I apologize in advance for the long tweet, but this is a story worth remembering and which I’ve written about often. From the late 1930s to the late 1960s (excluding WW2), the USSR had consistently targeted (and met) such high GDP growth rates that very few economists doubted... https://twitter.com/aier/status/1215702355204808706

...Paul Samuelson’s 1961 claim that sometime after 1984 the USSR would easily overtake the US to become the world’s largest economy. Of course in retrospect this turned out to be so absurd a prediction – after peaking in the early 1970s, once debt constraints kicked in, the...

...USSR lost roughly 3 quarters of its share of global GDP in 2 decades – that afterwards everyone denied ever having believed it.

It’s not just the USSR. Every country that followed this high-savings, investment-led, input-directed growth model (Germany in the 1930s, Brazil...

...in the late 1950s through early 1970s, Japan in the 1970s and 1980s, many others) followed the same trajectory: high levels of growth reflecting sharp improvements in economic welfare, followed by high but strained levels of growth accompanied by soaring debt, massive...

...investment misallocation, falling productivity, and finally a difficult adjustment, sometimes in the form of a debt crisis and sometimes of “lost decades”, during which much of the growth of previous years is reversed.

And every time economists seem to get it magnificently...

...wrong in exactly the same way. One reason may be that they never seriously question whether GDP, which is at best a proxy for whatever it is we want to measure in the real underlying economy, means comparable things in different economic systems, or whether it is at all...

...possible to compare GDP growth as an “input” in some economies with GDP growth as an “output” in others. In the late stages of the "miracle", when growth seems very strained, often they do quibble about the reliability of GDP, but always in a very superficial way.

Another...

...reason may be that because the rapid growth in GDP in the early decades of the “growth miracle” seems to match real growth in the underlying economy, we don't ask about the limits, or under what conditions this relationship might be transformed or reversed. Economists, it...

...seems, prefer to assume straight-line or additive trends.

While the fact that this story has always ended the same way in the past doesn’t mean it must end the same way in the case of China, I teach my PKU students that if we don’t understand why it went wrong in previous...

...cases, like the USSR or Japan, we will have no reason to assume that this time will be any different, nor any ability to engineer a better adjustment. But while there is now a ferocious debate (not always in the open) among Chinese economist about China’s prospects, and a...

...deep and rising amount of pessimism, very little of the debate seems to be grounded in the historical precedents – China’s problems are treated as sui generis. That seems a wasted opportunity. https://carnegieendowment.org/chinafinancialmarkets/68128