So again, I am in no way supporting this as a growth model, but suppose our primary interest was GDP growth at the expense of all else. How would we achieve the Chinese model in the United States?

The most straight forward way would be for the Federal Reserve to commit itself to very low interest rates for the indefinite future – say at least twenty years or more.

This would cause the entire yield curve to collapse and and significantly reduce uncertainty to businesses.

The US government would then sharply raise the payroll tax. You could implement a VAT but you can show the two are equivalent in the long run.

It would use the payroll tax for two purposes. One, to slow consumer spending. In a world with super easy credit there will be a tendency towards increasing consumer spending and consumer inflation. You want to tax away as much of that as possible.

Second, you use the surplus from the huge payroll tax to fund large purchases of foreign debt. This will drive down the dollar and make US exports more competitive.

So, what you will have in the US is an environment where investment is dirt cheap, US consumption is low, Net US savings are very high and exports form the source of final demand for US products.

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