Synopsis: Paul Krugman provides a graphical representation of S.R.’s article, which discusses the flaws with the claim that China has wasted $6.8tn on investments.
Click here to read the original article.
Click here to read the blog post on S.R.'s article.
Click here to read the original article.
Click here to read the blog post on S.R.'s article.
Discussion:
This article substantiates the article written by S.R. (found here), while pointing out the graphical representation of Mr. Xu and Mr. Wang’s paper and thus highlights the problem with their claims.
Krugman also adds that an increasing ICOR does not mean wasted investment; it just suggests diminishing marginal returns.
Context:
Looking at Figure 1, which describes diminishing returns as we move along the curve from A to B to C, we must notice that Krugman has used the axes titles “output per worker” and “capital per worker”. Why has he used per worker instead of “total output” and “total capital”? If the graph were to show “total output” and “total capital” with the same curve, the analysis would be as such: the reason why total output does not increase as total capital increases is because there aren’t enough workers to use the increasing amounts of capital. This does not show diminishing returns, it just shows inefficiency. If we measure both per worker, which standardises the unit between both axes, we can see diminishing returns.
This article substantiates the article written by S.R. (found here), while pointing out the graphical representation of Mr. Xu and Mr. Wang’s paper and thus highlights the problem with their claims.
Krugman also adds that an increasing ICOR does not mean wasted investment; it just suggests diminishing marginal returns.
Context:
Looking at Figure 1, which describes diminishing returns as we move along the curve from A to B to C, we must notice that Krugman has used the axes titles “output per worker” and “capital per worker”. Why has he used per worker instead of “total output” and “total capital”? If the graph were to show “total output” and “total capital” with the same curve, the analysis would be as such: the reason why total output does not increase as total capital increases is because there aren’t enough workers to use the increasing amounts of capital. This does not show diminishing returns, it just shows inefficiency. If we measure both per worker, which standardises the unit between both axes, we can see diminishing returns.
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