China And Export Versus Consumption-Driven Growth

My thesis is that a global surplus of savings is plaguing the world today. Instead of being invested inways that would expand production, this savings is flitting around the world funding speculative bubbles, seeking a return from rent or deception, or sitting idle. The reason the savings is not being sufficiently invested in the expansion of production is that there is too little consumption to justify such investment. Some nations, like several of the European countries that are in the deepest crises, hope to reduce wages and labor power so that they can drive their economies off of increased exports. However, such strategies reduce the total amount of consumption in the world, making the global surplus of savingsworse. The consequences of this surplus of savings are a fall in the effectiveness of monetary policy (Chapter 3), fiscal policy (Chapter 4), trade policy (Chapter 5), and currency policy (Chapter 6). The solution to this problem is to give more income to those who would consume which would provide a reason to invest the surplus savings in ways that expand production. In 2013, China is the only major economy that is advocating such a strategy. This chapter discusses China's 1986–2007 Export-Driven Growth Model, explains why after 2008 China decided to switch to a Domestic Consumption-Driven Growth Model, uses empirical estimates to evaluate the success (as of today) of China's efforts to switch growth models, explains what China needs to do to successfully switch to a Domestic Consumption-Driven Growth Model, and discusses a fork in the road that China faces concerning international capital flows.