Karl defends Andy Stern on China by making a claim about economic growth that on the one hand I think is partly true, but I think he overstates the case. His argument is that it is possible for economies to grow too fast in some sense, because economic growth is not the same thing as welfare. You can take too much from current generations in the name of stimulating economic growth.  Karl has made this point in the past more explicitly, pointing to China’s 40% savings rate outside the bounds of plausible optimal savings rate. This much I agree with, or at least I agree that it is possible and worth considering (I don’t know what the bounds of optimal savings are for China, or if they’re actually outside it). The problem is to use this to defend the notion that China can go too fast forever and use their current strategy to one day surpass us in per capita GDP.

The essence of the problem is still is that while China may be growing too fast because of too much savings, they also still owe a lot of their fast to catch up growth. There are still many things that go into determining a growth rate, and many of these things will weigh China down in the long-run no matter how high they keep savings rates.

In fact, one of the things that will work against them is reducing the incentives of their workers by using policies “designed to induce a large degree of suffering on its people today in return for a more prosperous tomorrow”. Any country trying to do this for a long period of time is going to have all sorts of problems. Look around at all the richest countries in the world, do you see any of them that have anywhere near the level of active management of the economy that China does without oil wealth that is massive relative to the rest of the economy?

Given China’s current level of per capita GDP ($4.3k in PPP terms), sustained large growth rates are not surprising or unprecedented. If China were as rich as we were, it would be unprecedented. China would have invented a brand new model of large developed nation that can grow extremely fast forever. There is a reason such a model does not exist: being a rich country requires democracy, freedom, innovation, entrepreneurship, and citizens who are willing to work. The ability to impose extreme levels redistribution to future generations like Karl is talking about cannot exist alongside all of these other things.

China will reach a limit to healthy growth using their current economic model. When they do, if they wish to keep growing they will look around and realize that their only choice is to become more like the rich world. If China wants to be rich they must learn from us, and Andy Stern is wrong to suggest the opposite is true. Reihan put this best:

To really learn from the Chinese, and to enjoy such staggering growth rates, we should go about things differently: let’s have a Maoist insurrection followed by a civil war that lasts for several years. Then let’s destroy most of the wealth in the country, and drive out millions of our most enterprising and educated citizens by launching systematic terror campaigns during which millions of others will die in violence or of starvation. Next, let’s have a modest economic opening in coastal regions: impoverished citizens will be allowed to launch small-scale township and village enterprises and components will be assembled in a handful of cities by our stunted descendants. Then let’s severely curb those township and village enterprises because they represent a potential political threat and invite large foreign multinationals and state-owned enterprises [let's not forget those!] to work our population to the bone at artificially suppressed wage rates, threatening those who complain with serious reprisals up to and including death. Let us also initiate a population control policy designed to improve our dependency ratio for a few decades. As large numbers of workers shift from low-value agricultural work to manufacturing, we will experience … rapid growth! Mind you, getting from here to there will involve destroying an enormous swathe of our present-day GDP.

None of this detracts from Karl’s point about the possibility of growing too fast in a way that does maximize welfare. It’s an important point about today’s China that is worth understanding. But neither does Karl’s point disprove everything economists know about what it takes to be a wealthy nation.

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