There’s also a good sentence in this post from Also Sprach Analyst on why we should be cautious about taking too much solace in China’s GDP statistics:
if a country is directing resources into investing something that cannot generate return in excess of the cost of funding, the country as a whole will be destroying economic value even though the country is generating GDP.
to which I would add that when that tactic is used over time the distortions it produces are likely to obscure the price signals that enable you determine whether what you’re doing is destroying economic value. You may think you’re increasing real GDP when you’re actually reducing real GDP and you can’t even determine that’s what’s happening.
As I said before in the context of income tax policy as economic policy, it’s a tactic that might work in combination with a broader economic plan. I think it’s just barely possible that China’s leaders could do that. I doubt it but I think it’s just barely possible. I think there’s no possibility whatever that we would do that here. We do tactics. We don’t do strategies. Indeed, our tactics have a remarkable way of becoming strategies, cf. cutting taxes.
We don’t have an economic strategy, a foreign policy strategy, an energy strategy, a transportation strategy, or any other kind of strategy. That’s worked for us pretty well so far. Not only have we enjoyed tremendous prosperity over a very long period of time, we’re the only major power that has the same government as we did 75 years ago. Germany, France, Russia, China, Japan, and Italy all have different governments than they had 75 years ago. Not just different administrations. Different governments. I guess it’s arguable that Britain has the same government as it did 75 years ago but 75 years ago Britain was a world-spanning empire governing nearly a half billion people—a quarter of all of the people in the world at that time. Now it’s a prosperous island. That sounds different to me.
What we have had is something better than a strategy. What we have had is an emergent phenomenon of the competing and even conflicting interests of the people of the United States. That has proved enormously durable. As I say, it’s worked pretty well so far but that’s no guarantee that it will continue to work as well for us forever. However, I strongly suspect that whatever we might adopt in its place will inevitably be worse.