Bill Fischer
Sometimes you are looking at a piece, and have to read it again because you cannot believe what it says. That happened to me when MIT professor Lester Thurow tried to explain why he thinks China's economic growth is six percent at most and possibly lower in the New York Times.
Fortunately, IMD professor Bill Fischer, and a speaker at Chinabiz Speakers, found the time to explain at his weblog why Thurow is thoroughly wrong.
Professor Thurow, you’ve missed the entire point! Over the past thirty years, China has moved roughly 20% of the world’s population from the 19th century to at least the late 20th; and in some places the 21st. Chinese people are better fed, better read, and better off than possibly at any point in the 7000+ years of Chinese civilization. Chinese workers take holidays! Chinese basketball players play in the NBA. Chinese peasants take foreign tours! A Chinese automobile manufacturer has reached 1 million units, while a Chinese computer company now bears the “think-pad” brand. Chinese cosomonauts are planning to walk on the moon. Chinese movies are in our theatres. And, China is no longer irrelevant to the global economy, as it was just three decades ago.
6 comments:
With all due respect to Prof.Fischer, he hasn't demonstrated anything, but rather has pointed to indications. As a picky lawyer, I need to see proof from both sides, then I'll make my own decision. So Ordered, this 25th day of August, 2007.
I agree with Todd. All Fischer is saying is that China has done really well; he does not come up with any numbers to refute Thurow (who is a world class economist, BTW). Can you give us the link to Fischer's piece so we can make a legitimate comparision.
When I read Thurow’s article, I had to do a double take too! I respect Thurow and that is why it was such a disappointing article. I have no problems with him questioning China’s calculations of GDP growth, but his methodology to refute, using electrical usage, is downright laughable. I expected more from a MIT professor.
My take: Thurow needs to get out of his office more, and live in the real world. I can easily refute his ridiculous methodology. If a country used nuclear power, or solar power, or wind turbine power, or hydropower, or any form of power that is not traditional electrical power, can we infer that the country has a lower GDP, because their electrical usage is lower? He argument is so weak that it’s embarrassing it is actually coming from an MIT professor. I could dismiss it as idiotic if it was coming from some simpleton, but from an MIT professor, that is just sad.
Furthermore, Thurow suffers from a classic overemphasis of GDP, without understanding the flaws of GDP. GDP doesn’t take into account currency differences (PPP attempts to correct that), does take into account how US grew GDP by just spending more borrowed monies, does take into account that China choose to save, rather than consume (China’s savings are about 50% of its GDP, and if it consumed rather than save, its PPP would be larger than US now). It is smart to have some savings, reserves, and liquidity, as the current sub-prime mess, credit and liquidity crunch, just shows. China is sitting in the catbird seat with massive savings and reserves, and US is the debt-ridden borrower, with ever increasing massive debts, deficits, and unfunded liabilities.
Lastly, Thurow seems to imply that a larger GDP is better. His article would have been stronger if he acknowledged that growing GDP the way US did, not by improving real productivity, but by the consumer and government sector of GDP over spending, and spending more borrowed monies, just weaken the US in terms of the financial bottom line – its financial statement. In the real world, Central Bankers don’t care about your GDP. Central Bankers around the world care about whether US has the ability and security to repay it debts. More countries are rebalancing away from the US dollar, embracing stronger currencies like the Euro, etc. because they are increasingly uncomfortable with US debt ratio, and its ability to sustain such massive debts and unfunded liabilities (see US Treasury TIC report). The real world focuses on US financial statements – balance sheet and income statement. US financials are weak just like the US dollar. China already has stronger balance sheet and income statement now. It sounds more like Thurow is an economic theorist from academia, when someone with his degree and pedigree, should be a financial realist with experience from the real world.
Our own Comptroller General recently compared US to the fallen Roman Empire, and I think he is honestly correct. Perhaps Thurow should read our Comptroller General’s report, and get a taste of the real world, so he doesn’t embarrass himself with such mindless nonsense in the future.
JR
The link to Bill Fischer's article is already at the title of the entry. It will be republished also at Chinabiz (www.cbiz.cn) today
Fons, why not get this MIT professor out of his study room and invite him e.g. to Shanghai, as it seriously looks like he hasn't opened his windows to the real world in the last 20 years. At least it's different world than the one i live in. Using electricity usage in China is utter nonsense, as anyone who has ever visited both old communist industrial areas and their new replacements should have seen such inefficiency in the first type that output in e.g. chemicals production could easily triple or more without any increase in electricity use.
This was a paragraph I wrote earlier on this thread that I want to clarify. I didn’t have time to proofread it on my earlier post.
“Furthermore, Thurow suffers from a classic overemphasis of GDP, without understanding the flaws of GDP. GDP doesn’t take into account currency differences (PPP attempts to correct that), does take into account how US grew GDP by just spending more borrowed monies, does take into account that China choose to save, rather than consume (China’s savings are about 50% of its GDP, and if it consumed rather than save, its PPP would be larger than US now). It is smart to have some savings, reserves, and liquidity, as the current sub-prime mess, credit and liquidity crunch, just shows. China is sitting in the catbird seat with massive savings and reserves, and US is the debt-ridden borrower, with ever increasing massive debts, deficits, and unfunded liabilities.”
My revision and what I meant to say, after proofreading it:
Thurow suffers from a classic overemphasis of GDP, but I do think he is smart enough to understand the flaws of GDP (after all he is supposes to be a world renowned Economist).
Well-known flaws of GDP include, but not limited to the following:
Doesn’t take into account currency differences (PPP attempts to correct that)
Doesn’t take into account how US grew GDP by just spending more borrowed monies, as both the consumer and government sector of US GDP just over spent, growing GDP, but more importantly, weakening US financial statements (See US Comptroller General’s dire warnings)
Doesn’t take into account that China chose to save, rather than consume (China’s savings are about 50% of its GDP, and if it consumed rather than save, its PPP would be larger than US now). It is smart to have some savings, reserves, and liquidity, as the current sub-prime mess, credit and liquidity crunch, just shows. China is sitting in the catbird seat with massive savings and reserves, and US is the debt-ridden borrower, with ever increasing massive debts, deficits, and unfunded liabilities.
Thurow also fails to mention that a larger GDP doesn’t mean a healthier and stronger economy. It’s interesting he failed to mention China’s stronger and healthier financial statement now, so one may wonder if Thurow understands real world financial statements well enough to honestly and fairly assess China’s economy.
Thurow may want to issue a revision, or claim some lowly TA ghostwriter wrote that embarrassing article and just put his name to it, without his knowledge. At least that would help salvage his reputation somewhat, since I see jokes flying about Thurow. With clueless articles like the one Thurow wrote, he affirms that MIT stands for MORE IDIOTIC TAKE.
JR
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