Reason Writers Around Town: Shikha Dalmia and Anthony Randazzo on China's Real Estate Bubble
Stimulus enthusiasts point to China's success in aborting its recession as proof positive that their spending prescriptions work. But as Reason Foundation analysts Shikha Dalmia and Anthony Randazzo explain in The Wall Street Journal, an examination of China's stimulus policies reveals a massive misallocation of capital, producing a real estate bubble that could bring down China's economy. As Dalmia and Randazzo write:
Beijing's mandarins haven't discovered some magical formula to spend and inflate their way out of a recession. Pouring liquidity into real estate is the Keynesian equivalent of digging ditches and filling them with stones. Unfortunately, the Chinese economy has fallen into one—a ditch, that is. The U.S. might have endured a bad recession. But so long as it avoids the second stimulus that China enthusiasts are advocating, it might be up and running while China is still digging itself out.