China’s fiscal stimulus will have permanent, negative, consequences

In a recent report, “The Long Shadow of Fiscal Expansion,” by Chong-En Bai of Tsinghua University, Chang-Tai Hsieh of the University of Chicago, and Zheng (Michael) Song of the Chinese University of Hong Kong, we see evidence that an extraordinary misallocation of resources caused by the combination of well-intentioned government efforts to stimulate the economy (unfortunately in ways which are value destroying) as well as badly intentioned corruption behavior, has a long-lasting negative impact on well-being. Value destruction is value destruction, whether led by corporate or government, and whether well-intentioned or badly intentioned. Value destruction sucks.

The long shadow of a fiscal expansion