A few people lately have been asking me about this. Well, I am still not yet ready to face Vader. I don’t want to lose a hand.
However, it occurs to me that I could win the debate just by saying, “Scott Sumner published this on his blog. And fans of the free market are looking to him as a guru?”
And what sort of consumption does China need more of? Obviously the urban middle class are doing OK. The big problem in China is the vast rural population, as well as the 100s of millions of migrant workers in the cities. Their living standards are quite low (albeit rising fast.) Most Chinese have enough to eat, and clothing is dirt cheap in China. So what comes next? If you are living in a ramshackle rural dwelling, then you dream of a sleek modern urban apartment. Yes, you might also want lots of other things, such as home appliances. And in the very long run you might want services like dog psychologists and spa treatments. But most Chinese are far from that level of consumption. So for now it’s a nice place to live and lots of stuff to put into your new house.
This is where George Carlin comes in. He pointed out that the only real purpose of a house is to have a place to “put all your stuff.” So if the Chinese need to consume far more goods (and they do) then they need a place to put all their stuff. That means more houses, lots more.
Of course there is a grain of truth in the skeptics’ critique. China has a state-dominated economy, and is building some houses in the wrong places. But that is certainly not the big story. Most houses are going up in big urban areas, where the Chinese are moving by the 100s of millions. Another criticism is that the Chinese can’t afford to live in these places. So print more money. The response is that this would create inflation. But weren’t you just telling me that Chinese housing prices were going to collapse? Is it a supply-side problem or a demand-side problem? Or a misallocation problem? I’ve tried to show that with many hundreds of millions of poor Chinese people still in need of housing, it’s not a major misallocation issue, as the vast majority of housing is being built in the cities where people are flocking in huge numbers.
In case that doesn’t convince you, check out the next post, where Sumner is more specific, and explains the type of dwelling-units that “China” “should” be producing. He’s actually over there right now, which is how he knows. He wouldn’t dream of being a central planner from across an ocean, for heaven’s sake. The guy has a PhD from Chicago!