Sep 25, 2023·edited Sep 25, 2023Liked by Glenn Luk
I think the biggest pitfall of an over-reliance on accounting identities to understand macroeconomics is the lack of causality inherent to using such a method. Pettis offers a useful framework for identifying the state of the global economy but it fails to account for agency on both sides of an economic interaction. His argument that "excess Chinese savings leads to higher debt in the US" is a good example. Not only is there high Chinese demand for assets like US treasuries, there is also an ample supply of US debt to make such a dynamic possible. Who or what is driving that supply-demand dynamic? My superficial understanding of one component of his argument is that the open capital accounts of Anglosphere countries (USA, UK, Canada, Australia, New Zealand) is sufficient to attract inbound foreign investment. But, to borrow the Buffet analogy, actors in these countries choose to "mortgage" their farms as a result of their own economic conditions. There are two sides to the interaction! IE it seems odd to laypeople like myself to attribute the GFC entirely to global imbalances caused by excess savings in China.
Would note that both Buffet and Pettis prescription of some kind of "tariff" for foreigners owning US assets seems like an interesting, frictionless way to improve US domestic manufacturing and reduce our debt — without relying on massive spending bills like the IRA and CHIPS act.
Every time I read your articles I found that your opinions are always different from mainstream opinion. That makes me with little knowledge about economics feels like a jungle I’d like to see.
I think the biggest pitfall of an over-reliance on accounting identities to understand macroeconomics is the lack of causality inherent to using such a method. Pettis offers a useful framework for identifying the state of the global economy but it fails to account for agency on both sides of an economic interaction. His argument that "excess Chinese savings leads to higher debt in the US" is a good example. Not only is there high Chinese demand for assets like US treasuries, there is also an ample supply of US debt to make such a dynamic possible. Who or what is driving that supply-demand dynamic? My superficial understanding of one component of his argument is that the open capital accounts of Anglosphere countries (USA, UK, Canada, Australia, New Zealand) is sufficient to attract inbound foreign investment. But, to borrow the Buffet analogy, actors in these countries choose to "mortgage" their farms as a result of their own economic conditions. There are two sides to the interaction! IE it seems odd to laypeople like myself to attribute the GFC entirely to global imbalances caused by excess savings in China.
Would note that both Buffet and Pettis prescription of some kind of "tariff" for foreigners owning US assets seems like an interesting, frictionless way to improve US domestic manufacturing and reduce our debt — without relying on massive spending bills like the IRA and CHIPS act.
https://carnegieendowment.org/chinafinancialmarkets/79641
Every time I read your articles I found that your opinions are always different from mainstream opinion. That makes me with little knowledge about economics feels like a jungle I’d like to see.