opening up rural agriculture markets. Crushing the Tiananmen protests? The number of people lifted out of poverty since the reforms have saved and improved the lives of millions. The suppression of political and religious freedoms? China’s open economy has put a McDonalds on every block and brought the Olympics to Beijing.

Ok, so of course economic growth doesn’t legitimize everything, but all those people who hate on China usually avoid criticizing the CCP’s handling of the economy (except in the cases of high inequality and damage to the environment). So if ‘crisis’ really is hitting China’s economy, then something must be done.

As the demand for China’s exports shrinks, he said that as part of relaunching the economy, the country had to focus now on expanding domestic consumer demand.

Ah yes, increasing domestic consumer demand to make up for the huge drop in exports. But then again…

Mr Wen said that among the reasons behind the current global downturn were “inappropriate macro economic policies in some economies, characterised by [a] low savings rate and high consumption”.

So China is going to change the structure of their economy so that it can become the reason for the next global economic downturn instead of a victim of someone else problems? Ok, I’m kidding, but does China really need to increase their domestic consumption?

Increasing domestic consumption would mean all those goods waiting in warehouses would be sold and firms would receive higher revenue. This means that they would be able to hire more people and thus save the economy.

However, if savings are really high in China, firms can borrow money at a really low interest rate.  Since there is currently lower consumption demand, firms should just focus on investing for the future so that they can produce better and more goods at a lower cost. Or at least that’s what all those classically trained economists would say.

If we were talking about America’s economy, I would say that we should encourage Americans to save more so that banks with bulging vaults would be forced to loan that money out to reputable and innovative companies. However, since China doesn’t have the best financial system in the world, a lot of those savings might be wasted on poor investment choices, like propping up a failing SOE. So yeah, I think Mr. Wen is right that increased domestic spending, may it be through coupons to buy a new fridge or discounted bicycles for rural folk, would do a lot of good in getting China through the current economic downturn.

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So I voted for Obama not because of his economic views, but because of Sarah Palin’s political views. As a result, I see myself disagreeing with a lot of Obama’s economic plans. Let’s look at the ‘key points’ of Obama’s plan one by one.

Expand Medicaid: $87bn

How does expanding Medicaid help the economy? Alright, so lets say that more people can go to see the doctor for a lower cost. That means they’ll have more money to spend on other stuff. However, this targets the poor elderly, children, pregnant women, and people with disabilities instead of the majority of the economy. Besides, the health care sector is doing much better than most other areas.

Help state governments: $79bn

I guess this might be helpful, but it all depends on how that money is spent. I mean if we’re pouring money into wasteful construction jobs for the sole purpose of giving construction workers a job, then that’s just idiotic. But if money was put into consumer subsidies for solar panels or public transportation improvement, I think the long run benefits would be pretty damn good.

Help school districts: $41bn

This should be helpful. In the short run, people who have been laid off from their jobs can become teachers at adult schools and community colleges while those who have teaching credentials can go in and work in the K-12 public school systems. Maybe they’ll find that they like teaching and some great new teachers would be found to inspire inner city youth into learning calculus and going to college to earn their degree in ethnic studies. In the long run, better education would increase the number of skilled workers and while this would lower wages of such labor due to competition, should increase efficiency and American competitiveness. Oh, and better educated people generally commit fewer crimes and know how to take care of themselves better, thus reducing the strain on law enforcement and health care.

Higher unemployment benefits: $36bn

This is just awful. Ok, I know that they’re thinking that there’s lots of unemployed people out there and that benefits would give them money to spend. But hey, that money would be much better off put into plans to create new jobs. The reason why unemployment is so high in many European countries is because people would rather be unemployed than employed due to high benefits. Keep unemployment benefits low and lower the amount of time that one can receive it. This way, people would be encouraged to compete for jobs and competition is a wonderful thing.

Rebuild roads: $30bn

Most places in America don’t really need new roads. I mean you build a road in Western China from a major city to an outlying town and that would probably increase efficiency by quite a bit, but come on, we got roads all over the place here. A pothole here and there is not going to hurt the economy all that much. I say focusing on improving and encouraging public transportation would be better. Especially in times of economic tightening, more people would probably be more willing to take the bus or train, so why not use government money to lower the price and improve its services? Hell, maybe those people who switched to public transportation would like it so much that they won’t go back to cars even after the recession.

Computerise medical records: $20bn

… huh… I don’t get it…

Green electricity grid: $11bn

I think this is a great idea. Not only would creating new solar power plants and wind turbines be good for the environment, but it’ll create new jobs in a sector that should grow in popularity as other energy costs go up. I don’t like bio fuels though. Oh, and why don’t we use some money to put telephone poles and all those wires underground? That way we can let those trees in front of our houses grow up as big as we want.

Next time, I’ll go over what the Chinese government should spend their giant aid package on.

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