King's Graduate Publishes Op-ed in Wall Street Journal
Article warns that Chinese economic policy might cause housing bubble
NEW YORK, August 30, 2010—Anthony Randazzo, a 2008 graduate of The King’s College, published an op-ed in the Wall Street Journal last weekend. The article, titled “China's Looming Real-Estate Bubble,” explores the state of the Chinese economy and its future if the nation continues its current economic policy.
Randazzo is currently the Director of Economic Research at the Reason Foundation in Washington, D.C., where he has worked since graduating from King’s.
The Chinese economy, Randazzo and co-author Shikha Dalmia argue, currently relies on Keynesian-style economics, which assumes that the national government can drive growth if it pumps cash into the economy. However, “there is mounting evidence that Beijing has misallocated vast amounts of capital,” they write, “touching off a real-estate crisis that could yet drag the world's second-largest economy down to earth.”
The result of a massive injection of liquidity into the economy—at a scale proportionally larger than the stimulus in the United States—is that housing prices have increased drastically, houses are being used for ownership rather than occupancy, and a housing bubble is growing.
What’s the problem? Randazzo and Dalmia write:
“Beijing is in a dilemma. It can cut spending and rein in its monetary expansion, releasing over time capital for more productive endeavors (especially if it opens up hitherto closed investment options) and putting the economy on a healthier footing. However, that would mean slower growth, lower home values, rising unemployment and potential political unrest. Alternatively, it can buy a few more years of faux-growth and stability by propping up the real-estate market—and risk making the day of reckoning far worse when it arrives.
“Either way, Beijing's mandarins haven't discovered some magical formula to spend and inflate their way out of a recession. Pouring liquidity into real estate is the Keynesian equivalent of digging ditches and filling them with stones. Unfortunately, the Chinese economy has fallen into one—a ditch, that is. The U.S. might have endured a bad recession. But so long as it avoids the second stimulus that China enthusiasts are advocating, it might be up and running while China is still digging itself out.”
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