Commentary on Political Economy

Thursday 4 April 2024

Peter Coy at the NYT reprises an argument we have often advanced about what we call "totalitarian (autarkic) economies". Our essays on Friedrich List and Benjamin Constant among others should help theorise these insights.


What Janet Yellen Needs to Tell China’s Leaders

An illustration depicting the blue-tinted face of Janet Yelllen superimposed on a yellow shopping cart.
Credit... Illustration by The New York Times; images by Christian Monterrosa/Agence France-Presse and CSA Images, via Getty Images
Peter Coy

Opinion Writer

It would be great if Treasury Secretary Janet Yellen had a copy of “The Portable Karl Marx” with her on her trip to China this week. She could quote from it to the Chinese leaders, whose amended constitution promises to follow “the guidance of Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents, the Scientific Outlook on Development and Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.”

Marx, who sought and predicted a dictatorship of the proletariat, would see little to like in China, whose living standards are far lower than its gross domestic product per capita warrants. A working paper released by the International Monetary Fund in 2018 concluded that Chinese households’ consumption would more than double if they consumed as much of their incomes as households in Brazil, which at the time had a similar output per capita in purchasing power terms.

Inequality has also worsened, and the government is doing little to fix it. In fact, the tax system taken as a whole is probably regressive, meaning that it makes inequality worse by taxing the poor at a higher rate than (most of) the rich. China was “among the most unequal countries in the world” in 2018, another I.M.F. working paper released that year said.

While Xi Jinping name-checks Marx, it’s clear from his behavior that what he really pursues is national greatness under the direction of the Chinese Communist Party. That’s more in line with Lenin, who believed that a “vanguard” party would lead the proletariat, than with Marx or Engels.

What makes this an issue for Yellen is that the United States and other trading partners of China would be better off if Xi really did give his top priority to the prosperity of the average Chinese. That would require restructuring the economy so growth came from consumer spending rather than investment and exports.

Right now, exports are fueling China’s growth. China is running an enormous trade surplus in manufacturing, which means all other countries in the world are collectively running a trade deficit in manufacturing. Here’s a chart based on one created by Brad Setser, a senior fellow at the Council on Foreign Relations, and Volkmar Baur, a China economist at Union Investment, a German asset manager.

Manufacturing trade balances as a percentage of world gross domestic product.

China’s manufacturing surplus is wiping out jobs in the manufacturing sectors of other nations. And it’s hollowing out the industrial strength of the most developed economies, which has national security ramifications. The United States and other countries need diversified industrial bases so they aren’t reliant on China for critical goods, including parts for weapons.

The Biden administration’s efforts to build up U.S. production of solar cells and other green technologies are imperiled by a wave of cheap, subsidized imports from China. Yellen will bring that up with the Chinese, she said in a speech late last month at the Suniva solar cell factory in Norcross, Ga.

China’s overproduction of green tech does have a silver lining: The low prices will accelerate the adoption of planet-saving technologies. But that’s a temporary benefit. In the long term, the planet will be better off if multiple nations, not just China, have the capacity to produce solar cells, electric vehicles and the like.

For decades, U.S. officials have importuned the Chinese to switch to consumer-driven economic growth, which would benefit Chinese citizens and the rest of the world. The Chinese expressed an intent to do so but made little progress. Lately, it seems they’re not even paying lip service to the idea.

“Faced with an economic situation that calls for structural reform to enhance productivity and bring domestic demand more in line with production, China’s leaders have instead put forward a policy mix that will delay necessary changes and deepen the economy’s reliance on foreign sources of demand,” Daniel Rosen and Logan Wright of the Rhodium Group wrote in an article for Foreign Affairs that was posted last week. The title: “China’s Economic Collision Course.”

Xi seems to disdain the kind of social spending policies that would allow for greater consumption, calling them “welfarism” that could undermine the work ethic of the Chinese people. He should worry more about a different unintended consequence of the status quo, namely a backlash by China’s trading partners against its enormous trade surpluses.

The World Trade Organization, which China was permitted to join in 2001, is supposed to be the venue for resolving complaints about subsidies and other unfair trade practices. But the W.T.O. never acquired enforcement powers, and countries — including the United States — have gotten used to selectively ignoring it. What’s more, the W.T.O.’s rules don’t address the “state-led, nonmarket approach to the economy and trade” that accounts for the “vast majority of the harm that China inflicts upon other W.T.O. members,” the U.S. trade representative’s office said in its latest annual assessment.

“The world would be better off if Xi had studied John Maynard Keynes,” who saw the danger in countries running big trade surpluses, Setser, of the Council on Foreign Relations, told me.

“Xi is a bit too Leninist and not sufficiently Marxist,” Setser said. Xi likes Lenin’s emphasis on the centrality of the Communist Party, Setser said, but “the Marxist emphasis on redistribution, Xi has never shared.”

Secretary Yellen, now’s your chance to quote Marx to the putative Marxists.

Elsewhere: Cheating on Personality Tests

If a job posting asks for extroverts, how are you going to answer questions on the employer’s personality test? Probably channel the extroverted side of your personality, right? A laboratory study designed to mimic the hiring environment finds that’s exactly what applicants do. “Firms should appreciate the limits of using such tests to screen applicants,” the brothers Andrew McGee of the University of Alberta in Edmonton and Peter McGee of the University of Arkansas in Fayetteville wrote last month in the journal Economic Inquiry.

The authors did find that people with high I.Q.s and people with a strong sense of control over their fate (“locus of control”) are better at cheating on personality tests. So if you’re trying to hire a person with a certain personality type, be prepared to get one of those other types instead.

Quote of the Day

“I arise in the morning torn between a desire to improve (or save) the world and a desire to enjoy (or savor) the world. This makes it hard to plan the day.”

— E.B. White, quoted in The New York Times (July 11, 1969)

Peter Coy is a writer for the Opinion section of The Times, covering economics and business. Email him at

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