Harvard economist Ken Rogoff writes in the FT that the economic slowdown we should be losing sleep over is in China, not the United States. An excerpt:
Perhaps the greatest threat to China’s expansion, however, comes from pressures created by its own exploding inequality levels... Indeed, the greatest danger to China’s economy is that, after years of market-oriented reform, the country’s leadership seems to be losing faith in markets and adopting policies such as rationing that turn back the clock to old-style communist days. With rising inflation, bloated investment and a soft global economy, now is hardly the time for China to make its system more inflexible. Historically, emerging markets get into trouble when policy reform is moving backwards at the same time as an economic or financial crisis is starting to unfold...
Global policymakers and investors who are losing sleep over US growth ought to pay more attention to rising risks coming from the other side of the globe.
Tuesday, February 5, 2008
Subscribe to:
Post Comments (Atom)
Posts
5 comments:
I disagree with his point about economic inequality. The US market contains massive economic inequalities, but that doesn't inhibit economic growth. In fact, the idea of a market economy is to provide opportunities for the lower portions of a country to gain wealth with limited barriers to entry.
i agree that inequality may not itself hinder growth, but inequalities may induce redistributional policies which have the potential to be growth-averse.
greenspan is currently championing this idea on his world tour
Actually believe or not China has not pursued any substantial political reform since 1989 and the Tiananmen Square protests. These protests proved that no matter how universal an opposition the PRC would still have ultimate say in China.
China's real problem is their cheap labor supply. Until you see broad wages increases China will continue to grow. Companies are attracted to this and they will continue to be more profitable here until other less developed countries present themselves as viable alternatives. However inflation is going to be a problem in the future and it will be interesting to see how they handle it.
After taking a class on China last semester, I have realized that not that many people actually know about China and how things really work over there. I spent a whole semester studying it and I know nothing really. If you want to learn more about current China go rent "Tank Man." It is PBS special and does an excellent job describing what I mentioned in the first paragraph.
rogoff mentions a new labor law which prevents chinese firms from firing workers with 10+ years of experience... these social welfare policies could be prescient of future policies which would undermine the cheap labor supply kyle mentions. i think that is the concern here.
greenspan's book and UM prof. ron inglehart's "Modernization, Cultural Change, and Democracy" both present compelling arguments that rapid economic growth cannot coexist with authoritarian systems for long.
Great way to put the job situation.
Post a Comment