Be Bullish On China/India Because of Their Supply, Not Demand

By: Paul Kasriel | Fri, Mar 3, 2006
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In the March 1 FT, Todd Thompson argues that one reason to be optimistic about the economic growth prospects for China and India is the potential demand for goods and services emanating from these two populous regions ("Asia's dance of the twin elephants," The principal sources of demand are increased consumption of a rising middle class and infrastructure needs. Mr. Thompson was either dozing during the first Econ 101 lecture or did not take the course. As anyone who was awake during that lecture knows, supply is the economic challenge, not demand. Anyone who has children or is acquainted with U.S. baby boomers knows that the demand for goods and services is unlimited. It is the supply of those goods and services that is scarce. India has "needed" an improved infrastructure for decades. And it has a teeming mass of citizens that "need" more food, clothing and shelter. So, India's economic challenge has not been demand. Rather, India's economic challenge has been to produce the quantity of goods and services to accommodate this demand either directly or through trade. The reason to be bullish on the Chinese and Indian economies today is that through deregulation the inherent talents of their populations have been allowed and encouraged to be employed in productive ways. The reason to be bullish on the Chinese and Indian economies is because of their potential to supply more goods and services, not their potential to demand more.


Paul Kasriel

Author: Paul Kasriel

Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

Paul Kasriel

Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.

Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.

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