The FT’s Arena blog will this week recreate a virtual editorial conference by allowing readers to take part in the debate which helps shape a Financial Times editorial.
Over the course of this week, our editorial writers and specialists will debate an issue which will form the subject of an FT leader. One of our leader writers will open the debate. Readers are then invited to comment at the end of each post and the best comments will be picked up by us and added onto the main blog as posts. Read more
By Laurence J. Kotlikoff
The US federal government faces a long-term fiscal gap, which exceeds, from all indications, $70 trillion. This gap is the present value difference between all projected future expenditures and all projected future receipts.
Its size reflects the impending retirement of 78m baby boomers and the fact that when retired, they will receive annual benefits from social security, Medicaid (the healthcare scheme for people on low incomes) and Medicare (for the elderly and disabled) that average more than per capita gross domestic product. Read more
By Moritz Schularick
Over the past decade, China and other emerging markets accumulated foreign currency reserves to insure against the economic and political vagaries of financial globalisation. They were wise to do so. Countries with larger reserves are weathering the storm relatively better than those who have bought less insurance. Read more
By Ronald McKinnon
Tensions between the US and China escalated recently when Timothy Geithner, the new US Treasury secretary, suggested that China might be designated as a “currency manipulator’. Premier Wen Jiabao mounted a vigorous defence of China’s existing exchange rate policy at a high level meeting of world leaders at Davos, Switzerland. Mr Wen pledged to keep the renminbi at a “reasonable and balanced level”. Read more
By Eswar Prasad
Timothy Geithner, in his first foray into international economic affairs as US Treasury secretary, has kicked off a public row with the Chinese by accusing them of currency manipulation. The Chinese have vehemently rebutted this accusation and flexed their own muscles, telling the US to get its own house in order before lecturing others.
The world economy, already on its knees, cannot afford escalating economic tensions between China and the US. Read more
By Ricardo Hausmann
China is definitely part of the global imbalance. It is running a current account surplus in excess of 10 per cent of gross domestic product and it is accumulating reserves as if they were as profitable as a Madoff investment was supposed to be. Were it not for this fact, its currency would have appreciated much more than it has. Read more
By Michael Pettis
The post-1997 global balance is breaking down, and the world is lurching drunkenly to find a stable new balance. Until now, Chinese overproduction has balanced US overconsumption, leading to China’s massive trade surplus and capital account deficit. Inevitably, however, a reduction in US overconsumption, a necessary consequence of the financial crisis, must force a corresponding reduction in overproduction elsewhere, and China, like it or not, will have to bear the brunt of the adjustment. Read more
By Members of the Asian Economic Panel
The recession in the US and parts of Europe is likely to be severe and prolonged, and the Asian economies should take urgent and co-ordinated action to protect their economic growth in the face of recessionary conditions in the US and Europe. Read more
By Richard Portes
Expectations for the G20 meeting on November 15 are excessive. It will not agree on changes to the institutions of global governance, nor will it come up with an ‘n-point plan’ for dealing with the crisis. Read more
By Ronald McKinnon
As always, I am amazed by how much analytical ground Martin Wolf covers in each column; “Why agreeing on a new Bretton Woods is vital” is no exception. Let me first pick up on one point: the number of countries involved in the negotiation.
The original Bretton Woods agreement was essentially bilateral, and negotiated between the British Treasury (Keynes) and the US Treasury (White) in 1943-1944, with Canada sometimes acting as an umpire.
The post-war General Agreement on Tariffs and Trade cum World Trade Organisation negotiations were manageable and quite successful as long as they were also mainly bilateral – the eastern European bloc versus the US – with Most Favoured Nation treatment extended to most other countries.
Developing countries did have a marginal say. The old GATT exempted them from the requirement to reciprocally reduce their own tariffs. This was disastrous for them, and fortunately is being phased out under the new WTO. Read more
By Jean Pisani-Ferry Read more
By Kenneth Rogoff
Given the highly vulnerable state of the US and European economies, what would happen to global growth if the Chinese juggernaut also started sputtering? Few investors or policymakers seem to be seriously contemplating this scenario. Read more
For China’s rulers through the ages, stability has been the chief objective.
The same is true for the Communist party today. For the current government, however, economic stability matters most of all. Yet observers of the Chinese economy, both at home and abroad, now worry that what looms ever closer is instability in its most dangerous guise – that of inflation. Are they right to do so? Probably not, is the answer. Read more
What is the most important high-level dialogue in international economics? The answer is not the discussion among the finance ministers of the Group of Seven high-income countries. It is the “strategic dialogue” between China and the US. This is not because the latter will produce answers, but because it asks the right question. The biggest challenge in international economic policymaking is the incorporation of China. This, to his credit, Hank Paulson, the US Treasury secretary, has recognised. But his bilateral approach will fail. The G7 should, instead, be replaced by a multilateral body that can address such issues more effectively.
To understand the challenge, we must appreciate what makes China’s impact special. Experts often describe today’s globalisation as the “second globalisation”, to distinguish it from the “first globalisation” between 1870 and 1914. In the earlier era the rising economic power was the US and the UK was by far the world’s most important exporter of capital. But China is now emerging as both the world’s most dynamic economy and its largest source of capital. This helps explain a signal feature of our era: the combination of rapid growth with low real interest rates.
The Great Wall is China’s most celebrated tourist attraction. As China’s impact on the world and its rulers’ desire to control the world’s impact on China grow, it appears as an enduring and disturbing metaphor. From the Great Wall, aimed at the “barbarians” of the Steppes, to today’s Great Firewall, aimed at free flows of information, China’s rulers have wished to keep their people separate.
Yet how far can China remain inside the world and outside it, embrace the west’s market economy, while rejecting its political ideas? Read more
“Chindia” is the word coined by the Indian politician, Jairam Ramesh, to denote the two Asian giants that contain 38 per cent of the world’s population between them. Nor is size their only similarity. Both are heirs of ancient civilisations; both were, until recently, desperately poor; and both are among the world’s fastest growing economies. Yet the differences are also striking. By looking carefully at them one can learn more about their prospects for continued growth. The economists’ technique of growth accounting helps shed a bright light on the story. A recent paper by Barry Bosworth and Susan Collins of the Washington-based Brookings Institution does just that*. It compares performance over the 1978-2004 period, but the years since 1993 are particularly interesting, since they succeed India’s post-1991 reforms. The remainder of Martin Wolf’s column can be read here (FT.com subscribers only). Discussion from our guest economists is free.
By Lawrence Summers A rising Asian power has emerged as an export powerhouse and enjoys rapid, export-led growth fuelled by extraordinarily high savings and investment rates. Its technological capacity is upgraded at prodigious rates and its businesses threaten an ever greater swathe of industry in Europe and the US. Its high level of central bank reserves and burgeoning current account surplus lead to claims that its exchange rate is being unfairly manipulated or, at a minimum, should be guided upwards. Its financial system is bank-centric, heavily regulated in ways that favour domestic institutions and has close ties to government and industry. Rapid productivity growth holds down product prices but asset price inflation is rampant. US congressional leaders demand radical action to contain the economic threat. Delegations of senior US economic officials engage in “dialogue” with their counterparts about the many aspects of the country’s economic policies that promote imbalances, warning of the congressional demons who stand ready to act if “results” are not achieved quickly. All of this describes what is happening in and with China today. It also describes the Japanese economy in the late 1980s and early 1990s before its lost decade of deflation and considerable deterioration in its international relations. While there are obvious differences, notably China’s much lower level of development, the similarities are striking enough to invite an effort to draw some lessons for China and its partners from the earlier Japanese experience. The definitive history of Japan’s dismal decade has yet to be written. But almost all knowledgable observers would agree that significant elements included the bursting of the stock market and land bubbles, the resulting problems in the financial system, the collapse of aggregate demand as banks stopped extending credit and the difficulty of moving from export-led growth to domestic demand-led growth once consumer and business confidence had been lost. Read more
What exchange rate regime should China adopt? The answer must be: one that supports stable growth at home and, given China’s growing role in the world, also abroad. The government has already decided to shift towards greater reliance on consumption. In doing so it has willed the end. Now it must will the means.
Nicholas Lardy of the Washington-based Institute for International Economics spells out the case for such a shift in a thought-provoking new paper*. This represents just one of the host of contributions made by the Institute to the greater understanding of international economic policy issues over the past quarter of a century. I do not agree with everything it has published. That is hardly surprising. But the world would have been far worse informed and less stimulated without it. Happy birthday, IIE! Read more