• Facebook’s Libra: Does the World Need Frictionless Money?

    23
    June 27, 2019

    Facebook seems to think its new digital currency Libra will be used mainly for purchasing goods and services and for current account transactions. But it will probably be used mainly for capital account transactions. Do we really want to eliminate frictional costs on the capital account?

  • Wealth Should Trickle Up, Not Down

    34
    June 19, 2019

    Income inequality in the United States hampers growth and forces up debt. In advanced economies in which investment is not constrained by scarce savings, high levels of income inequality lead automatically to either more unemployment or more debt. Such inequality undermines not only the health of the economy, but eventually also the rich.

  • Does the UK Benefit From Chinese Investment?

    26
    June 05, 2019

    While foreign investment usually benefits developing economies and creates local economic benefits in advanced economies, it generally does not benefit advanced economies on the whole except in very limited cases. On the contrary, foreign investment in advanced economies is more likely to lead to higher unemployment or rising debt.

  • China Cannot Weaponize Its U.S. Treasury Bonds

    37
    May 28, 2019

    A number of recent articles suggest that Chinese officials may reduce their purchases of U.S. government bonds. It is very unlikely that China can do so in any meaningful way because doing so would almost certainly be costly for Beijing. And even if China took this step, it would have either no impact or a positive impact on the U.S. economy.

  • Should the United States Run a Trade Surplus?

    26
    March 04, 2019

    Although standard trade theory predicts that highly advanced economies with sophisticated financial sectors, like the United States, should generally run trade surpluses, the country has run persistent, and often large, trade deficits for five decades. This can only be a consequence of significant global economic distortions.

  • Why U.S. Debt Must Continue to Rise

    26
    February 07, 2019

    Debt is rising more quickly in the United States than most people would prefer. This is happening in part because the U.S. current account deficit and the country’s high level of income inequality distort the structure and amount of American savings.

  • What Is GDP in China?

    48
    January 16, 2019

    Analysts are increasingly skeptical that China’s very high reported GDP growth rate provides a meaningful picture of the economy’s health. There are, however, at least three very different ways that reported GDP can fail to reflect the underlying economy.

  • What China’s Online Shopping Craze Says About Its Bubble Economy

    24
    November 14, 2018

    November 11, known in China as Singles’ Day, started out as a wry, tongue-in-cheek holiday. It has since become a major draw for online shopping, a profoundly Chinese celebration, and an expression of the country’s modern urban youth. But the rampant commercialization of Singles’ Day may one day come to be seen as a symbol of the era of China’s bubble economy.

  • Beijing’s Three Options: Unemployment, Debt, or Wealth Transfers

    92
    September 05, 2018

    China’s debt problems have emerged so much more rapidly and severely this year than in the past that a growing number of analysts believe that this may be the year that China’s economy breaks. There is no question that China will have a difficult adjustment, but it is likely to take the form of a long process rather than a sudden crisis.

  • The U.S. Trade Deficit Isn’t Caused by Low American Savings

    34
    August 08, 2018

    A recent article by Joseph Stiglitz suggests that the United States runs a current account deficit because its people save too little to fund domestic investment. In fact, he may have it backwards: Americans may save too little precisely because the United States runs a current account deficit.

  • Tariffs and Trade Intervention

    65
    July 10, 2018

    Most of the discussions among economists about the impacts of tariffs and trade intervention are more ideological than logical. While tariffs may cause households to pay more for tradable goods, there are many other ways households, and the overall economy, are affected, positively and negatively. What matters are the conditions under which trade intervention policies are made.

  • High Wages Versus High Savings in a Globalized World

    64
    April 03, 2018

    Democracies will increasingly have to choose between raising wages and redistributing income or maintaining free trade and capital flows. Because they are likely to choose the former, the world may face a long-term reversal of globalization.

  • The GDP of Bridges to Nowhere

    31
    January 25, 2018

    In most economies, GDP growth is a measure of economic output generated by the performance of the underlying economy. In China, however, Beijing sets annual GDP growth targets it expects to meet. Turning GDP growth into an economic input, rather than an output, radically changes its meaning and interpretation.

  • Why China Likely Won’t Buy Fewer U.S. Treasury Bonds

    50
    January 12, 2018

    A January 2018 Bloomberg article suggests that Chinese officials may reduce their purchases of U.S. government bonds. It is very unlikely that China can do so in any meaningful way because doing so would almost certainly be costly for Beijing. And even if China took this step, it would have either no impact or a positive impact on the U.S. economy.

  • EVENT: China’s Economy After the Party Congress

    4
    September 29, 2017

    Michael Pettis will be joined by Carnegie’s vice president for studies Douglas H. Paal to address economic factors challenging China and the new leadership that will emerge from the congress. Watch live on Monday, October 2.

  • Is China’s Economy Growing as Fast as China’s GDP?

    117
    September 05, 2017

    If local governments and state-owned enterprises in China systematically invest in projects that are not economically justified, to the extent that these projects are not correctly marked to market, China’s reported GDP will be overstated by that amount, as will its total wealth.

  • Does Cutting Taxes on the Wealthy Lead to Greater Growth?

    125
    June 26, 2017

    Policies that increase income inequality can in some cases lead to higher savings, higher investment, and greater long-term growth. But, in other cases, such policies either reduce growth and increase unemployment or force up the debt burden. What determines which of these outcomes takes place is whether or not savings are scarce and have constrained investment.

  • Guaranteeing Employees Against Losses

    14
    June 14, 2017

    A number of Chinese companies are trying to shore up their stock prices with programs that encourage employees to buy shares and ensuring them against losses. These programs have implications about leverage in China and about the way losses may be distributed within the banking system.

  • Will a Smaller Fiscal Deficit Cause the Trade Deficit to Decline or Unemployment to Rise?

    44
    May 22, 2017

    In a recent much-remarked-upon and very short op-ed, George P. Shultz and Martin Feldstein argue that the only way, or at least the best way, to cut the U.S. trade deficit is for Washington to cut the U.S. fiscal deficit. It is at least as likely, however, that cutting the fiscal deficit will simply increase debt or increase unemployment.

  • Why A Savings Glut Does Not Increase Savings

    40
    May 02, 2017

    Contrary to conventional thinking, a savings glut does not necessarily cause global savings to rise. A savings glut must result in an increase in productive investment, an increase in the debt burden, or an increase in unemployment.

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