Somehow I doubt these predictions are going to bear out. History always repeats itself. In the 1980s it was Japan that was going to crush the American economy. For the last twenty or so years the Japanese economy has been flat (it's still the 3rd biggest in the world however).
Japan tried to boost the economy with massive expenditures in it's infrastructure, to no avail. Compare that to China's approach of building high speed rail networks that get cancelled, and to build huge 'cathedrals in the desert' - cities that are overpriced by the government, who refuse to let the price to be dictated by the market (which is what would happen in a true capitalist system). The result is that most locals are priced out of the market. The reason that the cities are being built in the first place is to drive growth figures. Not having any oversight may result in some dramatic revelations about China's supposed growth in the coming years.
Japan has never had more than one half the population of the US. For Japan to have become a larger economy it would have required the average Japanese citizen to be around twice as productive as the average US citizen. They're productive, but not that much.
China has four times the population of the US. They're already the world's second largest economy based on the development of about 350-400 million people in the eastern section of the country alone, and they still have another ~800 million to go spread through the rest of the country. While there are significant obstacles to further developing countries the size of China and India, they have untapped potential left that Japan didn't.
I believe the insight the author was after here was not a general comparison of Japan to China, rather that China's "growth" has a component to it which is artificial.
That artificial growth comes from reporting GDP on building things that nobody uses (like Cities). Conversely, like a large private corporation which doesn't have to reveal costs in any general accounting rules kind of way, China has the ability to create a view of their economy which is 'untrue.'
So put another way, the author posits that in a market economy the creation of a new city would be done by actors who were themselves creating more economic output as a result of productivity gains from having city infrastructure. Thus economists see new building as a leading indicator of economic growth. However if you simply spend a billion dollars to build a high rise office tower without any tenants or even a prospect of leasing it out, the 'leading indicator' aspect of that data point is completely wrong. The building will sit there empty, generating no economic growth whatsoever. There are hints that China is manipulating its figures in just that way.
The bigger challenge for China is that in the eastern part of the country the standard of living is growing much more rapidly than it is for people living in the western half of the country. The last time that happened Mao Tse Tung used it to his advantage to overthrow the incumbent government.
"...not a general comparison of Japan to China, rather that China's "growth" has a component to it which is artificial." - yes, exactly.
The example of the cities being built is just a symptom of the unsound economic decisions being made by the authorities in China. The cities aren't being built to satisfy demand, but rather to keep the unemployment rate artificially low. In a western-style democracy, those cities would never be built as there would be no demand for the apartment at the prices being offered. A company who made such investments would go out of business sooner or later. No such qualms in a centrally-planned economy.
Also, I'm watching this video at the moment by a guy called Jim Rogers. He makes some interesting points about why the Chinese economy may be over-hyped. Examples he uses include locals digging a new canal using picks and shovels instead of modern heavy machinery - the purpose of the exercise is to keep them employed. He also talks about what he calls the disturbingly consistent nature of the offical GDP growth rate, which seems too good to be true.
EDIT: I realise that this all makes it sound like I'm totally down on China. I'm not - I don't have skin in the game either way. To me, it just seems too good to be true.
" ... a symptom of the unsound economic decisions being made by the authorities in China."
I would caution you to be careful about how you define 'soundness'. If China is doing these things, then it would be unsound to apply modelling weights to those events that were similar to the weights you would apply in a free market. Whereas the appropriateness, or inappropriateness, of the actions the Chinese government has taken with respect to its economy can only be evaluated in terms of the goals of the government with respect to its economy.
If the goal is full unemployment as a means of satisfying citizens desire to work, spending GDP on works projects can certainly achieve that goal. It would be unsound on the other hand to sit on the capital and allow unrest to foment in the general population. Economics is simply about the allocation of resources, it doesn't really judge those decisions until you have all of the decisions, the goals, and the results.
For example, many argued that it was 'unsound' to for the Federal Government to create TARP at the time it was created. However, the US economy has bumped and creaked but it has kept operating which was the goal. So now a couple of years past the decision, and knowing the goal, and evaluating the result, the decisions seem if not sound at least reasonable.
Presumably the Chinese have studied the Soviet handling of the economy and won't make the exact same mistakes they did. One notable difference is that the Soviet economy had a tremendous difficulty making competitive products for export on the world market, that does not seem to be the case for China so far.
History does indeed have a tendency to repeat itself, and if you go a little further back than the eighties you'll se that the way empires usually fall is by overreaching, and trying to control and colonise beyond their ability. In the end they implode.
Any facts/figures and comparisons to elaborate on this statement? I can see some arguments for this, but at the same time, the technologies we have these days might give this "overreach" some scaling power, so the US might not actually be overreaching...
If you are saying that no economy will ever overtake US...that obviously seems far fetched. If you are saying it might happen, but not in 2016, then you have obviously not provided a sound argument as to why you believe so. Just because somebody predicted Japan overtaking US incorrectly in the past- is not an argument to justify your claim.
China and Japan are nothing alike, so the entire argument here is moot.
Additionally, the average Chinese person is beyond capitalistic. China is hyper-capitalist, if anything. And no other country needs to look after 1.3B people, so China is essentially the first experiment in government for a population of that size.
China's going to become the world's largest economy -- there's essentially no doubt about this. Americans need to get used to not being #1 anymore. I know it's hard to swallow. :)
The world is going to look very, very different in 10 years.
"China and Japan are nothing alike...." they are alike in the sense that both were/are supposed to overshadow the American economy at different points in time. That is the only comparison intended.
Yes, Chinese people are certainly extremely capitalistic - no doubt. However, there is some serious issues to be sorted out to allow China to continue to grow.
There is no oversight on their unelected government - who knows the level of corruption, groupthink, nepotism etc. that goes on. This is bound to be a big obstacle sooner or later. Democracy has many flaws, but one of it's main advantages is that when the ordinary citizen can see that the government is acting in a manner against the best interest of the people, then at least they have the option to correct that.
Secondly, there appears to be a major housing bubble underway. If history has anything to teach us, it's that the faster a bubble inflates, all the more rapid it's contraction. We will more than likely see a correction, perhaps a recession in China in the coming decade. Real estate cannot be continually be bought up by speculators in the hope that prices keep rising forever - and the culture in China is not to rent out your investment property (i.e. your second or third apartment you bought to speculate with)! This is clearly unsustainable. They are gambling that real estate values always rise, and this is clearly bubble territory.
"China's going to become the world's largest economy -- there's essentially no doubt about this."
I think it will also - but perhaps not as fast as you think. It could take decades. The GDP growth figures the Chinese government put are look suspicious, just to point out one problem. What you could see happening is China overtaking the US in the next few years - then a recession hits and the economy contracts rapidly. Or the US partially writes down it's massive debts, and the Chinese panic because they are holding a huge mountain of partially/wholly worthless US sovereign debt. This means the Chinese cannot continue using the interest from US debt to fund the construction of massive capital infrastructure projects - also leading to a recession. Maybe WWIII. Who knows. Predictions are fun.
"Americans need to get used to not being #1 anymore" Not yet they don't. Who knows what will happen. Btw, I'm not even American (or Chinese) so I'm not saying this in a defensive manner. :)
"The world is going to look very, very different in 10 years." - this a truism!
Comments
Somehow I doubt these predictions are going to bear out. History always repeats itself. In the 1980s it was Japan that was going to crush the American economy. For the last twenty or so years the Japanese economy has been flat (it's still the 3rd biggest in the world however).
Japan tried to boost the economy with massive expenditures in it's infrastructure, to no avail. Compare that to China's approach of building high speed rail networks that get cancelled, and to build huge 'cathedrals in the desert' - cities that are overpriced by the government, who refuse to let the price to be dictated by the market (which is what would happen in a true capitalist system). The result is that most locals are priced out of the market. The reason that the cities are being built in the first place is to drive growth figures. Not having any oversight may result in some dramatic revelations about China's supposed growth in the coming years.
http://news.bbc.co.uk/2/hi/8691083.stm
http://www.bbc.co.uk/news/business-11748644
http://www.sbs.com.au/dateline/story/about/id/601007/n/China...
Related HN discussion:
http://news.ycombinator.com/item?id=2386584
EDIT: Added link
EDIT 2: Typos
Japan has never had more than one half the population of the US. For Japan to have become a larger economy it would have required the average Japanese citizen to be around twice as productive as the average US citizen. They're productive, but not that much.
China has four times the population of the US. They're already the world's second largest economy based on the development of about 350-400 million people in the eastern section of the country alone, and they still have another ~800 million to go spread through the rest of the country. While there are significant obstacles to further developing countries the size of China and India, they have untapped potential left that Japan didn't.
General comparisons to Japan aren't valid here.
I believe the insight the author was after here was not a general comparison of Japan to China, rather that China's "growth" has a component to it which is artificial.
That artificial growth comes from reporting GDP on building things that nobody uses (like Cities). Conversely, like a large private corporation which doesn't have to reveal costs in any general accounting rules kind of way, China has the ability to create a view of their economy which is 'untrue.'
So put another way, the author posits that in a market economy the creation of a new city would be done by actors who were themselves creating more economic output as a result of productivity gains from having city infrastructure. Thus economists see new building as a leading indicator of economic growth. However if you simply spend a billion dollars to build a high rise office tower without any tenants or even a prospect of leasing it out, the 'leading indicator' aspect of that data point is completely wrong. The building will sit there empty, generating no economic growth whatsoever. There are hints that China is manipulating its figures in just that way.
The bigger challenge for China is that in the eastern part of the country the standard of living is growing much more rapidly than it is for people living in the western half of the country. The last time that happened Mao Tse Tung used it to his advantage to overthrow the incumbent government.
"...not a general comparison of Japan to China, rather that China's "growth" has a component to it which is artificial." - yes, exactly.
The example of the cities being built is just a symptom of the unsound economic decisions being made by the authorities in China. The cities aren't being built to satisfy demand, but rather to keep the unemployment rate artificially low. In a western-style democracy, those cities would never be built as there would be no demand for the apartment at the prices being offered. A company who made such investments would go out of business sooner or later. No such qualms in a centrally-planned economy.
Also, I'm watching this video at the moment by a guy called Jim Rogers. He makes some interesting points about why the Chinese economy may be over-hyped. Examples he uses include locals digging a new canal using picks and shovels instead of modern heavy machinery - the purpose of the exercise is to keep them employed. He also talks about what he calls the disturbingly consistent nature of the offical GDP growth rate, which seems too good to be true.
http://news.ycombinator.com/item?id=2387093
EDIT: I realise that this all makes it sound like I'm totally down on China. I'm not - I don't have skin in the game either way. To me, it just seems too good to be true.
" ... a symptom of the unsound economic decisions being made by the authorities in China."
I would caution you to be careful about how you define 'soundness'. If China is doing these things, then it would be unsound to apply modelling weights to those events that were similar to the weights you would apply in a free market. Whereas the appropriateness, or inappropriateness, of the actions the Chinese government has taken with respect to its economy can only be evaluated in terms of the goals of the government with respect to its economy.
If the goal is full unemployment as a means of satisfying citizens desire to work, spending GDP on works projects can certainly achieve that goal. It would be unsound on the other hand to sit on the capital and allow unrest to foment in the general population. Economics is simply about the allocation of resources, it doesn't really judge those decisions until you have all of the decisions, the goals, and the results.
For example, many argued that it was 'unsound' to for the Federal Government to create TARP at the time it was created. However, the US economy has bumped and creaked but it has kept operating which was the goal. So now a couple of years past the decision, and knowing the goal, and evaluating the result, the decisions seem if not sound at least reasonable.
Presumably the Chinese have studied the Soviet handling of the economy and won't make the exact same mistakes they did. One notable difference is that the Soviet economy had a tremendous difficulty making competitive products for export on the world market, that does not seem to be the case for China so far.
History does indeed have a tendency to repeat itself, and if you go a little further back than the eighties you'll se that the way empires usually fall is by overreaching, and trying to control and colonise beyond their ability. In the end they implode.
America is clearly overreaching at the moment.
"America is clearly overreaching at the moment."
Any facts/figures and comparisons to elaborate on this statement? I can see some arguments for this, but at the same time, the technologies we have these days might give this "overreach" some scaling power, so the US might not actually be overreaching...
It seems pretty obvious, so I didn't think it needed elaboration, but try looking at the budget of the US military.
If you are saying that no economy will ever overtake US...that obviously seems far fetched. If you are saying it might happen, but not in 2016, then you have obviously not provided a sound argument as to why you believe so. Just because somebody predicted Japan overtaking US incorrectly in the past- is not an argument to justify your claim.
China and Japan are nothing alike, so the entire argument here is moot.
Additionally, the average Chinese person is beyond capitalistic. China is hyper-capitalist, if anything. And no other country needs to look after 1.3B people, so China is essentially the first experiment in government for a population of that size.
China's going to become the world's largest economy -- there's essentially no doubt about this. Americans need to get used to not being #1 anymore. I know it's hard to swallow. :)
The world is going to look very, very different in 10 years.
"China and Japan are nothing alike...." they are alike in the sense that both were/are supposed to overshadow the American economy at different points in time. That is the only comparison intended.
Yes, Chinese people are certainly extremely capitalistic - no doubt. However, there is some serious issues to be sorted out to allow China to continue to grow.
There is no oversight on their unelected government - who knows the level of corruption, groupthink, nepotism etc. that goes on. This is bound to be a big obstacle sooner or later. Democracy has many flaws, but one of it's main advantages is that when the ordinary citizen can see that the government is acting in a manner against the best interest of the people, then at least they have the option to correct that.
Secondly, there appears to be a major housing bubble underway. If history has anything to teach us, it's that the faster a bubble inflates, all the more rapid it's contraction. We will more than likely see a correction, perhaps a recession in China in the coming decade. Real estate cannot be continually be bought up by speculators in the hope that prices keep rising forever - and the culture in China is not to rent out your investment property (i.e. your second or third apartment you bought to speculate with)! This is clearly unsustainable. They are gambling that real estate values always rise, and this is clearly bubble territory.
"China's going to become the world's largest economy -- there's essentially no doubt about this."
I think it will also - but perhaps not as fast as you think. It could take decades. The GDP growth figures the Chinese government put are look suspicious, just to point out one problem. What you could see happening is China overtaking the US in the next few years - then a recession hits and the economy contracts rapidly. Or the US partially writes down it's massive debts, and the Chinese panic because they are holding a huge mountain of partially/wholly worthless US sovereign debt. This means the Chinese cannot continue using the interest from US debt to fund the construction of massive capital infrastructure projects - also leading to a recession. Maybe WWIII. Who knows. Predictions are fun.
"Americans need to get used to not being #1 anymore" Not yet they don't. Who knows what will happen. Btw, I'm not even American (or Chinese) so I'm not saying this in a defensive manner. :)
"The world is going to look very, very different in 10 years." - this a truism!