Dani Rodrik: belief

Transcript context

…Let’s say another $300 billion of reserves go out the door to keep the peg. Your phone rings in Cambridge, Mass. . . . You’re starting from $300 billion. It’s nothing. It’s just a drop in the bucket. Why did they accumulate those reserves to begin with? Obviously, yeah, it’s not like they’re running out of reserves. That is not the issue. If they weren’t losing some reserves, that’s part of the optimal adjustment. If you ask me, “Tell me why I should be worried about China?” I can give you real reasons why you should be worrying about China relating to the fact that they in fact have both a huge political transformation ahead of them, as well as a huge economic transformation. The political transformation being the one of having to open up eventually, become more democratic, and we have no idea how they will manage that. The economic transformation, which they have not really gotten underway seriously — they’ve started, but it’s really, they are at the very beginning — it’s hard to turn into more of a domestically consumer-oriented, less investing, more consuming kind of economy, and less dependent on the world market. Those are hugely challenging problems. Managing the currency right now, and the financials. There’s the stock market, which is a tiny, tiny part of the Chinese economy. It pales, I think, in comparison to those bigger issues. Let’s take Milton Friedman’s dilemma, which is in a way an early version of Rodrik’s trilemma. Friedman argued there was a natural tension between high levels of immigration and the welfare state. You see this quite sharply now in Western Europe. In some ways, you see it in the United States, even though our immigration has not been up lately. But the tension is there. If politically it turned out that you had to choose at the margin, cutting back immigration or cutting back the welfare state, you as a citizen, the economist cannot say. But what are your thoughts on that?…

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