2010-10-14

Socionomics meets present economic conditions

The world is spiraling towards currency wars and probably trade wars after that. Is there a solution to the problem? Michael Pettis offers up one possible solution to the current situation.

Xin Fa’an: A modest proposal to resolve the coming trade war
So why not have China do it directly? Let China engage in a massive rebuilding of US infrastructure – it can build airports, highways, damns, and railways – which would raise investment levels enough keep the US trade deficit high in a way that benefits the US and China.

Of course China would also have the right to charge for the use of these projects so that it can earn a positive return on its investment. The return doesn’t even need to be high – just better than the return it gets on its huge expansion in investment in China, which I suspect is negative for the country as a whole.
Putting aside the idea, look at this from a social mood and economic perspective. For the former, does anything even remotely like this idea have any chance of becoming reality? For the latter, how bad are things if this is a plausible adjustment mechanism?

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