It probably won’t happen in our lifetimes.Mar 30, 2015, Vol. 20, No. 28 • By CHARLES WOLF JR.
After China supplanted Japan in 2011 as the world’s second-largest economy, some China scholars, as well as pundits and economists, began forecasting when it would supplant the United States as the largest. Extrapolating China’s remarkable 9-10 percent average annual growth in the prior three decades, these forecasters placed the GDP crossover in 2020. When China experienced a slowdown to 7-8 percent growth in 2012-2014, the crossover was deferred to 2024-2025.
Current and impending conditions in both economies suggest the recent estimates are likely premature as well, and by a substantial margin. Growth in China may decrease appreciably in the coming decades, while U.S. growth may increase at least slightly. A better forecast is that crossover between the two GDPs is unlikely to occur during the lifetimes of most readers of this article.
Start with conditions that portend further slowdown in China’s growth. First are the long-term fundamentals: a gradually declining population, rapidly rising dependency ratios (between China’s elderly and preworking-age populations and its working-age population), severe and worsening atmospheric pollution, serious water contamination and scarcity, and the rising costs to address these conditions.
Next are several recent growth-inhibitors, broadly reflected in President Xi Jinping’s recurring references to the “new normal” of quality, efficiency, and medium growth, rather than the high growth of the past.
Another portent of slowdown is China’s accumulation of the highest level of public and private debt in its history. Most of this is debt incurred at province, city, and township levels by loans from local banks and the unregulated “shadow” financial sector. Additions to this shaky debt raised the local deficit to $500 billion in 2014, about 5 percent of China’s GDP. Although the central government isn’t responsible for this debt, it’s unclear who is. What is clear is that the local production, construction, social, and infrastructure projects that were financed by this debt and have helped propel growth will be sharply constrained in the future.
Also indicative of slower growth to come are surging capital outflows from China that rose to $120 billion in the fourth quarter of 2014, slightly exceeding total foreign direct investment into China for the entire year. This outflow includes private acquisitions of high-end foreign real estate and other precautionary foreign assets. The trend suggests that Chinese investors expect higher growth and higher returns from investment outside than inside China. Moreover, the actual outflow is probably larger than the estimates because of frequent under-invoicing of exports and over-invoicing of imports.
While nothing is inevitable, these conditions portend significantly slower growth in the future. How does the U.S. outlook compare?
Demographic and other fundamentals in the United States are mixed. According to World Bank estimates, the U.S. dependency ratio is higher than in China. And the percentage of the U.S. working-age population that is employed is lower than it’s been since 2000. On the other hand, household debt is at a low ebb—a positive indicator for future consumer spending. Another positive indicator is the high rate of sustained innovation—much of it linked to information technology.
Since recovery from the Great Recession of 2008, U.S. growth has been 3- or 4-tenths below the long-term average 3 percent annual U.S. growth rate, and much below the rate realized in prior recoveries. Several conditions portend at least modestly higher growth ahead.
The policy environment is likely to be friendlier than businesses—both large and small—have experienced in recent years. Possibilities on this front include tax reform (perhaps lower corporate rates, lower rates on repatriation of profits held abroad), lighter and smarter regulatory policy (perhaps a clearer “Volcker rule” on banks’ capital requirements, and bank-trading limited to banks’ own capital), and simpler and clearer rules (by the Commodity Futures Trading Commission) to reduce risks associated with complex derivatives.
Another growth-enhancing development likely to ensue from a business-friendly environment is a stimulus to technology innovation. While innovations in recent decades have mainly resulted from IT, future innovations may result from other emergent technologies, such as bio-genetics, robotics, and nanotechnology. A business-friendlier environment in the United States is likely to encourage innovation through reform of the present bureaucratized patent system so it better protects the property rights of innovators, while preventing abuse by patent trolls.
In China and elsewhere, it’s open season on U.S. corporations. Oct 6, 2014, Vol. 20, No. 04 • By IRWIN M. STELZER
When it comes to military actions, President Obama likes to declare the end of wars, regardless of whether America’s opponents agree that is the case. When it comes to economic wars, he has no need to declare an end, no need for unilateral disarmament, because he never engages in the first place. Indeed, he does all he can to make our adversaries’ task easier by spiking any guns we might have before they can be fired by Congress, his trade union friends, or other aggrieved parties.
Americans eagerly await another “morning in America” moment.12:00 AM, Aug 21, 2010 • By IRWIN M. STELZER
If it were ever true that we Americans are provincial -- the charge made by European elites and pundits -- it no longer is.
Will the last one to leave turn out the Northern lights? May 17, 2010, Vol. 15, No. 33 • By JONATHAN V. LAST
A few weeks ago, Palle Christiansen, Greenland’s minister of finance warned that his country was facing an existential threat from immigration. Yet unlike the far-right politicians of Europe who take up this theme, Christiansen was not fretting over foreigners coming to his country’s shores, but about fellow citizens leaving.
Walter Russell Mead on globalization4:24 PM, Jan 26, 2010 • By MATTHEW CONTINETTI
Check out Walter Russell Mead's take on the American future:
The learned professions in the United States — lawyers, doctors, nurses, accountants, educators, journalists, government bureaucrats — are under the gun. The IT revolution is going to put them all through the wringer — the way it has already put blue collar America through the wringer by a combination of automation and outsourcing. The upper middle class did very well in the last generation, even as blue collar incomes stagnated and in many cases fell. The next phase of change will challenge the institutions and the livelihoods of America’s managers, professors, lawyers and others in the same way that it has already thrown journalism into the maelstrom.
These changes are necessary and in the long run benign. Dramatically and thoroughly restructuring the professions will ultimately make the vital services they provide much cheaper and much more widely available — just as the destruction of the old manufacturing guilds in the industrial revolution eventually made manufactured goods much cheaper. But just as the spinners and weavers fought the new machines, so we can expect a lot of our intellectuals and managers to fight the challenges to a system that has worked very well for them.
The whole post is worth reading. And if you are interested in this topic, be sure to read Gregg Easterbrook's Sonic Boom, which treats the coming changes at greater length. I reviewed Sonic Boom here.
Don DeLillo weighs in on September 11 and comes up short.11:01 PM, Nov 25, 2001 • By DAVID SKINNER
TWO WEEKS AFTER September 11, while the whole world was still checking in with itself, the New York Times called up a bunch of novelists. The paper of record wanted to see if their jobs still had any meaning.
Alas, no.Nov 19, 2001, Vol. 7, No. 10 • By IRWIN M. STELZER
SO NOW WE KNOW: The Saudi Arabian regime is no friend of ours. Sure, they sell us oil and tell us that they keep the OPEC cartel from pushing prices through the roof. But their refusal to go along with OPEC price hawks is self-serving.
Globalization in antiquity.Nov 12, 2001, Vol. 7, No. 09 • By PAUL A. CANTOR
THE ISSUE OF GLOBALIZATION is very much on our minds at the moment--and the experience of the ancient world proves an aid to understanding what we think of as a uniquely modern problem.
It was Jean-Marie Guehenno who argued in his brilliant 1995 book "The End of the Nation-State" that during the age of empire--beginning with the conquests of Alexander the Great--the ancient world embarked on a vast experiment in cosmopolitanism that eerily foreshadows what we are experiencing today.
Politics and culture after September 11.Nov 5, 2001, Vol. 7, No. 08 • By DAVID BROOKS
"A SINGULAR FACT OF MODERN WAR," the historian Bruce Catton once wrote, "is that it takes charge. Once begun it has to be carried to its conclusion, and carrying it there sets in motion events that may be beyond men's control. Doing what has to be done to win, men perform acts that alter the very soil in which society's roots are nourished." Catton was writing about the Civil War, but his observation applies to most wars, and it will likely apply to the war to which we are now committed.
The most realistic response to terrorism is for America to embrace its imperial role.Oct 15, 2001, Vol. 7, No. 05 • By MAX BOOT
MANY HAVE SUGGESTED THAT THE September 11 attack on America was payback for U.S. imperialism. If only we had not gone around sticking our noses where they did not belong, perhaps we would not now be contemplating a crater in lower Manhattan.
Oct 15, 2001, Vol. 7, No. 05 • By ROBERT KAGAN and WILLIAM KRISTOL
CAN THE UNITED STATES WIN A WAR ON TERRORISM while winking at some terrorists and cozying up to nations that support them? Can the United States effectively fight terrorism and reward terrorism at the same time? You shouldn't have to ponder those questions very long. The certain answer is no.
But the Bush administration isn't certain.
Neither the best nor the brightest.Oct 15, 2001, Vol. 7, No. 05 • By THOMAS DONNELLY
War in a Time of Peace
Bush, Clinton, and the Generals
by David Halberstam
Scribner, 544 pp., $28
THE STORY OF AMERICA'S FOREIGN POLICY during the years of Bill Clinton will be of considerable interest to historians. The United States, having won a stunning and surprising victory in the Cold War, emerges as the most powerful, prosperous, and politically attractive nation on the planet.
America from Gilligan's Island to The X-FilesSep 17, 2001, Vol. 7, No. 01 • By DAVID BROOKS
I'D NEVER REALLY CONSIDERED the way George W. Bush resembles Gilligan of Gilligan’s Island until I read Paul A. Cantor’s brilliant book, Gilligan Unbound: Pop Culture in the Age of Globalization. As Cantor points out, Gilligan is not the smartest one on the island. He doesn’t have the obvious leadership résumé. Yet the audience instinctively sympathizes with him, and the show’s creators were right to put him in the center.
An exercise in posing and preening.Sep 10, 2001, Vol. 6, No. 48 • By JEREMY RABKIN
IT HAS BEEN A BUSY SUMMER for European diplomats and for the human rights activists who dance to the Euro-beat. They have been much exercised about dangers to global stability. The main danger, they seem to think, comes from the United States.
Europeans want to stop global warming and stand up for global justice. So do the globalist non-governmental organizations, or NGOs, who are their moaning bass accompanists. But the Bush administration has said no to the Kyoto Protocol and no to the International Criminal Court.