Confucianism and Trade Imbalances

The enlightened dictatorship of money

SEZ in the US?

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The US doesn’t really have a problem with consumer spending, when compared to East Asian countries.  It also has a lot of incoming capital as a result of being a reserve currency, in contrast to Europe.  In theory, therefore, it shouldn’t have much of a problem stimulating itself out of a crisis.  The problem is that the capital often gets misappropriated.  Part of the problem is that the money goes too much to short term investments – and the government, who might otherwise be able to mitigate the problem, isn’t really willing to do so.  But a more fundamental problem is this: who is willing to make an investment when they know the proceeds are going to be used to pay down the debt?  And how can the US pay the debt if nobody’s willing to make new investments?

The Chinese model of Special Economic Zones offers an apparent solution.  The beauty of the Chinese system is that no matter how bad it screws up in one location, it is always able start anew someplace else.  This is what it did in Shenzhen, and the Shenzhen local development model sort of formed the basis for economic “models” in the first place, including the Wenzhou model, the Chongqing model, and others.  It has a sort of allure: could the US start a Shenzhen in, say San Diego, where we could forget the debts of the past and just move forward?

Unfortunately, capital in the US is more mobile than it ever has been in China.  If one were to establish a tax-free zone in one region, existing companies would shut down in the regions that were still taxed.  Great care would have to be taken to restrict the favorable tax treatment to companies that weren’t already existing – perhaps by discriminating by sector.  So it wouldn’t be as straightforward as Shenzhen.  But it’s still a model worth considering, particularly the notion that the law doesn’t need to treat every sector equally.

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Written by Maofucious

October 31, 2012 at 11:00 PM

Posted in Economic Imbalances

Tagged with ,

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