Tuesday, 2 November 2010

The Chinese Keynesians

BBC News - China wealth fund urges US to spend on infrastructure
This is such an interesting story. It would appear that the China Investment Corporation wants the US Federal Government to spend $1 trillion on infrastructure investments over the next five years. The stated purpose of this spending would be job creation. What I find interesting is the implicit money-go-round: Washington hires workers, who spend their salaries on Chinese products, which provides money to the CIC, who then lend the trade surpluses to Washington to hire workers. There is a nice symmetry to this and it is a classic Keynesian case for public works.
What is also interesting is the tacit rejection of Quantitative Easing as a way to reduce the number of jobless. In many respects, this is something of a false comparison. QE is very much a Keynesian approach to monetary policy and is a necessary condition for a fiscal stimulus to work. The use of QE without further fiscal stimuli is, as yet, an untried policy, the results of which we have yet to see. This is Osborne’s Gamble.
However, I do find it interesting that a Communist body is advocating the use of a Keynesian approach to support a markect based Capitalist economy. The irony here is great.
© The European Futures Observatory 2010

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