I see that Paul Krugman and I are in broad agreement on the subject of how much we have to worry about in China’s economic downturn:
So, will China’s problems cause a global crisis? The good news is that the numbers, as I read them, don’t seem big enough. The bad news is that I could be wrong, because global contagion often seems to end up being worse than hard numbers say it should. And the worse news is that if China does deliver a bad shock to the rest of the world, we are remarkably unready to deal with the consequences.
The basics, as I explained and supported with a few facts and figures last week, are:
- China’s economy has deteriorated more than its leaders are letting on.
- It’s likely to experience a “hard landing”.
- We aren’t actually very exposed to a Chinese economic downturn.
and I’ve been perseverating on how poorly prepared we are for an economic downturn here for several years.
The more serious questions are about the geopolitical implications of a severe Chinese economic downturn. That would affect us.
I’m also inclined to think we’re due an economic downturn of reasonable severity, if not tomorrow at least in the next four years. When that happens, I assume the feds will bail out the most affected large businesses and pass a fairly drastic short term tax cut (up to a trillion dollars, let’s say) that basically goes to “Job Creators.” Maybe they’re be a little whack at increasing the retirement age for future Social Security recipients. Total elapsed time to reach concensus on such a package and pass it through Congress: 15 minutes.
This worked so well in 2008 after all, I can’t conceive of modern day Republican and Democratic legislators considering alternatives. So, no problem!
I’m NOT going to say this is close to what I’d do, if I had the power.