Marx, Keynes and Deng at a Bar

In the May 2011 issue of the World Policy Journal well-respected Chinese economist Justin Yifu Lin was ruminating: ‘We are in a global crisis. And you have two paths. Traditional Keynesian focuses on the domestic economy and tries an approach that would, for example, dig a hole and pave the hole in order to create jobs. I suggest going beyond Keynesianism: first, the fiscal stimulus should be used for investment to enhance future productivity growth; and second, the fiscal stimulus can go beyond national boundaries, since the global crisis needs a global solution.

Wise, well-thought words. Sadly, a decade later, global fiscal stimulus is chaotically-competitive rather than synchronized. One wonders what will be left when the dust settles.

Even the success of China’s domestic stimulus is debatable; hi-tech investment seems to have worked, as impressive AI and space exploration advances are quite visible. But cracks in the old and well-tried Keynesian “dig-and-cover-a hole” are large for everybody to see. Rhodium Group notes there is enough excess housing in China for 90M people, roughly the entire population of the UK and Canada. The recent controlled demolition of 15 apartment buildings in Kunming went viral. Evergrande is in a (at least) $300B hole. A staggering 29% of China’s GDP is generated by the construction sector. How many Evegerandes are out there? Will the sector survive an above-the-board lowering of its credit worthiness? Regardless, an orderly unwinding of Evergrande is essential to prevent contagion as Goldman sternly warns Beijing policy makers. (isn’t it cute to see free-market apostles hard at work pleading for government intervention?)

On his deathbed Deng is said to have murmured “I’m going to meet Marx”. Once there, Deng may want to meet Keynes as well. Carefully though, since, same as in the case of economic policy: where exactly in the afterworld will the conference take place is a dangerous matter of belief.