Comments on Hiro Ito, PSU, and Ulrich Volz “Correcting China’s macroeconomic imbalances”, 3/05/2013, http://www.eastasiaforum.org/2013/05/02/correcting-chinas-macroeconomic-imbalances-2/
As an economist, I may ask some questions in this area as follows.
First, how global macroeconomic imbalance and rebalancing are and should be defined? What is the theoretic foundation of global macroeconomic balancing?
Second, isn't or is it the case that imbalance and rebalancing has been used as some trade protection and an excuse of some countries poor macro and micro economic management that had laid the foundation for the GFC?
Third, the authors state the following: "China is one country with a long-standing current account surplus, and this surplus derives from microeconomic or sectorial distortions that have led to excessive saving. In particular, underdeveloped public social safety-net systems and a repressed financial sector are commonly blamed for excessive saving."
Many countries have even poor and more underdeveloped public social safety-net systems and a repressed financial sector than China has had and they don't necessarily have trade surplus. So why should China, a developing country, have the same gold plated social security as some developed countries have? Further, even developed countries have different standards of social security, and some countries with higher standard may have seen either some budgetary or economic growth/competitive issues that they will have to deal with sooner not later. Aren't current euro zone woes a lesson in too high social security? So why should China simply fall into those high social security traps that burdens economic growth, efficiency and productivity?
Fourth, while it is true that China's interest rate control depress deposit rate and is an effective tax on savings, liberalising financial market is likely to actually lead even more savings and how that can contribute to address the high savings that some people are attributing to a cause of global macroeconomic imbalance?
I think economists need to stand back from political debates and think rationally rather than simply follow some politicians' arguments.
Economists should recognise that people have different savings and consumption preferences and those may change cross countries, regions and families and vary according stages of economic development.
We need a “global model “ to show the benefits and costs of balance and imbalance. Without a transparent model, all the arguments can be very confusing and many arguments may sound ‘right’ but actually be wrong.
As long as there are those differences and people are divided into countries, it is irrational and wrong to demand every country should have current account balance.
Imbalance is normal and balance is and should be rare.
But globally, there is no imbalance - it is all balanced out.