Is China cleaning our clock? In speech after speech, President Obama calls on the People’s Republic of China to stop manipulating its currency. Republican presidential nominee Mitt Romney milks his favorite applause line about the first thing he’ll do if elected as president: Denounce China as a currency manipulator. Former SEIU union boss Andy Stern thinks the U.S. is too timid in the face of competition from China and that the U.S. should throw out its historical reliance on free trade and free markets in favor of the so-called Chinese model. The New York Times’ Thomas “The World Is Flat” Friedman, daydreams in his new book, That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back, of having the U.S. being able to imitate the PRC’s authoritarian approach in order to “transcend ideology” and “get things done.”
To quote Yogi Berra, it’s déjà vu all over again. Twenty-five years ago, the source of shock and awe was Japan. Scholars like Harvard’s Ezra Vogel and trade specialists like Clyde Prestowitz wrote and spoke incessantly about the coming Japanese century— just in time, as it turned out, for the bursting of Japan’s financial bubble which triggered its “lost decade” of low to negative economic growth.
Reason correspondent Ron Bailey aptly calls this “China Derangement Syndrome.” Jim O’Neal, head of Goldman Sachs’ asset management business may be right that China’s economy could match that of the U.S. as early as 2027, and “perhaps even sooner.” (This is three years earlier than his last prediction back in 2007.) But does this portend gloom and decline for everyone else? Has everyone forgotten the law of large numbers? Trees do not grow to the sky. China is not likely to grow 9 percent a year indefinitely. History suggests that when economies catch up they tend to slow down. It also bears repeating that per capita purchasing power for China is around $6,000, vs. $46,000 for the U.S. Of course, it’s possible that the U.S. could continue to follow antigrowth, anti-energy policies as it does now which could lead to years of economic stagnation. But American history suggests otherwise. Prosperity flows from open societies with a flare for innovative management and experimentation, something China, with its historical preference for control over liberty, is unlikely to try.