So Doggie has been shitting on Pyco Metas @michaelxpettis and the shitting has been fun… Doggie would feel sorry for the guy if he truly does not understand what he got wrong… (it’s actually just two simple errors) but he has to know… it’s not that difficult… 1/n
Error #1 is just math… or not checking his math. One can be forgiven for relying on data sets that result in erroneous conclusions for a few years… but not for 15 years… 2/n
Error #2 is more conceptual and not a simple math oopsie. It’s a fundamental misunderstanding of what has been driving economic growth in China. It’s not investment in property, infrastructure, manufacturing… or even consumption… 3/n
All of those are byproducts of something far more fundamental — investment in human capital, of which education is but one component. Perhaps even more foundational is the creation of a high - or let’s just say much higher - trust society… 4/n
When David Brooks wrote in 2020 that America had become an untrustworthy society and that “People in high-trust societies are more civically engaged… —like the Netherlands, Sweden, China, and Australia”, Doggie was like I get his point… buuuut… 5/n
theatlantic.com
theatlantic.com
… Doggie is an old dog and was willing let David Brooks slide because he’s no China expert and was just making a rhetorical point. Then Doggie saw it again… from Dang Wang, a youngster… 6/n
danwang.co
danwang.co
“Fukuyama states that high-trust societies have ‘spontaneous sociability,’ in which people are able to organize more quickly, initiate action, and sacrifice for the common good. On each of these metrics, I submit that China should receive high marks”…Doggie is floored… 7/n
Doggie needed to check it out for himself… Doggie is back in Beijing after twenty one years and… it’s weirding Doggie out… Doggie be like… WTF… whatever happened to the gruff, nasty, pushy, 北京土 city of the early 2000’s… everyone is so… so… 8/n
… so… genial… WTF? This is the Twilight Zone… Doggie was prepared to bark and push through crowds. Doggie chewed out a DiDi driver because Doggie is an asshole and the driver just politely mellowed through making Doggie feel like a dick… 9/n
No value judgements here… just economic ones. This is why China can absorb ever higher levels of investment in infrastructure. It’s just asset matching to increasing levels of societal capital… 10/n
Pristine subway stations can be built to every neighbourhood… because there are no bad neighbourhoods. Computerised exercise machines can be installed in public parks because there are no vandals. Public benches can be built because there are no vagrants… 11/n
@michaelxpettis doesn’t understand China’s continued ability to invest in infrastructure because he doesn’t understand that it’s just asset matching human capital. And that infrastructure investment in the US is cargo cult behaviour if social trust continues to decay. 12/n
Error #3 is his confused equation of consumption with value. Production has value. Assets have value. Consumption is the recognition of value or, less generously, the amortisation of value. Trade surplus economies don’t want US consumption, they want US assets.
America has persistent trade deficits for the simple reason that if you can live beyond your means, you will. Since America has a bottomless pit of assets to pawn (thanks great great grandpa for killing them Injuns), Americans are cursed (or blessed) to live beyond their means.
There is no clear relationship between China’s consumption and its trade surplus. If China were to consume more, its surplus with the US will continue. Because Americans are quite comfortable trading assets for consumer goods… in fact, it has already happened.
China’s consumption share of GDP increased ~4 percentage points in last decade. Trade surplus with US is at record levels. Value is in the productive capacity. Value is in accumulated assets. Until the US runs out of assets and/or increases productive capacity, this won’t change.
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