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Walter Russell Mead on China as the ‘Perfect Keynesian Test Case’

China may be balking at further stimulus spending, but isn’t her hesitation proof that previous, massive Keynesian intervention was a failure?

Walter Russell Mead, looking at China’s recent spending, asks why this isn’t a test case (and refutation) of Keynesian theory:

It was large enough (roughly 3x US stimulus as % of GDP iirc)

The govt was starting from relatively low levels of public debt (reported anyway) so there wasn’t a crisis of confidence issue as in Europe today

It was invested heavily into infrastructure and projects (like solar) slated to improve long run efficiency in an economy that arguably had room to increase capital stock per capita

The political leadership directing the stimulus spending is made up of engineers, scientists, and other highly educated politicians who It was large enough (roughly 3x US stimulus as % of GDP iirc)

The govt was starting from relatively low levels of public debt (reported anyway) so there wasn’t a crisis of confidence issue as in Europe today

It was invested heavily into infrastructure and projects (like solar) slated to improve long run efficiency in an economy that arguably had room to increase capital stock per capita

The goal was to bridge a period of weak external demand rather than fundamentally alter the economy

Either this wasn’t a Keynesian effort, or it wasn’t an effective one, as China’s continuing slump shows.

Via Mead’s Via Meadia Blog.

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