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What COVID-19 Reveals About the US and China

Summary:
Differences in the American and Chinese pandemic responses are often attributed to their political systems: Chinese central planning allows for more resolute action. But this explanation misses the extent to which the two countries' growth models have shaped their responses – and the financial and economic impact of the crisis. HONG KONG – There is nothing like a pandemic to expose systemic differences. For China and the United States, which were locked in an ideologically driven competition even before the COVID-19 crisis, those differences are stark. But the two countries have at least one thing in common: when this is all over, they will need to rethink their social contracts. The EU

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Differences in the American and Chinese pandemic responses are often attributed to their political systems: Chinese central planning allows for more resolute action. But this explanation misses the extent to which the two countries' growth models have shaped their responses – and the financial and economic impact of the crisis.

HONG KONG – There is nothing like a pandemic to expose systemic differences. For China and the United States, which were locked in an ideologically driven competition even before the COVID-19 crisis, those differences are stark. But the two countries have at least one thing in common: when this is all over, they will need to rethink their social contracts.

To curb virus transmission, China and the US have implemented social-distancing measures, which – together with the unemployment they produce – have broken the cycle of earning and spending that sustains global growth. The International Monetary Fund estimates that world GDP will contract by 3% this year. China’s shrank by 6.8% in the first quarter.

Yet the type of public-health measures pursued – and their outcomes – have diverged sharply. China’s draconian lockdowns produced a dramatic decline in new cases, whereas America’s delayed and fragmented response allowed infections – and the death toll – to mount.

This divergence is often attributed to political differences: Chinese central planning allows for more resolute action. But this explanation misses the extent to which the US and Chinese growth models have shaped their responses – and the financial and economic effects.

In the US, decades of neoliberal policies have led to a dependence on debt-financed consumption. Americans saved little but borrowed a lot. Thanks to the “exorbitant privilege” afforded by the US dollar’s position as the leading global reserve currency, so did the government. Fiscal and current-account deficits swelled.

Inflation, however, remained low, even when the US Federal...

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