Whither China?

 Krugman takes a look at the economics of deflation, and compares Japan's experience with what China appears to be headed towards. Europe, also, might be facing a deflationary crunch, as their working age population withers and they simultaneously turn towards anti-immigrant politics. And, yes, we are too, but we can reverse that at some point. 

The tension appears to be between technological advance and the greying of the population. Workers become individually more productive as technology improves, but you have fewer workers. Japan experienced the economic effects of late stage demographic transition, and they seem to have come up with a solution. (And Krugman lost me a bit as to how they did that.)

The three largest economies in the world - the US, China and the EU - are all staring down the barrel of this same phenomenon. The JD Vances of the world want to solve it by restoring some sort of bullshit Traditional Family where the mom is a broodmare pumping out tow-headed crotch spawn. The obvious solution is a guest worker program, because we have an abundant supply of people who want to come here and work, but that seems a non-starter until we flush Trumpism from our politics.

China, however, is the immediate issue, because unlike the US and EU, their economy is big but not "wealthy" in the sense of a broad middle class. They will struggle to consume their way out of deflation (and a reminded that deflation is bad). 

The central advantage of democracies is - fortunately and unfortunately - the tendency towards course correction (whether you want to correct or not). Democracies are better capable of reversing course if the direction is manifestly bad. Autocracies can struggle with admitting they fucked up. 

China has gone from a government with a paramount leader of a large party state to true personal rule. Xi has destroyed the safeguards that Deng put in place to prevent the rise of another Mao. Xi loves Mao, but I wonder if he can admit to himself just how disastrous Mao's economic manias were. 

If China's economy does enter a deflationary spiral, that will have global economic impacts. Keep an eye out...