But one thing that continues to surprise me is the frequency with which the US in 2007-2008 is being compared to the US of 1929-1930. I’ve mentioned in passing that China is in the position that the US occupied in the late 1920s: a massive manufacturer that was generating large trade surpluses, to the point where the imbalance was destablizing (under a gold standard, the US was sucking the metal out of its trade partners; the modern analogy is China’s massive foreign exchange reserves). And as the US was the epicenter of the Great Depression, we cannot be certain of the trajectory of this economic crisis until we have a sense of how bad things are getting in China and how good its policy responses are.
Reader Michael has been e-mailing me from time to time with not-pretty sightings on China’s responses to the downturn. This post from Michael Pettis tells us that China appears to be trying to keep its exports up, which is eerily parallel to what the US did in the Great Depression.
The point is good one. The Michale Pettis post that she links to is interesting. The conclusions that Michale Pettis and herself draw is all wrong.
Keynesian economics has never been able to solve the problem of overcapacity. Japan could not do in 90’s. The US could not do it in the 70’s. Nobody has ever been able to use Keynes ideas to solve any problem successfully. Yet his ideas it is still held out as the solution to the problem of overcapacity on the belief that everyone else did not properly follow Keynes ideas.