Beware the Growing Global Glut

Paul Krugman asks “why does the world economy keep stumbling?”

“What we’re seeing is what happens when too much money is chasing too few investment opportunities,” or as Ben Bernanke argued more than a decade ago, “that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a ‘global saving glut.'”

“What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivity or a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.”

There’s “a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices — choices like cutting popular programs and raising interest rates. They don’t like being told that we’re in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.”

15 Comments

  1. The real question to me is: why has growth in the Chinese economy declined so rapidly (if they haven’t actually fallen into a recession)? I have yet to find a credible answer to this. Having just listened to a program on the Beatles, I must say this rapid decline is ‘very strange.’

    1. Uncontrolled capitalism eats itself. Never fails. It’s the kid left alone in the candy store. Or, more seriously, the dog left alone in the meat locker. Or the binge drinker with a failing liver left alone in a bar. Diabetes or gastric torsion or alcoholic poisoning. Those are the options. Unless somebody–your parent, your person, your bartender–cuts you off, saying you’ve had enough.

      And capitalism, like all addictive personalities, doesn’t want to admit there’s any such thing as enough. Its nature is to assume more is always better–greed is good.

      The current success of Trump–the way people assume that somebody who has made a lot of money must know the answers to everything–partly explains why we’ve let things get so bad. We’re a consumerist culture, and we all like to indulge ourselves. And so we let the most self-indulgent people run this world. Right into the ground.

        1. Nothing. It’s just a general rule of how capitalism works, that applies equally to our downturns and theirs. Capitalism without sensible regulation eats itself. And even Adam Smith knew that.

    2. China’s growth was driven by massive migration from rural to urban areas. This is now largely complete, with mostly elderly people remaining in the countryside. The new urban population wanted and needed the accouterments of modern life; now they largely have them. Consider how many refrigerators you can sell to a populace that lacks them vs one that has them and only needs to replace them when they fail. That leaves exports, but Europe is in a bad state and the US is saturated, so where will export growth come from?

      1. I’m not sure that is correct. My understanding is that there are still tens of millions of Chinese living in rural areas. So many so that recently the Chinese government made it more difficult for people to relocate from rural to urban areas.

        There are at least three major problems with the Chinese economy, but I don’t see how they could have impacted on it so quickly.

        1.The one child policy that went on for too long and will likely result in an actual decline in population.

        2.The rapid rise of wages that has resulted in basic assembly jobs leaving formerly low wage China for even lower wage countries in the region like Vietnam, Burma and even North Korea.

        3.The continued problems of governance rules that are arbitrarily applied to the degree that they exist at all.

        There are also some claims that China is failing to develop new technologies and is mainly stealing the research of others. But, though their patents are still mostly low quality, the number Chinese patents has been increasingly rapidly and China leads in such areas as a number of renewable resources like solar energy and wind power and is also becoming a major player in high speed rail.

        1. Often, problems can simmer for years and then, seemingly all of a sudden, a crisis emerges. US banks were making terrible mortgage loans and packing them for many years before the financial crisis. Lenders like Bear Sterns and Lehman were raising money by overnight loans with no problems. Suddenly, there was a loss of confidence and the paper could no longer be rolled over. That seems to be the case in China now.

      1. Nope it was Beatles historian Chuck Gunderson appearing on Coast to Coast with weekend host George Knapp. I woke up and heard the first hour of the two hour interview on replay (they only replay the first hour) and they discussed the Beatles impact in the United States in 1965. No playing of Penny Lane.

        If you’re interested you can hear it yourself over the next 10 days by finding it on the CKNW.com archive section. It was on Sunday August 24 Midnight to 2 A.M PST.

    3. In addition to what RadicalCentrist proffered, I’d add that China’s booming, record-growth economy has been largely based on two things:

      — explosive growth in exports of both cheap manufactured goods and certain high-end products (IT)
      — massive spending (by both the government and the private sector) on internal infrastructure (roads, shopping centers, apartment buildings, mass transit, etc.)

      The two are intertwined, of course. The first is what brought China those record 12-15% year-over-year growth spurts — for years. China became the world’s manufacturer — and for anyone with lots of raw natural resources to export (Australia, Africa, South America), a godsend.

      The second is what first got China in trouble. As a rapidly developing nation, with literally millions and millions of people migrating from the countryside into instant cities based around factories, the nation clearly needed new infrastructure on a massive scale. But as the global economy went into serious recession (reduced exports) and the Chinese population settled down somewhat into more permanent patterns (with many people even abandoning the new cities to return to country life), the Chinese economy started to slow.

      But China kept building — even though there was really no more natural demand or even potential need. Like all bubbles, it was self-reinforcing for a long time — and kept a lot of people working, developers madly developing, etc. With the Chinese government also aiding and abetting this boom, it all helped mask their slowing economy from both the world at large and the Chinese people.

      Only now they have entire cities that are virtually empty of people, enormous airports that handle just a couple of flights per week, huge shopping centers that have no customers.

      To make matters worse, China encouraged its people to invest their new personal wealth internally. Then, with the real estate boom gone bust, money started to pour into China’s two main stock markets. Guess what? Another bubble — and now another bust. Even worse, these markets have always been highly volatile, with 30-60% swings not uncommon. And although the government has tried multiple things to keep this bubble from suddenly bursting
      — buying up millions in stock to keep prices inflated, lowering their currency to goose exports more — nothing has really worked.

      Bottom line: China’s “communist-socialist” side keeps clashing with its capitalist side in that their attempts to artificially keep growth going or to soften the bad landings . . . have usually just made their problems worse, not better.

    4. Some guesses, Chinese products are toxic and people don’t want to buy them even if they’re cheap; much of the growth of the last ten years is based on smoke and mirrors; fraud and corruption is a vast problem in China; the Chinese model of the “great capitalist leap forward” is a one time event and there are no new drivers for the economy; pollution is killing people; demographics are turning negative; a repressive political autocracy stifles real innovation and real economic and societal development; their stock market is mostly fraudulent clap trap; their economy is colossally over-leveraged to the point that additional credit produces minimal economic expansion; and finally, without a governmental backstop, thousands of very large enterprises and banks are insolvent. It’s not a pretty picture.

      1. You’re probably using Chinese products to post this.

        Yes, they cut a lot of corners–they have put too much emphasis on the quick and dirty approach–very dirty. But they produce very high quality merchandise, that people pretty much everywhere want to buy. A lot of it designed elsewhere, of course. That means they don’t get all of the profits from those iPhones and iPads. But the fact remains that Chinese-made products are among the world’s most desired.

        It isn’t enough–they need to clean up their act.

        1. Yes, my very fast Toshiba laptop is made in China but it has some serious drawbacks. It has an inboard lion battery that runs really hot and the heat vent is on the right side instead of the back where it should be. Still there are more and more products from China that are being questioned regarding quality.

          1. I think you’re failing to recognize just how much of what we buy is made there–the low end crap, the mid-end mediocrity, and the high-end electronics everybody wants, like the Mac I’m typing on now.

            They will make the product as well as the company the’yre making it for wants it to be. The better the quality, the higher the price.

            The Germans are probably the highest-quality manufacturers in the world now, and they basically produce no consumer electronics.

            Because it would cost too much.

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