Twofish's Blog

December 14, 2006

Double meanings

Filed under: academia, china, economics, finance, personal — twofish @ 5:08 pm

I posted this in Brad Setser’s blog and it occurs to me that there is a double meaning here with relavence to personal issues.

> However, deferring hard choices doesn’t magically
> make problems go away. China’s policy dilemmas
> won’t get any easier with more time. That is one
> clear lesson of the past two years.

I really don’t think this is true. If you have a growing economy, it makes sense to defer hard choices to later when you have more room to maneuver. Also, if you wait, this gives some time for institution building. China would have a lot more ability to revalue its currency as currency derivatives markets start becoming more established.

It’s really unclear whether and if China’s dilemmas are more difficult now that they were two years from now. In the last two years, China has cooled an overheated economy, started implementing changes in rural finance, did a major overhaul of its stock market, and both the banking and securities sectors are in better shape than they were two years from now.


One other point. The entire history of Chinese economic reforms has been to make the easy choices now, and delay the hard choices till later, and this has tended to prove to be the right path for a number of reasons. Easy choices now gives you some political capital that you can expend later. Delaying hard choices, gives you time to think about the problem. The economy is growing so you have more resources to deal with the problem. Waiting allows institutions to be built that give you more ability to deal with the problems.

The only time you need to handle the problem now is if there is some imminent crisis, and I don’t see one coming down the pipe here in the next three to five years. I also don’t see any particular reason why the policy approach that has worked for China in the last thirty years won’t also work for the latest set of problems.


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