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3 of 3 people found the following review helpful
4.0 out of 5 stars Very good but perhaps overly simplified
I greatly enjoyed this book. It takes a dry subject, international trade, and tries to strip it down to its basic accounting essentials. Once this is established, the author then explains the massive imbalances that have developed in the world's economic financial system and why they have occurred. Finally, Prof Pettis goes on to make some fairly gloomy but likely...
Published 15 months ago by Faulkner

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5 of 9 people found the following review helpful
2.0 out of 5 stars Expected more
To read this book you need some A-Level economics, because the author does not bother to lay it out. Here's the necessary crib:

(1) Y = C + I + G + (X - M)
(2) Ydisposable = S + C
(3) Ydisposable = Y - TAX + TR

(2),(3) => S + C = Y - TAX + TR =>

(4) Y = S + C + TAX - TR

(1),(4) => C + I + G + (X - M) = S + C + TAX...
Published 15 months ago by Athan


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3 of 3 people found the following review helpful
4.0 out of 5 stars Very good but perhaps overly simplified, 14 April 2013
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I greatly enjoyed this book. It takes a dry subject, international trade, and tries to strip it down to its basic accounting essentials. Once this is established, the author then explains the massive imbalances that have developed in the world's economic financial system and why they have occurred. Finally, Prof Pettis goes on to make some fairly gloomy but likely accurate predictions of some of the world's wonder economies like China and Germany.

The style is simple and the book is surprisingly engaging. I also agree with the general thesis Prof Pettis is trying to advance. However, I do have some issues with it.

The first issue I have might be to do with the fact I read this on kindle, but it lacked any basic equations explaining the simple relationship between the major factors. I appreciate Prof Pettis was trying to make the subject more 'accessible' but a couple of basic equations would have perhaps aided various explanations. I hold a post graduate degree in economics so I am familiar with the concepts. I would wonder, however, if this book is as easy to follow for a general reader.

The second issue I have is while it is seductive to reduce big issues just to accounting identities; international trade is more complex than that. Items traded, technological prowess, administrative issues, transportation and financing all have huge importance but are largely brushed over in this book. That said the title of the book is 'The Great Rebalancing' and the focus of the book is very much China's relationship with the rest of the world and Germany's relationship within the Eurozone. So within the context of the title I understand why the author moved swiftly on to deal with his main points but it does leave you very much with the impression everything is really just accounting and manipulating a couple of factor inputs.

All in all, a very good book but I only gave it four stars due to the issues above.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Clear articulation for the muddled minds on macro-economics, 4 Oct 2013
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Get out the bad stuff first. It is pedantic, and goes over the same examples numerous times which maybe painful for the unmuddled mind. But keeping the signs straight as lowering trading deficit is equal to raising the trade surplus; this requires repetition for the layman who is the intended audience.

The good stuff. He clearly exposes how currency manipulation, trade tariffs, labor laws, consumptive taxes and Central bank rates all distort the saving/investment rate in each various countries. This is best part of the book, and provides and abstract framework for understanding these distortions. Forget the moralizing of frugal and spendthrift cultures, he makes a very compelling case the government policy is the primary driver of macro trade imbalances.

Contrary to some other criticism of Pettis, he does not claim the trade imbalances cause financial crises, in fact he constantly says how imbalances can persist for long periods of time. However after a financial crisis, the trade imbalance can determine the pain and suffering recovering from the crisis, because the trade imbalance will revert back toward the mean. He has very interesting predictions for German and Japan as surplus nations.

I recommend highly to any independent thinker who wants to grasp the big mscro picture, and avoid the nonsense of most conventional economists.
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1 of 1 people found the following review helpful
4.0 out of 5 stars Pettis makes a point, 30 July 2013
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Veli M (Helsinki, Finland) - See all my reviews
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Well worth reading.
Makes the usually forgotten point that earth's economy is a closed system.
There cannot be trade surpluses without deficits, and vice versa. Every German should consider and understand this...
Also makes interesting observations about China's lopsided economy.
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5 of 9 people found the following review helpful
2.0 out of 5 stars Expected more, 22 April 2013
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To read this book you need some A-Level economics, because the author does not bother to lay it out. Here's the necessary crib:

(1) Y = C + I + G + (X - M)
(2) Ydisposable = S + C
(3) Ydisposable = Y - TAX + TR

(2),(3) => S + C = Y - TAX + TR =>

(4) Y = S + C + TAX - TR

(1),(4) => C + I + G + (X - M) = S + C + TAX -TR =>

(5) (TAX - TR - G) + (S - I) = (X - M)

In plain English, equation (5) says that the budget surplus (tax collected minus transfers minus government spending) plus net savings (savings minus investment) are identically equal to the trade surplus.

It makes sense, of course. Maybe in today's world you should say that the budget deficit plus net dissaving equals the trade deficit, but you get the idea.

You can complicate it a bit more by also including net investment flows, but the above crib is good enough to plough through the book.

There's a reason the author does not have the crib in the margin of every page: he likes to exaggerate. To exaggerate best, he needs to play fast and loose with equation (5). So he states, for example, that a tariff on a necessary good (a good that is imported from abroad but we cannot do without and will not buy any less of after the tariff has been imposed) will AUTOMATICALLY lead to more net exports.

Such a tariff is clearly a tax by another name. Suppose TAX goes up in equation (5). There's more than one ways this can be balanced out:
(i) more government spending G or more transfers TR would do the trick
(ii) savings S could go down, as people who've borne the tax can save less
(iii) fewer goods might be imported to compensate for the tariff
(iv) less capital might be exported

The author axiomatically states that net exports will go up, which corresponds to (iii) and (iv) above but ignores (i) and (ii). It's one of the book's big ideas that a tariff or a currency devaluation does not rely so much on substitution effects as it does on the inevitability of accounting identities. Well, if you cannot explain it in English, if you cannot lay out how the accounting identity comes about, you should not be writing books, frankly.

Regardless, the author knows what he's talking about, and most of the time he gets it right. Especially when he discusses China (comfortably the best chapter and good enough a reason to buy the book) a lot of the alternatives to balance the equation are irrelevant, because the process is managed and choreographed by the Chinese government. And in China the budget surplus / deficit is totally dwarfed by net savings which (as a result) roughly equal net exports. But the inevitability of the conclusions he presents is, quite simply, false. I agree with him a lot more than I disagree. The point is that he is presenting OPINIONS dressed as FACTS.

So do read the book, but arm yourself with the crib. When something seems far-fetched, check.

The other thing I did not enjoy about the book is the idea that Europe will get better only if the Germans become lazy and overpaid like everybody else. If there was only Europe and nowhere else, I'd say "what the heck, that kinda works too, until somebody else decides to get his act together." In a world with 6 billion people, I'm not so sure there's terribly much value in rushing to the lowest common denominator. Besides, our world is increasingly about services, rather than manufacturing.

Overall, the book discusses many important issues and presents a very interesting analysis of what's going on in China. I'm no China expert and I could not possibly comment on whether the analysis is correct, but it's an interesting and plausible perspective. I'm better off for having read the book, but to anybody who decides to buy it I'd recommend that you crib equation (5) above and write it in the margin of every page. Then use it to challenge the author on his most outrageous claims...

Yes, it's true that BUDGET SURPLUS + NET SAVINGS = TRADE SURPLUS, but it does not come about automatically. Economic agents have to make it happen. Maybe nobody told the author his job was to tell us how.
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The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy
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