The Agenda

James Fallows on the ‘Chinese Professor’ Advertisement

James Fallows admired the new Citizens Against Government Waste advertisement as political theater, but he was unimpressed by its content:

CAGW, a descendant of J. Peter Grace’s 1980s-era anti-wasteful spending commission, is in principle bipartisan, though in this election its campaign about the menace of “stimulus spending” has an obvious partisan tilt. And if you know anything about the Chinese economy, the actual analytical content here is hilariously wrong. The ad has the Chinese official saying that America collapsed because, in the midst of a recession, it relied on (a) government stimulus spending, (b) big changes in its health care systems, and (c) public intervention in major industries — all of which of course, have been crucial parts of China’s (successful) anti-recession policy. 

I guess the one thing I’d add to this is that there are differences between the U.S. and the Chinese economies. Economic strategies that might work for the Depression-era United States won’t necessarily work for the Stagnation-era United States. And in a similar vein, strategies that might work for Bangladesh won’t necessarily work for Vietnam or El Salvador. Consider that infrastructure spending in a very poor and authoritarian country like China is necessarily very different from infrastructure spending in our country: “eminent domain” is a relative breeze, the cost of labor and other inputs is lower, there are fewer lucrative competing uses for the land involved, etc. 

And has public intervention in Chinese industries been a rip-roaring success? Or have we seen an overconcentration in the FDI-dependent sector and SOEs which often receive loans on a political rather than a market basis? These seem like pretty important differences to me. On the health sector, I do think that China needs a basic safety net to encourage more domestic consumption. But of course the U.S. did not create a system of universal catastrophic coverage.

Rather, it created a system that benefits a wide array of incumbent medical providers, pharmaceutical firms, etc., rather than one centered on income protection. 

Moreover, as close students of the contemporary Chinese economy like MIT’s Yasheng Huang understand, the Chinese growth model is very vulnerable. That is, if you know a bit more than nothing about the Chinese economy, you might find the analytical content of the advertisement hilariously wrong. If you know a lot about the Chinese economy, however, you might find it fairly on-target. 

Here’s a bold prediction: if China really does surpass the United States as the CAGW advertisement imagines, it will do so by following Yasheng Huang’s formula: by embracing the rule of law, robust protection of private property rights, and encouraging grassroots indigenous entrepreneurship. It will not do so if today’s crony capitalism endures. 

Viewed through this lens, the CAGW makes a fair bit of sense. A liberal, market-oriented China of the future might very well see a debt-ridden United States as a cautionary tale.

P.S. I see that Matt Yglesias has also written about the Fallows post, and he adds an important point:

For starters, how likely is it that China’s living standards will surpass America’s by 2030? Well, if you assume China manages to grow faster in the future and achieve 10% per capita GDP growth every year for the next twenty years, and America experiences no per capita GDP growth whatsoever during this period, they’ll end up slightly ahead of us.

This is totally true. But a liberal, market-oriented China will, I’m guessing, find it easier to narrow the gap in living standards.


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