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U.S. Economy Not Looking Good: Not Now, Not in 10 Years

 Prominent Economist’s Predictions

U-turn economyTo hear a number of prominent economists tell it, it doesn’t look good for the U.S. economy, not this year, not in 10 years. On the one hand, Harvard’s Martin Feldstein said he believes the outlook for U.S. economic growth in 2011 is less hopeful than many believe.

On the other hand, there is the race with China. Most estimates put the size of the Chinese economy on par with the United States by the early 2020s, said Dale Jorgenson, also of Harvard. Jorgenson sees Asian emerging markets as the most dynamic in the world. “The rise of developing Asia is going to accompany slower world economic growth,” he said.

 U.S. Must Face the Inevitable 

The United States must face up to the inevitability of being overtaken by China as the world’s largest economy.  China’s rise of growing military and diplomatic influence and its emergence as the world’s second-largest economy after the United States prompts fears in the U.S.

The United States will need to come to terms with the fact that its dominance in the world is fated to come to an end, Jorgenson said. This will no doubt be difficult for many Americans to swallow and the U.S. should brace for social unrest amid blame over who was responsible for squandering global primacy, he said. 

MIT’s Simon Johnson put it more bluntly, saying the damage from the financial crisis and its aftermath have dealt U.S. prominence a permanent blow. “The age of American predominance is over,” he told a panel. “The (Chinese) yuan will be the world’s reserve currency within two decades.”

 Can’t We All Just Get Along?!

many hands claspedZheng Bijian, a Chinese government adviser, said he was concerned about U.S. fears about China’s rise. “If these doubts and assumptions become mainstream opinion, and even form part of national strategic judgments, then this will not only create grave misjudgments about China’s direction of development, it will also seriously damage the United States’ own interests and shared Sino-U.S. interests,” he said. 

Obama said the U.S. must “break out of the old stereotypes” that China is taking manufacturing jobs from the U.S. because the relationship is “much more complex than that and it has much more potential than that.”  Obama said the U.S. can more than double exports to China.

“I absolutely believe China’s peaceful rise is good for the world, and it’s good for America,” Obama said, addressing a major concern in Beijing that the United States wants to see China’s growth constrained.

“We just want to make sure that (its) rise occurs in a way that reinforces international norms, international rules, and enhances security and peace as opposed to it being a source of conflict either in the region or around the world,” Obama said.

 China Has Its Own Struggles

President Hu Jintao said through a translator that China is focusing on domestic demand and consumer spending as its economy evolves. In China, the typical Chinese also faces rising prices for nearly everything. The official inflation rate recently hit a 28-month high. It’s the surging price of coal that may prove to be China’s Achilles’ heel, at least in the short term. Coal powers the boom in China and coal is at a two-year high. The basics like food and energy are like brakes on the economy. 

 “The Donald’s Economic Warning”

On the other hand, if you listen to “The Donald’s Economic Warning” (http://bit.ly/fvnPUk) you find yet another picture being painted about China. According to ‘the Donald,’ “China is eating our lunch” and “we are building China by ordering all of their products.”  He goes on to say that we “must make this country competitive with other countries. We must be a manufacturing country again. We’ve protected them (China) for years. Look at their phony currency; they are selling us product with a very low currency. It’s very hard to compete with China even though we make a better product than China. China is taking advantage of this country. China has billions and billions of dollars of surplus & we are rebuilding China.”

 Let’s Not Jump to Conclusions

don't jump to conclusionsWhat seems to be overlooked is that the current state of the balance of trade is simply a manifestation of the current economic conditions. Since China is now a large manufacturer (the world’s largest) and America is not (America manufactures very little now), it stands to reason that America will buy more from China than China will from the US. I think we need to wait and see what this week’s meetings with President Obama and President Jintao generate before jumping to conclusions. We will keep you informed as always.

May you direct your dreams!

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