Wednesday, February 3, 2010

Predicting History

. Wednesday, February 3, 2010



Thomas Friedman's authoritarian streak has been growing for awhile. Still, like Drezner I was surprised that he was unaware of the "Chinese Consensus" until last week. But according to Yang Yao of Peking University Friedman has already missed the curve... the Chinese Consensus is already dead:

But, in fact, over the last 30 years, the Chinese economy has moved unmistakably toward the market doctrines of neoclassical economics, with an emphasis on prudent fiscal policy, economic openness, privatization, market liberalization, and the protection of private property. Beijing has been extremely cautious in maintaining a balanced budget and keeping inflation down. ...

China's astronomic growth has left it in a precarious situation, however. Other developing countries have suffered from the so-called middle-income trap -- a situation that often arises when a country's per-capita GDP reaches the range of $3,000 to $8,000, the economy stops growing, income inequality increases, and social conflicts erupt. China has entered this range, and the warning signs of a trap loom large.


Yang argues that China's only path is democratization. I doubt that, but who knows? Not me, and not Yang either.

Thinking about the Chinese Consensus (which, like all lazy simplifications doesn't actually exist) reminded me of James Fallows' 1993 article "How the World Works" which described another sort of consensus, based on mercantilist writings by long-gone thinkers like Friedrich List. He didn't formally give it a name -- Hamiltonian Consensus? German-Mercantilist Consensus? -- but the implication was that by the early 1990s it had become the akin to the Japanese Consensus: a model replacing the Washington Consensus that could be replicated by other developing economies, especially in Asia. As it turned out, that model had its flaws as well.

The point? Extrapolating long-term trends from short-term data points and isolated cases is a fool's game. To paraphrase the Of Montreal song linked above, history makes us all its b*@%&es. It's not clear whether the "Chinese model" represents a sustainable, replicable model, and anyone who says otherwise is selling something.

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Predicting History
 
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