The Not-so-menacing Red Menace

Jonah Goldberg had an interesting column in the National Review last Friday:

Foggy Crystal Ball

Jonah writes:

Exhibit A: China. You can’t pick up a copy of Newsweek without reading something by Fareed Zakaria about how China will only get larger and larger in our rearview mirror. Five years ago, Goldman Sachs predicted that China’s GDP would overtake America’s by 2041. Now it thinks that China will reach us in 2027. (Of course, with a much bigger population, China’s per-capita wealth would be much lower than ours.) The National Intelligence Council’s new report, “Global Trends 2025: A Transformed World,” echoes these concerns.

Heck, maybe they’re all right. Maybe not. The simple fact is that no one knows.

But I’d bet against it.

Jonah lists the myriad problems facing our economy and asks whether the Chinese economy is immune to such problems.

Ask yourself this: Why are we in this financial crisis?

Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.

Does anyone honestly think China doesn’t have these problems ten times over? It has no free press, no democratic accountability, and no truly independent regulators.

After every Chinese earthquake, we discover that safety inspectors couldn’t be trusted to oversee the construction of schools and hospitals. And we’re supposed to believe that China’s corrupt model produces toxic baby formula but spic-and-span finances?

I’m with Jonah on this. Before the Soviet Union fell, each new edition of Prof. Samuelson’s Introductory Economics textbook contained similar straight-line projections about their unprecedented economic growth. With each new edition, Prof. Samuelson’s detailed graphs showed the Soviet economy passing ours in fewer and fewer years.

These predictions did not seem preposterous at the time. After all, as Samuelson noted, Soviet workers saved approximately 30% of the paychecks, while their American counterparts saved maybe 0.3% of theirs. (I’m making up the numbers, but you get the idea, though the 30% looks about right.)

Prof. Samuelson didn’t understand why Soviet workers saved so much of their pay. The reason was because they were paid in rubles. The stores that accepted rubles had mostly empty shelves — what little stuff they had was crap. Had they been paid in dollars (now those stores were crammed with nice stuff), I suspect the savings rates would have been rather different.

Samuelson also failed to understand that the Soviet ruble had more in common with Monopoly money than with U.S. dollars. The old joke about working in the Soviet Union was “We pretend to work and they pretend to pay us.” There’s a difference between printing money and creating wealth, and the Soviet Union, much like today’s Democratic party, knew how to do the former, but had little insight regarding the latter.

While the former Soviet Union had an official exchange rate of dollars to rubles, it was strictly a one-way affair. Soviet citizens couldn’t convert their rubles into dollars (assuming it was even legal for them to own dollars before perestroika).

In addition to the inherent problems with the Chinese economic model, another reason I think they’re in big trouble is the demographic time-bomb they’ve created with their One Child policy. Mark Steyn makes a similar point about declining birthrates in Western Europe and Russia, but China’s draconian population control policy takes the game to a whole new level.

Having an arbitrary cap on birthrates equal to 1.0 per female, since not everyone marries, and not every married couple chooses to reproduce, China’s actual birthrates must be below 1.0. That’s significantly lower than even the Russians, who as Steyn tells us are committing demographic suicide.

Population replacement levels are around 2.1/2.2 for Western Europe; they must be substantially higher for China whose youngest citizens are far more likely to die from natural disasters, infectious diseases and starvation, not to mention tainted baby formula and lead paint in toys.

Lastly, thanks to the One Child policy, a significant number of Chinese families are selectively aborting girls, in order to ensure their sole surviving progeny is male.

It won’t be long before China begins to reap the inevitable consequences of birthrates below Russia’s one-half replacement levels combined with an unprecedented gender gap leaning heavily toward the testosterone-enhanced side of the aisle.

No one knows what China will look like in 20 or 30 years, but even the foggiest crystal ball reveals they’ll have a large older population wth a relatively balanced male-female ratio alongside a disproportionately smaller younger demographic that heavily skews toward unmarried males.

That’s not a proven formula for social stability, or for survival.

3 Responses to The Not-so-menacing Red Menace

  1. Tom Humes says:

    Nice Site layout for your blog. I am looking forward to reading more from you.

    Tom Humes

  2. TH says:

    I couldn’t agree more, after the Soviet Union, Japan was going to take over the world, then stagnation hit them. After that, the four tigers were the up-and-comers, until the financial crisis. I’ll believe in China’s economic miracle once they have caught up–and not until.

  3. jason kenny says:

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

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