July 31, 2005
Copyright The New York Times
ONE disadvantage of being 60 is that you have to get
up in the middle of the night, often more than once.
But a big advantage of advancing age is that you get
to recognize news media silliness when it happens.
This comes to mind in terms of the economic
relationship between the United States and China.
Partly because a company affiliated with the Chinese
government has made a bid to buy Unocal, a large
American oil company, there is a lot of talk in the
news media about how powerful China has become and how
weak and pitiful the United States has become. There
is talk of Chinese dominance over the world economy,
and, from what I can gather, a general fear that soon
we will be in peonage to the Chinese.
It all reminds me a lot of how the news media and the
Central Intelligence Agency went berserk after the
launching of Sputnik in 1957, and it was forecast that
the Soviet Union would soon be the world’s
technological and economic hegemon. That talk was
based on a number of faulty assumptions and a good
deal of hysteria. Obviously, it did not happen.
In the case of China, the confusion is slightly
similar, but with some important differences – and one
immense fact that the news media regularly overlooks
about personal responsibility.
First, let’s look at the data. But the problem is that
the data are extremely confusing when it comes to
reporting the real size of China’s economy. On the one
hand, if you take what is reported about the output of
China, you get a range of estimates, but generally the
gross domestic product of China in the year 2004 is
estimated to be substantially less than $2 trillion.
That would roughly make it one-sixth the size of the
United States economy. Yet China has nearly five times
the population of the United States. That means the
per capita G.D.P. of China is about one-thirtieth the
per capita G.D.P. of the United States, estimated to
be about $40,000 at present, in rough terms.
Obviously, this puts Chinese per capita G.D.P. far
behind that of any major industrial country. But some
economists, especially at the C.I.A. (which loves to
puff up estimates of the power of other countries, as
we have learned at great cost), say that we should
count only “purchasing power parity” G.D.P. That means
we would adjust Chinese G.D.P. and per capita G.D.P.
drastically higher to account for the lower prices
that the Chinese pay for things like food and medical
care. (It is a mystery to me how these economists
account for the fact that tens of millions of
Americans have a house on a quarter-acre of land with
three bedrooms and air-conditioning, a type of
property that is simply not available except to maybe
the richest 10,000 families in China. Maybe that
should ratchet up our purchasing power parity G.D.P.,
but I don’t think it does.)
Consider the most optimistic C.I.A. data about China
in 2004. It says China has a purchasing power parity
G.D.P. of (very) approximately $8 trillion, compared
with roughly $12 trillion for the United States.
Again, this is for a nation with nearly five times our
population. Even when using this most astoundingly
optimistic estimate – I would almost say a
preposterous estimate – China has a per capita G.D.P.
of about $6,000, or about 15 percent of America’s and
well below that of any nation in Western Europe, or of
Japan, Israel, Taiwan and many other countries.
In other words, the United States is vastly richer
than China by any measure. This is not to boast, but
it’s also not to be afraid of imminent world-pauper
It is true that China is industrializing at a
fantastic pace. It is estimated that China has been
growing at roughly 9 to 10 percent annually for
several years, while the United States has been
growing about 3 percent annually. Torrid growth,
however, never goes on forever, in companies or in
nations. (At least it never has so far.)
But suppose that these trends continued for 25 more
years. Chinese per capita G.D.P. would be about
$65,000 in 2040, and American per capita G.D.P. would
be about $84,000. Again, this assumes that we use the
most optimistic possible estimates of current Chinese
If we used the more conservative, non-C.I.A. estimates
of where Chinese per capita G.D.P. is now, in 25 years
it would be about $17,500- and this assumes the
continuation of China’s recent sizzling growth rates.
That would put China’s per capita income in 2030 at
roughly one-sixth of our level.
In other words, it will be a long time before Chinese
per capita G.D.P. matches ours. And for that to
happen, it will take a previously unheard-of growth
rate for an unheard-of length of time. This is a big
series of ifs, especially for a country with a rapidly
aging labor force and an inherent contradiction
between dictatorship and free markets.
But suppose that it does happen. Suppose that China
becomes a larger economic power than the United
States. Suppose, in our great-great-grandchildren’s
day, that the average Chinese citizen is about as rich
as the average American. How would it hurt us? Why
would we be worse off? If the Chinese were richer,
they could buy more from us and employ more of our
workers. They could buy more of our stocks. They could
tour our beautiful nation more.
The fact that our neighbors are worse off does not
make us richer, and the fact that they are better off
does not make us poorer.
But another factor is even more important: personal
responsibility. Americans who want to make sure they
stay well off accomplish nothing by worrying about
China. But we can certainly learn something from
China. Individuals and nations become rich by
investing in human capital – getting a good education,
learning good work habits, saving and investing
prudently and living healthy lives. Any young
Americans who want to keep up with the Chinese can get
a good education, work hard, save as much as possible,
invest prudently – and they will be just fine now, in
25 years and in 50 years.
The moral here is simple: learning from our friends,
the Chinese, means something. Fearing and envying them