Science

China Derangement Syndrome

Once again, an economic yellow peril is exaggerated.

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The 1979 book Japan as Number One: Lessons for America, by East Asia scholar Ezra Vogel, stoked fears that the United States was about to be outcompeted by the land of the rising sun. And why not? The U.S. had just suffered through a decade of stagflation and was about to enter what was then the worst recession since the Great Depression. By the late 1980s, the case seemed ironclad. "I don't mean to be an alarmist, but I get the uneasy feeling that America is history," wrote Robert Kuttner, then the economics correspondent for The New Republic, in the Los Angeles Times in May 1988. Evidence for this decline and fall? "The total value of stocks listed on the Tokyo stock exchange is now $3.54 trillion dollars, compared to $2.34 trillion for the New York Stock Exchange." 

In his 1988 book Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It, former Reagan administration trade negotiator Clyde Prestowitz warned, "The power behind the Japanese juggernaut is much greater than most Americans suspect, and the juggernaut cannot stop of its own volition, for Japan has created a kind of automatic wealth machine, perhaps the first since King Midas." 

Two decades later, we know that the panic over Japanese economic competition was greatly exaggerated. Today the total value of the New York Stock Exchange is nearly three times that of Tokyo's. Japan is not Number One. In fact, as of last year it became Number Three, behind China.

Twenty-five years ago, Japanophobes (or should they be called Japanophiles?) were fretting about the differential economic growth rates of the United States and Japan. At times in the 1980s, Japan's gross domestic product (GDP) was growing at nearly 10 percent per year, whereas American GDP was increasing at a merely respectable 4 percent. (All figures are unadjusted for inflation.) Had the growth rates continued at those levels after 1988, Japan's overall economy would have caught up to ours within 10 years.

Instead, the Japanese financial bubble burst. In 2011 the country's GDP in current dollars is $5.5 trillion, compared to the American total of nearly $15 trillion. Per capita GDP (adjusted for purchasing power, a measure of what it costs to purchase similar baskets of goods and services among countries) for Japan is $34,000, compared to $46,000 for Americans. Japan has suffered through two decades of stagflation, and you no longer hear anyone recommending that the U.S. adopt Japanese-style top-down industrial policy as an economic panacea.

So now comes China. "We are getting our clock cleaned by Chinese state capitalism," wrote Robert Kuttner, now editor of The American Prospect, earlier this year at The Huffington Post. Massachusetts Institute of Technology economist Simon Johnson piled on at the annual conference of the American Economic Association, declaring, "The age of American predominance is over. The [Chinese] Yuan will be the world's reserve currency within two decades." The conservative Citizens Against Government Waste even aired a television commercial featuring a Beijing economics class in 2030 in which a professor explains how America became indebted to China. The professor concludes, "So now they work for us." The class chuckles knowingly. 

This gloomy message of American decline relative to China appears to be seeping into popular consciousness. An April 2011 poll by Xavier University found that "a stunning 63 percent believe that the Chinese economy is more powerful than the US economy."

 "The U.S. could lose its status as the world's biggest economic power within five years," reported The Daily Mail in April. The Mail article was based on calculations released by the International Monetary Fund projecting that total Chinese GDP, adjusted for purchasing power, will surpass U.S. GDP by 2016. 

Can that be? Let's do the math: China's total GDP is around $6 trillion today. Assuming 10 percent GDP growth for the next 20 years, China's GDP would rise to $40 trillion. If the U.S. economy grew at, say, 3 percent a year, total GDP would be $27 trillion. Back in 2007, before the financial crisis, the investment bank Goldman Sachs issued a report projecting that Chinese GDP would be $26 trillion in 2030, compared to $23 trillion for the U.S. It bears noting that current Chinese purchasing power per capita is about $6,000, compared to $46,000 for Americans.

But it is unlikely that China's economy can sustain 10 percent annual growth for two more decades. Economic history suggests that once countries catch up with leading economies in terms of technologies and business management, growth slows down. Consider what would happen if Chinese growth slows to 5 percent. Assuming sustained respective 5 percent and 3 percent growth rates for China and the U.S. for the next two decades, China's total GDP would reach just $16 trillion, not $34 trillion. In 30 years, it would grow to $26 trillion, by which time U.S. GDP would be $36 trillion. In 40 years, China's GDP would be $42 trillion, compared to our $49 trillion. All in all, it would take China a half-century to catch up.

Just to be clear: Anyone who thinks that they know what purchasing power parity might be between any two countries by 2060 is seriously deluded. Calculations like these—mine and Goldman Sachs'—can only provide rough possible scenarios for the economic future.

Of course, there's no guarantee that U.S. growth will remain steady at 3 percent. As the recent history of Japan shows, it is possible to adopt economic policies that produce decades' worth of economic stagnation. In that case, China's GDP may well surpass ours sooner rather than later, although perhaps not for the reasons alarmists predict.

Then again, China has already picked most of the low-hanging fruit, economically speaking. Future productivity increases will not come from merely copying technologies developed in other advanced countries. Furthermore, continued rapid growth depends on the kind of innovative management that can thrive only in open societies. Unless China makes the transition to an open society, its future is not growth but stagnation and political disillusionment. And if it does make that transition, then China will be a partner, not a rival. 

Science Correspondent Ronald Bailey is the author of Liberation Biology (Prometheus).

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129 responses to “China Derangement Syndrome

  1. China will never be as awesome as the United States if they keep using pudgy guys in hard hats to drop the handkerchief at their bullet train drag races.

    1. What should they be using?

        1. i was hoping for something a bit more… imaginative

          1. Well, they wanted to use Thomas Friedman but he fell to his knees and masturbated himself into a coma at the sight.

            1. She’s waaaaay over-dressed.

              1. At the sight of the trains, damnit. That’s the only time Friedman gets wood.

                1. Damn… I’d hate to see what makes Paulie Krugnuts wet.

                  No, really, I’d really really hate to see that. As in “I’d scoop my eyes out with a melon baller if I saw that”.

                  1. It’s more sad than disgusting.

          1. The closer to the bone…

        2. Her shorts are way to big. When it comes to my handkerchief girls, I expect to see some ass cheek, and camel toe.

          This young woman is far too respectable for my liking.

          1. “This young woman is far too respectable for my liking”
            Are you writing a libertarian advice column for daughters?

          2. Wait, you can’t be sure about the camel toe part from that angle and lighting.

        3. They need to take a cue from some of their yellow brethren.

        4. A man hands?

    2. Just wait until superior Red Chinese bio-tech science clones Linda Vaughn

      1. I declare! That is some big hair!

        1. Clearly a faked photo. Those flags in the background are blowing every which way.

            1. Love Shack baybay!!!

              1. Just the song I need stuck n my head on Thanksgiving…

                1. It could be worse, squish, trust me.

        2. I declare! That is some big hair!

          Big hair?!

  2. When citizens from every other country start saying I’m immigrating to China instead of the US, I’ll consider their supremacy

  3. China’s one child policy will cause such a huge shift in age demographics that Japan’s aging population will be nothing compared to it. In a few decades, the Chinese workforce will be halved, at the very least. Add to it high cancer rates due to pollution and you’ll have a nation of old and infirm people, not an economic powerhouse.

    1. Those are just some of the many reasons China is a house of cards. There are thousands of public protests and riots every year that don’t get reported: ethnic unrest, anti-pollution, anti-corruption. Their whole economic system is corrupt, with one-party control and the vestiges of central planning combined with anything-for-money criminality. (An expos? about fake chicken eggs made from chemicals.) The real estate market is beginning to collapse. Tens of millions have left the factories and gone back to the provinces due to the global slowdown.

      Now think of China’s desire to conquer the “lost province” of Taiwan, a nice excuse to get the population to rally around the flag in times of turmoil, and get really nervous.

  4. As I understand it, the Chinese govt spends about the same % of gdp as ours. Maybe less. So who’s the open society? Would I trade a few blocked web sites in order to keep more of my hard earned money? Maybe.

    Plus, their govt spends a much higher percent of their revenue on actual infrastructure as opposed to wealth redistribution. Meaning their taxes are closer to a use tax than a pure theft.

    The big difference between them and us seems to me to be about democracy. But I’m no fan of tyrannical majorities.

    1. Despite the popular perception of China blocking the internet as tightly as North Korea blocks radio, to bypass the government censors and go to your favourite porn site is not very hard. China has the most number of internet users, I doubt that all of them spend all their time on the bland government endorsed sites,

  5. Nationalists think that because their nation is great, that somehow that makes them great.

    In the future success will be ever more determined by the individual and not whether they were born in China, America or any other place in the world. Which is probably fairer than having the luck of being born in the correct nation state.

    But having said all that, eventually China will have more total wealth, simply because they have so many more people, I don’t know why that should bother anyone but the warmongers though.

    1. Unfortunately, the fact that it bothers the warmongers is of some concern.

      Because it bothered the British that eventually the Germans would overtake them (and because it bothered the Germans that eventually the Russians would overtake them, if events were allowed to continue as they had from 1890 to 1914) we ended up with a little problem called the First World War.

      1. Overtake = conquer and rule, correct?

        Overtake sounds like you’re passing someone on the highway. Wave at the passing car, Aunt Martha. Now that bothers me as much as the next guy but I rarely go to war over it.

      2. That’s partially right. WWI and WWII were the result of Germanys uncertain position in the European sphere. For 500 years Europe was the center of the world in terms of commerce and political power. The nations of Europe controlled many other parts of the world. The problem was that Germany was a relative late comer to the game, they didn’t exist as a nation until the late 19th century, by which time the great European powers had already gotten their slice of the pie. Ultmiately the war started because Germany was going to be the dominating power in Europe, which France couldn’t abide by, but they would never control the seas or have a vast network of colonies like England, which Germany couldn’t abide by. The wars were fought to decide who would be the ultimate power in Europe, and from there the world; however, no Germany nor England anticipated how much they would be drained by those wars. Nor that a nation called the USA would use those wars to cement its position as having the largest dick in the world.

    2. But having said all that, eventually China will have more total wealth, simply because they have so many more people, I don’t know why that should bother anyone but the warmongers though.

      The PRC’s government (which technically owns every yuan of that wealth, btw) will be much more dangerous to the rest of the world than the US govt once it feels the ability to act without retaliation as we currently do.

  6. The US has an ace in the hole: Petrodollars. How much longer do you really think the USD can hold on to reserve currency status?

    1. Actually longer than most people think, considering the lack of good alternatives euro, yen, yuan. The dollar will stay reserve, simply because it is least worst of the others.

      1. ^^This! You speak the truth.

      2. Europe, home of the euro, is undertaking austerity by means of spending cuts and tax increases. America is “tackling” the same basic problems by increasing spending and printing money. Least bad isn’t a longterm designation.

      3. Alternative or not, when the Arabs, or anybody else, starts selling oil for anything other than USD, we’re fucked. At that point we will have no leverage to force reserve status. Gold, SDRs, a new currency based on a basket of commodities, whatever.

        1. Maintaining the dollar hegemony was the real reason for overthrowing Qaddafi.

  7. First let me say: Working on Thanksgiving? I SALUTE YOU SIR.

    Then let me say:

    Japan had a smaller population than the US, had much less territory, and was resource-poor.

    With China’s population and resources, it should overtake the US. To the extent that they embrace capitalism, they should eventually become number one.

    Even a malformed capitalism like the one they have should be good enough. Our capitalism is malformed as well, just in different ways.

    Getting angry about this is like Martians getting angry because Earth has more gravity than Mars. It’s just math.

    1. “First let me say: Working on Thanksgiving? I SALUTE YOU SIR.”

      Further proof that Ronald is actually a crypto-Canadian. Did he post anything on October 10? See!

    2. Or this came from the December issue.

      1. It’s the thought that counts. Mighty kind of Reason to give something to folks hiding from their extended families.

    3. China has a much lower percentage of arable land than the US does. They’re a net importer of food most years, which is always a dangerous thing for an aspiring world power.

      Also they very underdeveloped infrastructure, which contrary to Krugmanism is a problem, as large amounts of that wealth will have to go to building that infrastructure up.

      Even a malformed capitalism like the one they have should be good enough. Our capitalism is malformed as well, just in different ways.

      Oh shut up with the moral equivalency. The US doesn’t insist on owning 51% of every corporation.

      1. It should also be noted that not all infrastructure spending is good infrastructure spending. People look at high speed rail and these giant penis projects as testaments to a growing nations power; without actaully looking at how it will be utilized, if at all. Last I checked the high speed rail lines China has been laying down have far exceed coast, and only get a fraction of the anticipated ridership. That amounts to infrastrucuter spending that does nothing to help generate future economic growth. Morever it doesn’t help when China is pumping out entire cities that are nothing more than ghost towns, or sky scrapers that sit at 80% vacant. Eventually the bills will have to be paid, and if the cash flows from the project do not cover the bills then you have something that is a net drain on the economy, not a net positive.

    4. China is relatively resource poor compared to the US. They have a far larger popualation but pretty much equal oil reserves, fewer coal reserves,smaller natural gas reseves, moreover the continental US has the largest contigeous farmland in the world. The US has a far greater capacity to grow food, not only ourselves but for the world. China has a much more difficult time. Moreever the US has one of the greatest natural transportation systems in the world, the missisippi river network. Chinas three major rivers do not link up and seperate the nation; much in the same way the nation is seperated east of the Appalachians by rivers, part of the reason why the civil war happened. China is not nearly as strong as peopel think, and the US is not nearly as weak as people think. For the forseeable future, and probably longer the US will be the power to contend with.

    5. China is relatively resource poor compared to the US. They have a far larger popualation but pretty much equal oil reserves, fewer coal reserves,smaller natural gas reseves, moreover the continental US has the largest contigeous farmland in the world. The US has a far greater capacity to grow food, not only ourselves but for the world. China has a much more difficult time. Moreever the US has one of the greatest natural transportation systems in the world, the missisippi river network. Chinas three major rivers do not link up and seperate the nation; much in the same way the nation is seperated east of the Appalachians by rivers, part of the reason why the civil war happened. China is not nearly as strong as peopel think, and the US is not nearly as weak as people think. For the forseeable future, and probably longer the US will be the power to contend with.

  8. The Chinaman is not the issue.

    1. Dude, Dude….
      Chinamen is not the preffered nomenclature… Asian-American please.

    2. Dude, chinaman is not the preferred nomenclature. Asian-American, please.

      1. What’d you say, Dude?

  9. Looks like James Chanos’ prediction of the burst of the Chinese bubble might be true…

  10. I question whether the Chinese bubble actually can burst.

    Wouldn’t they just pretend their banks are solvent?

    Bubbles burst at the moment that credit extension is pulled back. The Chinese can just refuse to pull back credit extension by pretending their banks are perfectly fine.

    Isn’t the real risk for China uncontrollable inflation?

    1. “Wouldn’t they just pretend their banks are solvent?”

      Until some Chinese started to arbitrage the delta and the rest of the market figured it out.

  11. Really makes you wonder who comes up with all this nonsense.

    http://www.anon-surfing.tk

  12. What, no morning links on Thanksgiving Day?

    1. I am dissapoint 🙁

        1. I would rather have my balls gnawed by goats than read your blog, rather.

  13. OK, we are pretty sick – coming here today jonesing for Morning Links! Anyway, the bird is the word. Have a good one.

    1. Well, Balko posted T-day morning links. There’s a feller with gumption.

      1. He has trolls to feed.

    2. Speak for yourself.

      I’m at work cyberslacking.

  14. I’ve watched teams of Chinese women cutting the grass in the median of the freeway by hand using shears (stoop labor). The economy doesn’t come remotely close to fully employing the population in the major cities let alone the hinter lands.

    I’ve also been on one of the “baby flights” where 50 or 60 US couples are carrying baby girls home for adoption. China continues to have a fundamental population problem.

    I don’t see China being a serious threat any time soon.

    1. I heard they tightened up the adoption market a few years ago. The gender ratio is also starting to inch back toward normal as Chinese parents realize that daughters are going to be very marketable commodities in the future.

      Plus, there are a lot of girls in poor families in Burma, Laos, Mongolia, North Korea, etc.

    2. Makes me wish I waa about ten years old.

  15. Every 10 years, the demon changes.

    1950s – General Motors was going to take over the world.
    1960s – IBM was going to take over the world.
    1970s – The Saudis was going to take over the world.
    1980s – Japan was going to take over the world.
    1990s – Microsoft was going to take over the world.
    2000s – China isgoing to take over the world.

    1. ya missed the commies

      1. That is so 1940s.

    2. Libertarians are going to anal-rape the world.

      1. yeah, the LP is SOOOOOOOOOOO powerful and influential and able to get people elected.

        1. No, we’re talking about the stealth libertarians in the GOP who disguise their libertarian agenda just to get elected but really plan to draw-and-quarter government economic support once in office.

          1. mustard|11.24.11 @ 4:27PM|#
            “No, we’re talking about the stealth libertarians in the GOP who disguise their libertarian agenda…”

            Stupid shit. That’s a dust bunny under your bed, not the boogy man.

            1. Isn’t it the Boogity Man?

              1. In mustard’s case, it’s anything that isn’t shouting ‘MORE GOVERNMENT!’ when he looks under there.

      2. Re: 2010s,

        Libertarians are going to anal-rape the world.

        And you already positioned yourself in anticipation…

    3. To be fair, people were more worried about communism taking over the world than GM or IBM in the 50s and 60s.

      1. Maybe among the Washington chattering class, but the University/New Yorker chattering class was distinct in those days and had its own set of phobias.

        Nowasdays, the two are merged.

        1. My dad was a very early computer guy, civil engineer and was sent to learn the computer stuff cause he was the new kid at the Corps of Engineers–around the mid 60s.

          He hated IBM with the passion of a thousand suns. But I don’t recall him thinking they would take over the world. Course he wasn’t exactly chattering class material even if was always a card carrying Democrat.

    4. I thought the 90’s was Mexico and Canada via NAFTA.

      1. I left that out.

        We won.

        1. That’s right.

          When China starts dumping the equivalent of Bryan Adams and Alanis Morrissette on us, that’s when we should be afraid.

            1. Yikes.

              Bon Scott should rise from the grave and strangle that creature.

  16. I’m thankful for a newspaper which prints the facts after most people know them:

    “Calif. renewable energy goals come at a price”
    (and for transparency in government – same article)
    “California energy regulators, who approve contracts between utilities and renewable power developers, keep the prices confidential for the first three years after each solar plant, geothermal plant or wind farm starts operations.”

    http://www.sfgate.com/cgi-bin/…..1M1CET.DTL

  17. Martin Morse Wooster (who long ago reported on other magazines for Reason) dubbed him, Robert “Snidley” Kutner, for always wanting to tie the taxpayer to the railroad tracks. Right before the internet boom, kutner wrote a book titled: End of Laissez Faire.

    Wooster noted that Kutner’s one admirable quality was his consistancy.

    1. Martin’s great uncle Bertie was a great chap, what?

  18. Speaking of China taking over the World, it appears that they can do things just as shoddily as Americans:

    http://www.msnbc.msn.com/id/45…..avel-news/

  19. The New Yorker loves OWS, eagerly awaits the revolution.

    Schmaltz. It’s what’s for dinner.

    This resulted in some confusion on August 2nd, when scores of graduate students and labor activists showed up, expecting a rally for New Yorkers Against Budget Cuts. They erected a small stage and began giving amplified speeches, which alienated the roughly fifty Adbusters supporters, mostly anarchists, who came expecting a planning session. There was some angry shouting before a group of anarchists broke off, sat down in a circle on the cobblestones, and held their own meeting.

    The anarchists immediately agreed to use “horizontal” organizing methods, according to which meetings are known as general assemblies and participants make decisions by consensus and give continuous feedback through hand gestures. Moving one’s fingers in an undulating motion, palm out, pointing up, means approval of what’s being said. Palm in, pointing down, means disapproval. Crossed arms signals a “block,” a serious objection that must be heard. Some participants knew this style of meeting from left-wing traditions stretching back to the civil-rights movement and earlier.

    Late that night, David Graeber, a fifty-year-old professor at the University of London and an anarchist theorist who helped facilitate the first meeting, sent an e-mail to White, in Berkeley, asking him for guidance. “How did it all start?” Graeber asked. White told him, saying that the goal was “getting the meme out there, getting the people on the streets.” He added, “We are not trying to control what happens.”

    “THERE’S NO THEORY IN ANARCHISM!”

    1. I liked this one better:

      http://www.newyorker.com/humor…..uts_kenney

  20. Liberals and their fetish for Red China are as tiresome as a British parliamentary session. Ignore them. Their bullshit has, and always will be, stupid.

    1. *been

  21. “For 2010, China was ranked 140th among 179 countries in Index of Economic Freedom World Rankings, which is an improvement from the preceding year.”

    The Dickrider must be pleased!

  22. Every panic about America falling behind another world power is unfounded, until the last one.

    1. I don’t think so — Red China’s over as at all special economically in 15 years, and then the pinkos at home will have to find another love affair

      1. Even if it’s not China, it will happen wcwbry====. Moorish Iberia was one of the most advanced polities in the world at its height, and lasted three times as long as the US has. Now it’s been all but forgotten.

        1. Yeah, there’s several examples like that — so let’s break the pattern. Let’s achieve such sociopolitical and economic awesomeness that nobody is ever able to outdo us!!!!!!!

        2. wcwbry====

          Is that ‘eventually’?

          1. More like “eventu” + 4 backspaces and enter

        3. But they didn’t invent fake tits. No one is going to forget the nation that invented fake tits. 2000 years from now people will be like.

          America a nation that existerd 2000 years ago. They invented fake tits.

      2. I don’t think so — Red China’s over as at all special economically in 15 years, and then the pinkos at home will have to find another love affair

        As long as China keeps building HSR, doing other massive government megaprojects, and repressing critics, the chattering class will love it.

    2. Depends on what ‘falling behind’ means.

  23. Let’s achieve such sociopolitical and economic awesomeness that nobody is ever able to outdo us!!!!!!!

    Have no fear.
    Krugabe’s on the case.

    1. I was thinking more along the lines of somehow breaking the barrier and establishing a truly free, staunchly and unalterably libertarian republican society where your economy and your personal lives are genuinely yours to do with as you please, thereby returning to us a continuously growing and prosperous country.

      But yeah, Krubage’s on the case, so fuck that.

      1. OK, how do we do that? It’s not simple, and possibly impossible.

        1. Unicorns, I guess — they solve everything.

  24. A country with 4 times the population of the US eventually having a larger gdp?

    That’s unpossible.

  25. 100th comment! (Trust me, it was.)

    1. I can vouch for that. Good job, I guess?

      1. Yeah, but mine was only a test. (Been having some weird “third party filtering” lately.)

        Lith Ping
        a.k.a. Fartriloquist

      2. Fuck right, good job. I get so much pussy from that. The ladies love centennials, baby.

  26. What a fun pattern! It’s great to hear from you and see what you’ve sent up to. All of the projects look great! You make it so simple to this. Thanks

  27. I have a feeling that they will get over it.

    http://www.surf-privacy.at.tc

  28. Two decades later, we know that the panic over Japanese economic competition was greatly exaggerated.

    No, it wasn’t. What stemmed it was the Keynesian curse placed upon them! Cackle, cackle!

  29. China will continue to grow despite libertarian expectations as long as eugenics for intelligence will be on the table (sadly, it isn’t in the West).

    Economic growth is correlated not only with economic freedom, but with the number and intelligence of the uber-geniuses in a society. As a bonus, smart people are disproportionately libertarian, so eugenics can ensure a more libertarian society in the future.

    There can be no free market as long as high-IQ charlatans are able to trick the masses into throwing their money away voluntarily for products they don’t really need.

    1. No they really wont. Corrupt and backwards economic models will ensure that the best and brightest will leave simply because success will be determined by your connections and not ability. The US has always canabalized the intellectuals from other nations simply because we’ve been far better respecting civil liberties than others. Many of our greatest scientists, such as Einstien, inventors, Nikolai Tesla, to name a few, did not originate from the US.

    2. “There can be no free market as long as high-IQ charlatans are able to trick the masses into throwing their money away voluntarily for products they don’t really need.”

      There’s deluded. There’s dumb. There’s stupid. There’s terminally stupid.
      And then there’s this.

  30. Bailey….stick to what you are knowledgable about…..like AGW. Aaahhhaa!

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