The Wasting Disease

Are we misdiagnosing the spot on the Chinese lung?

On a flight to Shanghai from Beijing last night, I finished a short book called When We Cease to Understand the World, by the Chilean author Benjamín Labatut. First published in Spanish in 2020 as Un Verdor Terrible, it was translated into English by Adrian Nathan West in 2021. I’m not quite sure how to characterize it: focused on mathematicians and physicists (including well-known individuals) who descend into madness, it has obvious factual foundations, but is liberally fictionalized. Thanks to whoever it was who recommended it to me: I’m afraid I’ve forgotten who that was, but it was an excellent read.

In so much of the literature I’ve read in the last several years, tuberculosis figures prominently. It afflicts Schrodinger, one of the main subjects of Labatut’s book. The disease is at the heart of Thomas Mann’s The Magic Mountain, which I finally got around to a couple of years ago. Chekhov, Orwell, Emily Brontë, and Kafka all had it and died of it. It feels omnipresent in the literature of the 19th and early 20th centuries, where it’s often referred to as consumption.

Consumption is, of course, a word I hear constantly here in China. It’s the first thing people seem to want to know from me each time I return from a trip here: How is consumer sentiment? Are efforts to boost consumption working? The belief that consumption is what ails the Chinese economy has become so pervasive that one rarely hears a challenge to it. We all learn that investment = savings in Econ 1, and that GDP = C+I+G+(X−M), and we have it pounded into us by the ascendant balance of payments determinists out there that the Chinese savings rate is too high, that those savings necessarily fuel problematic U.S. deficit spending, and therefore Chinese need to save less and consume more.

Something about this has always sat wrong with me, but only recently have I heard the arguments convincingly articulated. I think these perspectives need to be heard more, along with other sets of arguments I’m starting to hear more frequently about the inadequacy of measures like GDP — the argument, for example, in an FT op-ed by Tej Parikh last month, “America’s Sickness Economy,” about how, yes, increased healthcare spending can boost the GDP — but it can also indicate a larger societal issue with health outcomes. Those societal issues are hard to ignore in America today.

Some months ago, I read a comment from a senior executive heading the operations of a large international cosmetics firm in China. Their sales were down; indeed, overall spending on cosmetics was slowing. But were women actually wearing less makeup? Were they buying less, or just spending less? She argued the latter: that domestic cosmetic firms had so upped their game while keeping their prices low that women were actually buying more makeup, getting the same quality for less money. This, of course, would register as declining consumption. But should it?

The second thing that really struck me was something that Arthur Kroeber, head of research at Gavekal Dragonomics, said on Bloomberg’s Odd Lots podcast with hosts Joe Weisenthal and Tracy Alloway, when he was on that excellent program in May.

Kroeber: I think it's important to clarify that when people talk about this project of rebalancing the economy from investment to consumption, this has been a project of economists mostly outside China. It has never been a project of the Chinese government itself. They have never really forcefully and clearly stated that it is their objective to do that. They've put out various policies where they say, yeah, we want incomes to rise fast. We would like there to be a stronger services consumption and so forth. But they have never said that, we think we should…

Alloway: Go out and shop.

Kroeber: Well, they haven't said that.

But the other thing is, I think it's really important to understand these people are not — they're not Americans. They're Chinese. They have a different concept of how an economy grows. So we grew up in this sort of Keyensian world where we believe that demand drives everything, and Chinese authorities don't believe that. They believe that investment drives everything. That progress, productivity, future income growth, it all comes from investing in the right things. So they have been very clear for as long as I've been studying it, including the last decade, on saying to secure the growth of the future that is stable, well balanced, whatever, we need to invest in the right things. That is the principal job of government economic policy is to steer investment.

Joe Weisenthal then added something that I thought was vitally important to our understanding of investment and consumption. “When I think about consumer comfort, consumer wealth, et cetera,” he said, “I'm on social media all day, and so I see all the videos of like these amazing futuristic cities with these incredible plazas and lights and transportation that zips you from one place to another. And I imagine those things don't show up in consumption. You know, they're not retail consumption, right, but as a form of lifestyle consumption, whether your city just has greater amenities and comforts and cleanliness and so forth, et cetera.” He’s absolutely right: It’s a form of lifestyle consumption that doesn’t show up in traditional measures of C.

This became even clearer to me over dinner the other night with a group that included a very smart veteran China reporter whose beat is economics and trade. He gave an excellent example of how investment in infrastructure can often suppress consumption: If a city like Beijing or Shanghai invests in excellent municipal transportation — this could be a subway system, light rail, good buses, or even bike paths — people will be less inclined to buy cars. He cited his own years in Tokyo, when he never felt inclined to buy a car for the excellence of public transit.

I wonder sometimes if our own obsession with consumption, in the economic sense, doesn’t mirror the old sickness in some strange and inverted way. We treat consumer spending as both a pulse and a cure, and worry when the numbers fall. But maybe what we need isn’t more stimulus, more injections of demand, but a deeper reassessment of what a healthy society looks like. Consumption once meant decay; now it’s a synonym for recovery. But in both cases, it’s worth asking: what exactly is being consumed?