Saturday, January 15, 2011

Disagreeing with Glenn Beck on China

Glenn Beck has been claiming that China is overtaking the United States as a global economic power. While he makes a number of good points he and his panel of experts have missed some key issues that will inevitably hold China back. Beck's experts, Jim Rogers, global investor, and David Buckner, economist, opine correctly that future national economic trends can be traced to people and capital. They then proceed to focus on capital and forget about the people. The fear that we are being overtaken is nothing new, in the 1980s there was widespread fear that we were being overtaken by Japan; then "Japan, Inc." tanked. Before it did, I remember reading a quote in Reason from Thomas Friedman's book The Lexus and the Olive Tree, "I am not afraid of Japan or the other Asians. Our Asians will beat their Asians any day." The quote was ascribed to a Silicon Valley entrepreneur, who was making the point that we are the only country attracting brain power through immigration. It is a source of strength not matched by our Asian competitors. So while our public education system isn't really building the home grown talent we would like, a point made repeatedly by Beck, it is not the only source of human capital for our nation.

My second objection is that the demographic trend line for China is following that of Japan's, which will cause domestic tension and considerably raise their labor costs as they bear the burden of an aging population. Consider the following demographic profiles from Simon Bond's blog:

Because of its one child policy, China is following Japan in having an aging population that lacks younger workers to support the pension benefits of their forebears. The United States has a problem, but not nearly as severe. Note too that India, with its English speakers, flatter population profile and commitment to education is a much greater long term threat to our economic supremacy. Note too, that their is a large gap between the male and female populations in the 20-24 age group, with a deficit of about 4 million against 65 million males. This is certainly going to cause societal problems.

Next, China's lack of regard for the environmental effects of its industrial policy will come under pressure as its workforce becomes wealthier. This is not a pretty picture:

Two final thoughts. First, China's investment is heavily directed by the central government. Beck professes belief in the superiority of the free market system over and over on his show, but loses his mind when it comes to China. "State capitalism" will prove no more robust than socialism in the long run as an economic system. The ability of a free market economy to outmaneuver other models is already proven. The question for America is how will we preserve the light regulation needed for capitalism to work, and not allow the heavy hand of government to strangle free enterprise. Second, China is still a repressive regime, which is incompatible with the agility of mind and freedom of choice necessary to a culture of free enterprise. Without those strictures, the party loses its power. With them, it will always be chasing countries with free markets.

Personally, I think we should be more concerned with India in the long term. They are a democracy and working through their problems slowly but effectively. I wish we would be allowing their best and brightest to immigrate to our country in much more massive numbers than we currently allow, to give us a head start on the inevitable economic competition.


  1. Extremely insightful look at demographic and economic trends, thank you for the wisdom.

  2. B@man, thanks. Not sure about the wisdom, just hoping to get people to think about these things more broadly.