It seems that a bunch of people are coming to the same conclusion:
That massive stimulus spending may actually only work in places like China. I’m not convinced, but the implications are disturbing, given that the government has run out of other weapons.
I’ll try to summarize their argument as best I can, correct me if I’m wrong:
It is China that is analogous to the US before the Great Depression, not the US.
i.e. China own US treasuries, US owned gold; China is a massive exporter, the US was before WWII.
The conclusion is that massive internal stimulus programs will work in China converting an economic engine which is externally driven by exports into an internally driven one. The more ruined other economies like the US are, the better this will work, because it will quickly destroy international trade and create an even bigger stimulus for a domestic market.
None of this actually precludes Keynsian policies from working in the US, except their efficacy will be far less than for China. This is because a domestic economy with American goods would result in prices that would be far more expensive than what we have been used to. In China the result might actually be the opposite.
What we are seeing is inevitable, the reduction in trade between emerging and developed economies will result in a period of regulation and trade barriers as the global economic engine temporarily (as in 50 years) fragments into smaller economic systems before eventually rebooting interconnected systems of free trade. The problem is that these periods tend to create wars precisely because there are rival, competing, less connected economic systems which are disrupted.
I like to think in pictures and imagine the following:
There is an economic, ‘figure-of-eight’ shaped system of connected ‘whirlpools’ that comprises people making cheap things in places like China for people to buy in places like America.
With every turn of this whirlpool, the difference in price between Chinese and American production shrinks as China becomes more developed and people make more money, to the point where the energy required to maintain the inertia driving the whirlpool in the same direction increases. The resulting system slows, becomes unsustainable and the whirlpool disappears.
The chaotic unpredictability of current markets are the result of the exact same mathematics that governs the messy collapse of such things as whirlpools.
When new whirlpools, or economic engines re-emerge, they will be more like separate spirals rather than linked figure-of-eights. This is not a result of deliberate policy, such as regulation, but the result of universal law, spontaneous emergence of single spirals are more likely than complex interconnected systems of flow.
The whirlpool that represents America will require more energy, compared to China, to make it spin, like a whirlpool in a viscous fluid. This is because the substance of which it is comprised is people with higher expectations and costs. It will therefore be smaller or grow less fast, and the people caught in its sticky vortex will be unhappy.