What I Consider to Be Contradictions in International Econoimcs

Originally posted on: Monday, 17th November, 2008

As some of you might have heard, we are currently in an world economic crisis where the big and rich countries are basically drowning in debt thanks to: 1.) over consumption and 2.) minimal savings.

So where do the world economy turn to from here? Last time the Great Depression (I understand that this comparison is unfair but bare with me) was not defeated due to the New Deal of Roosevelt despite popular belief. It was due to the advent of WWII (this is my opinion and if you don't like it, suck it). But this time round we don't have a moustache wearing lunatic leading an advanced industrial nation. So as the fate's sense of irony would like it, this time round they turn to China, a self proclaimed Communist nation.

As the Economist wrote, around three or four decades ago politicians and economist proclaims that the only thing that will save China is Capitalism, today China is the only one that can save Capitalism. The big question is how? Well my beloved Economist magazine reckons that government should "encourage" it's middle class to spend a lot more money, and basically save a lot less, hell start borrowing as well. This way China will start consuming lots of goods and prop up the world economy in a time of crisis.

As I read this I wonder to myself "Am I the only one who seems a problem with this setup?" You're trying to get the one country who is actually keeping the world economy afloat with cash due to it's overwhelming civilian savings of close to 50% of income (which incidentally is the exact ratio that classic economics says you should save) to be more like the countries that started the problem in the first place?

I mean, sure maybe this time round it will help avert the crisis. But then in another 70 years time and China becomes another US that over consumes and over leverage their economy and thus starts a similar crisis. Who will save us then?

Why is it that every time that I read a magazine or opinion piece from an economist it seems to be crucifying the Chinese for saving what they earn? You would think from reading the articles that somehow that this is a conspiracy by the Chinese people to not spend money in order to frustrate the international community, hell if it didn't know better I would think that saving majority of your income away is a crime.