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Noah Smith

China Invents a Different Way to Run an Economy

The nation has avoided a recession for a quarter-century. Few countries can make the same claim.

Give the man his due.

Give the man his due.

Photographer: Wally McNamee/Corbis Historical/Getty Images

In the U.S. and other developed countries, there are three basic philosophies of macroeconomic stabilization. Each of them was present in some form during the Great Depression, and each survives to this day.

The first is Keynesianism, which centers around fiscal stimulus, mainly in the form of increased government spending. The second is monetarism, which holds that getting economies out of recession is the job of the central bank, which can lower interest rates, engage in quantitative easing or ease monetary policy in other ways. The third school holds that recessions are a healthy and normal phenomenon, and that governments shouldn’t try to fight them. This last idea was promoted by the liquidationists during the Great Depression, and enjoyed a resurgence of interest in the 1980s, eventually even winning a Nobel for one of its leading proponents.