It’s one thing when a nonmainstream economist criticizes mainstream economics. That happens all the time and is for the most part ignored by economists. It’s another thing when a member in good standing of the economic elite unleashes a harsh criticism. That’s a sure sign that the mainstream neo-Keynesian consensus is on its last legs.
That’s exactly the implication of this article. The article is written by Jim O’Neill, a former senior office of Goldman Sachs. O’Neill was the originator of the “BRICS” name to describe the group of developing economies (Brazil, Russia, India, China and later South Africa) that would lead emerging-markets growth and boost global growth in the early 2000s.
O’Neill’s latest work takes aim at cherished economic models such as the Phillips curve (unemployment and inflation are not inversely related, as claimed), strong profits attracting new investment (instead it appears that anti-competitive practices are blocking new investment) and stock buybacks being good for markets (they are actually a kind of corporate liquidation and should not be subsidized by governments). This critique (one we’ve been making for years) is long overdue.
One area where O’Neill does stick to the mainstream view is that China’s growth is welcome and China will gradually move to a market-friendly model and become a strong economic ally of the U.S. This view was never correct. China is a communist society that is hostile to the U.S. China will take all of the direct foreign investment and intellectual property that we are prepared to hand over (or that they are able to steal), but they will not evolve into a genuinely Western-style economy.
O’Neill deserves credit for critiquing the touchstones of modern economics, but he is still engaged in wishful thinking when it comes to China. It looks like O’Neill is not ready to give up on the “C” in BRICS just yet. He should. China’s adversarial posture toward the U.S. and rejection of Western norms becomes more apparent by the day.
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