Wednesday , April 1 2020
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Underestimating China

Summary:
As America was hit by one popped “bubble” after another, we were frequently told that the Chinese bubble would burst any day now. It still hasn’t burst. Then we were told that the trade war would hurt China more than the US. The opposite appears to have been the case: Trump’s Tariffs Were Supposed to Ding China, But the U.S. Economy Is Getting Hit 2.5x Harder Then we were told that the coronavirus epidemic would hit China much harder than the US.  Just the opposite is likely to be true; it will hit the US harder than China.  China is like one of those cockroaches that are hard to kill. Some of my commenters are so anti-China that they use any argument they can muster to convince themselves that there cannot possibly be any good news out of China.  They tell me the data is

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As America was hit by one popped “bubble” after another, we were frequently told that the Chinese bubble would burst any day now.

It still hasn’t burst.

Then we were told that the trade war would hurt China more than the US. The opposite appears to have been the case:

Trump’s Tariffs Were Supposed to Ding China, But the U.S. Economy Is Getting Hit 2.5x Harder

Then we were told that the coronavirus epidemic would hit China much harder than the US.  Just the opposite is likely to be true; it will hit the US harder than China.  China is like one of those cockroaches that are hard to kill.

Some of my commenters are so anti-China that they use any argument they can muster to convince themselves that there cannot possibly be any good news out of China.  They tell me the data is all faked, even though international medical experts say that it’s broadly correct (and least in terms of the downward trajectory of new cases), albeit missing some new cases and mischaracterizing some deaths.

Some of this is innumeracy, an inability sort sort the wheat from the chaff in data.  China probably had at least 300,000 cases, not 81,000.  But the trend is still downward.  Others seem to have a wildly conspiratorial worldview; perhaps even satellite data showing traffic getting back to normal is being faked.  Stories of coronavirus hospitals being closed down are fake.  Ditto for stories of employees returning to work.  Some of it is motivated reasoning, because the Chinese leadership is evil (one of the few points on which we agree), they’d like to believe that the Chinese situation is much worse than reported.  

Sorry to disappoint you, but the recent coronavirus data out of China is promising, and at least roughly correct.  That doesn’t mean there won’t be new outbreaks, I expect there will,  But I also believe the new outbreaks will be controlled more effectively than Wuhan, which was criminally mishandled by government authorities. Of course criminal negligence by government authorities is not exactly in short supply in the world today.

The China example also doesn’t mean we need to shut down the entire economy.  Japan seems to be doing well (so far) with its economy still up and running.  But will that last?  They did shut down their school system, which seems wise to me, but not their workplaces.  We still have a lot to learn about what sort of changes are required to keep R0 below 1.0.

We need to study the democratic East Asian countries closely, to find out what works and what doesn’t work.  It’s still too soon to know.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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