The column is here and one excerpt is this:
China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector.
A longer excerpt is this:
China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.
Chinese planners now talk of the need to restrict investment in sectors that are overflowing with unsold products. The global market is no longer strong, and domestic demand was never enough in the first place.
Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.
Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.
Put all of this together and there is a very real possibility of trouble.
I then outline how the negative scenario might run and that involves deflation on the goods side, for both China and the U.S., and higher U.S. borrowing costs on the capital side. A few related points:
1. The word "malinvestment" does not appear in The New York Times style guide but it survived to the final published draft of the piece.
2. Scott Sumner offers a skeptical take on my claims.
3. The piece cites Malthus in the same breath as Hayek. Malthus is a much-underappreciated economist and in macroeconomics he was much better than the naive overproduction theorists. His cyclical story is ultimately about proportionality and it is based on a "tragedy of the commons" effect — for the production of capital goods — which is not so different than his population mechanism. Malthus, by the way, had quite a modern understanding of supply and demand, well before the marginalist revolution.
4. I still am not convinced that we have avoided a new version of "the vertigo years," based on a fundamental discombobulation of economic expectations. This is probably just historical coincidence, but the Great Depression did come last to China.