Arthur Kroeber: evaluation

Transcript context

…On the trade surplus point, to the extent that it is made possible by the government involvement in industry… It’s actually not even clear to me that that's the case. If you have high savings and not enough investment domestically, the accounting identities are such that you will have a trade surplus. But suppose that's even the case. On paper, it just seems like what is happening is that the Chinese taxpayer, the Chinese saver, is subsidizing foreign importers. On paper, it just seems like we're getting a good deal. I'm sure some people are upset about this, specifically people who manufacture outside of China. But it's certainly not something obviously insidious. So it seems like if it wasn't for this, there'd be some other reason that China can't grow as wealthy as us. I am playing a little bit of a devil's advocate here. But I don't really understand why this is such a big issue that there needs to be very powerful competition about it. There are a couple of things beneath that. One is the systemic political difference is really important. The US self identity is that it is the leader of democracies around the world. We are very invested, at least for now in our democratic system. We'll see how that evolves over the next two or three years. There's some question marks around that, but historically that's been a really huge part of the US identity. Basically the morality play of World War II and the Cold War—which have really been the crucible in which US foreign policy has been formed—is that you had an alliance of democracies that fought back first against fascism, then against communism. They won. The result was that you created a world where most major countries were democratic. They operated on market economic systems. We were heading towards a world of convergence of systems where everyone essentially playing by the same rules. China really gets in the way of that narrative because it's this incredibly successful authoritarian system where the authority still calls itself communist. US elites have never, to this day, really gotten comfortable with the idea that the Chinese political system is legitimate. As long as you have that underlying problem, it's going to be very difficult to erase these difficulties. On the economic side, I think it is a problem, the way that China has chosen to organize its economy. In a strictly financial sense, the rest of the world comes out ahead in the sense that China is willing to subsidize a lot of low cost production. The rest of the world gets a lot of cheap goods and the overall welfare of the world improves a lot. I think that's clearly true. But if you look at what has happened to the US politically over the last 20 years, there are a lot of flies in that ointment. The fly is that it is important for large countries to be able to maintain a diversified production structure and maintain social cohesion. If you lose the capacity to run a manufacturing economy that employs large numbers of people, there's a lot of disruptions that come as a result of that. The purely financialized economy that we had growing up in the United States in the early 2000s as a result of this bargain with China wound up being pretty bad for the social compact. So there is a legitimate question about how you integrate China's growing power, wealth, industrial might, into the world in a way that societies around the world can tolerate. It's a legitimately difficult problem. I think a lot of the problems have to do not with China but with US domestic policy. A lot of what's going on right now is scapegoating of China as a way of diverting attention from decisions that need to be made domestically about income redistribution and macroeconomic policy and so forth. But there is also a legitimate question to be made about how China now accounts for 20% of the global economy, probably larger in the future, and a third of the global manufacturing economy. so forth. But there is also a legitimate question to be made about how China now accounts for 20% of the global economy, probably larger in the future, and a third of the global manufacturing economy. There has to be an agreed set of rules about how it interacts with the rest of the world so that everyone feels that they are benefiting, not just in financial terms. We don't really have that agreement now.…

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