Monday, January 09, 2012

The Cherry on Top of the Terrible 20s

Via The Economist; read all the way to the bottom.


When you think about it - their population is 4x ours and their economy has been growing 2-3+ more than ours for over a decade; is was only a matter of time barring a bad black swan. Not all is smooth sailing for China; but 2025 is not that far down the road.

Ponder.

22 comments:

FCC(SW) said...

No ticky, no laundry.

ewok40k said...

I dont really know what would be more troublesome - China continuing it's unparalelled growth streak or it hitting some barrier and getting... unstable. As skateboarders say, the faster you ride, the more pain when you hit the wall. I remeber 80s and all the rage was Japan's rising sun. 30 years later? not so much.

The Usual Suspect said...

<span>The upside to China hitting a wall would be that it would have to focus more on the internal challanges than the recent external expansion.  Keeping the folks at home in "order" is their first concern.  Even though their economy continues to grow, there are large numbers of unemployed and underemployed.  I have visited "automated" plants and high speed filling lines - people stand at the filling probes and slip IV bags over them manually.  Want to tear a building down?  It is done brick-by-brick and passed from person to person for mortar removal, wire brushing, stairwell-to-stairwell, until it is hand stacked on a pallet.  All is not rosey in the Chinese theater.</span>

UltimaRatioRegis said...

Was gonna go with this one.

Kristen said...

Even according to the statistics that they release to the world, 80% of Chinese live in sub-Saharan poverty.  Who knows what the number really is, cause China's official statistics don't necessarily reflect any kind of reality.  They don't have real capitalism that would lift up all of the people, they have crony capitalism that enriches a few.  And they have wilfully killed off much of the next generation, including a disproportionate percentage of females.

We've got problems of our own and I hope that we are going to address them seriously after the next election.  But I'd much rather have our problems than theirs.

juan said...

Today's China and the 80s Japan scare are fundamentally different. The main difference is population size. The US had 2x+ the population of Japan in the 80s. For Japan to surpass the US, it would have to become 2x as rich on a per capita basis.

China, otoh, is 4x bigger than the US. So to pass us it only has become 25% as rich, per capita. That is a very achievable goal. And it's unlikely they will stop there. Achieving 50-75% of US GDP per capita seems reasonable. It is quite possible that by mid-century China will settle into a stable position with a GDP 2-3x the size of US GDP. The average American will still be richer than the average Chinese, but there will be no question who is the dominant power. Just as the Norwegians and the Swiss are much richer than Americans on average, but America as a whole is much more powerful.

China's growth right now is catch-up growth. But they were so far behind that this growth is fairly easy. It's the same boom other east asian societies have gone through before - like Korea, Japan, Taiwa -- but on the largest scale in human history due to the sheer size of China.

Other poor regions of the world (Africa, South Asia, Central Asia) are unable to achieve similar multi-decade growth rates because they lack the human capital.

ewok40k said...

question is, can the Chinese continue to grow without eventually triggering lower 80% revolt, descent into (possibly nuclear) civil war and ending with possibly neo-maoist egalitarianism - or country split into warring provinces? alternatively, how much outwardly aggressive can become their leaders in a bid to channel restless population as Argentinian junta did in the Falklands war? ponder...

UltimaRatioRegis said...

Another question is whether that bottom 80% has any power or leverage whatever in what is STILL Red China.  Indicators are no, for now.  But the push to urbanize the population, even in comparatively small numbers, will change the balance of that leverage.

juan said...

China will undoubtedly have recessions and depressions in the coming decades. But so did the US during it's ascent. We even had a civil war. Hell, China had a civil war, mass starvation, the Cultural Revolution, a communist dictatorship ... and was still able to grow at 8% once they opened their economy.
Assuming China will stagnate like Japan, or descend into civil war that somehow permanently cripples their economy ... is ignoring fundamentals and banking on very low probability events.
China is 4x larger than the US. And has been growing 2-3x faster for several decades now. Yes, China's growth will slow going forward. But our growth sucks. And as China has opened up their economy, we've stifled ours with ever more red tape, eco-regulations, and bureaucracy.
The only way we stay ahead of China is with faster economic growth or faster population growth.
But our current max sustainable growth rate seems to be about 2.5%. Some think with more free market reforms we might be able to goose that to 3.5%.

China can still rely on catch up growth which is much easier to achieve since it's about copying what is proven to work in rich countries (power plants, infrastructure, factories etc, etc).

A large part of the reason China fell behind for so long (ie the last several centures) was poor information. They didn't understand why Europe was so much richer and more powerful and the distance and poor information flow meant it was harder to understand. A lot of it was Chinese arrogance, of course, and unwillingness to learn from foreigners. But often it takes a national humiliation to wake up the rulers and the people to how backwards they have become.

Still, it was easier to remain willfully ignorant in the past. It's harder today. It's much easier today to see differences and copy good ideas from other cultures. And typical east asian chauvinism isn't enough to blind the leaders or people anymore. Religious intolerance (like Islamic chauvinism) and cults of personality (North Korea) are some of the few forces powerful enough to see the higher standard of living in the West and reject it. Strong communist ideology helps but doesn't seem strong enough.

A silly guest said...

Only problem is that there is only so much usable land in China and most of that is drying up fast with failed land deals. Just use your Google-Fu or apply your Bing Mindpowers to hunt down "China ghost cities". These are all over the place, they even put up some shopping centers with H&M as the center piece in places where the median income was just above Okie Farm Worker. So they could be having all this growth, but unlike the old Soviet Russia where the was a minor middle class, in the PRC there is the uber-rich and the uber-poor. There isn't a middle ground, contrary to what the Economist or even WSJ says.

juan said...

The ghost cities are a real issue. But so are all the ghost cities that the US has had over our history. There's tons of ghost towns in the West. Every commercial real estate boom and bust in US history has produced similar results.

Detroit has been collapsing for decades. But a video of the economic devastation in Detroit isn't a terribly good indicator of the overall health of the US economy.

It doesn't mean these things aren't real problems. But the larger picture is more important. The Great Depression was worse in the US than anywhere, and yet a few decades later we were the great Superpower.

UltimaRatioRegis said...

juan,

I would challenge your assertion that the Great Depression was worse here than anywhere else.  The opposite is true for Europe. 

What was the old saying?  "America sneezed, but Germany caught pneumonia."

juan said...

My understanding is that the Great Depression was worse in the US than almost anywhere else. Though Germany was also severely hit. Some stats from wiki:
1929-1932
US unemployment rose 600%
UK 129%
France 214%
Germany 232%

Germany, of course, had been devastated earlier in the 20s from hyperinflation, while the US had the roaring 20s. So we fell from higher heights.

Germany, for example, recovered much faster. Unemployment fell from 6 million in 1932 to 1 million by 1936. Of course, Germany also had Hitler rise to power. So, on the whole, not a good trade.

The economics I've read also indicate that most of Europe and the rest of the world recovered quicker than the US did. So our initial hit was more severe than most, and our recovery was slower and weaker until WW2. We lost the entire 30s, while most countries had recovered by the mid-30s.

Perhaps the pneumonia reference is more because the depression in Europe set the stage for Hitler to rise to power and for Europe to nearly commit suicide. Europe is still feeling the effects of WW2. The whole euro project is a response to WW2 and Europe seems to have never regained faith and confidence in their own civilization.

I do think Germany's unemployment rate peaked at a higher level than the US. So by some measures the peak hit a few countries like Germany harder. But not by much. And the Great Depression was still grinding along in the US throughout the 30s while Europe was in recovery.

MR T's Haircut said...

Good thing I like Chinese Food...

A silly guest said...

Juan,

The reason that Germany recovered quickly was via the economic policies that Adolf put into place. Mainly through nationalization of all major industries and later nationalization of the service industries (ie the shops, banks, janitors, tailors, etc). He also laid the blame for the fall of Germany on the infamous "Stab in the back" from the home front and the juden. Laying the groundwork for this nationalization process through this blame. The Italians with Mussolini did the same except, Il Duce just blamed those dirty capitalists and communists for holding the Italians back. The rest of Europe still hadn't fully recovered until the war had started. Yes, unemployment was going down in places like France and the UK, but that was a collary due to the fact that rearmament was going up in the fact that a crisis was brewing in Europe. The only question was who was going to be the aggressors? Germany under Hitler or Stalin and Soviet Russia?
If you want to read something new research on the Great Depression in the USA pick up this book, The Forgotten Man, the author basically states that there were numerous reasons for the extension of our issues. Everything from the economists theories not jiving with realities to the fight of various COMINTERN, Facists, Socialists and Captialist politicos looking for a quick fix; with their quick fixes usually over turning what the other guy before them wanted to do or was doing. Which basically had us stuck in the mud for a long while.  It is a good book and I would highly suggest you give it a read and keep it on your bookshelf.

A silly guest said...

Juan,

Oh and I would also highly suggest that most of Europe was already in a depression in 1918 they just didn't realize it because of four good years of war destroyed the economies of the great empires and also destroyed a generation of men to work in thsoe economies. The US wasn't as hard hit because we didn't have anyone bombing the factories in the New England States nor was the population losses suffered due to the war (and the later Great Flu which lasted until 1920) were as bad as what the Europeans had suffered.

Grandpa Bluewater said...

Juan:

The collapse of the Detroit is the collapse of the domestic auto industry, steel industry, and machine tools industry, the rubber industry, and the loss of skills for whole generations in the skilled trades, i.e., machinists, tool and die fabricators, millwrights, metal model makers (prototyping), foundry journeymen, pipefitters, riggers and a thousand specialties within those trades. Then add the forklift operators, riggers, equipment operators, valve designers, and pattern makers.  Each of these skills carries their own set of lore, some of which is passed from the journeymen to the apprentices and undocumented, and some of which is taught in the apprentice classes.

All of these is a loss of wealth to the middle class, and the retailers, is reflected the closure of glass, small engine, sheet metal,  spring, valve, pump, electrical component, and special purpose equipment factories which allow mechanization and automation of farm, food processing, masonry, civil engineering, electrical distribution, mining and chemical industrial concerns to be competitive and viable.

The destruction of Detroit (southeast Michigan really as, well as wide areas north of the Ohio river and west of the Appalachian fall line) is a very significant measure of the U. S. economy and the industrial capacity of the nation.  That is no bad measure of industrial mobilization capability, strength of the industrial base and the military capability of the nation.

It's complex, it's connected, and it isn't taught at Harvard Business school.  But believe it brother, it hits you in the wallet, whether you is Joe Doaks or the USN. 

The Usual Suspect said...

GPB is talking the Grand Daddy of all resources - Institutional Knowledge.  It is a use it or lose it proposition applicable in all areas.

DeltaBravo said...

If we ever have to reinvent those particular wheels (and factories) there better be a whole generation ready to start consulting businesses to resurrect that knowlege.  Social Security checks won't be an issue for them... there will be good money in teaching the trades to the internet generation.  If we are smart enough to teach manufacturing jobs in the future.  We need tax incentives to move manufacturing back to our shores before it's truly too late.

ewok40k said...

Please stop with the meme of "Hitler was leftist"... Krupp and co. were owners of the Nibelungenwerken and paid for every Tiger that rolled out. Even the confiscated Jewish property ended up in private hands mostly. There were 2 things that fueled Germany's recovery under Hitler, namely kickstarting the army navy and especially air force - and massive Autobahn building program for moving all those panzers around the country quickly.

ewok40k said...

Why oh why, DB? we can import things more cheaply and pay ourselves huge bonuses from the profit - yours truly, Wal-Mart et consortes. oh and we have enough cash to bribe BOTH parties to keep from meddling in our trade. /sarcasm off

SCOTTtheBADGER said...

We no longer have the ability to make capital ships, the steel makers don't have the shop needed to make Class B armor anymore.  IOWA and NEW JERSEY had GE turbines, that were problematic at times, MISSOURI and WISCONSIN had Westinghouse-Allis Chalmers turbines that ran trouble free, for the most part.  Allis-Chalmers no longer makes marine turbines.  I am not even sure we could make the guns.  This could be a problem, when we need to take islands and countries back from China.  5 inchers are not really NGFS weapons.