"Tom Ivar Helbekkmo" wrote in message
...
"Ed Huntress" writes:

But it IS, Tom [note: this was to another Tom, not me], if you start
from a much higher base. In the case of the US versus China, 3.1% is
actually three times more growth than 8.2%.

This topic is a lot more complicated than the two of you make it out
to be.

Of course it is. I spent the last year of my life researching it and writing
a couple of lengthy magazine articles about it.

However, economic growth measured as money is not something
economists tend to care much about.

I beg your pardon, Tom, but it is *indeed* something economists care much
about.

It depends upon what the economist is thinking about. If he's projecting
long-term economic growth, he's more interested in rates of growth. If he's
looking at the current world economy and what is influencing it, he has
little interest in percentage rates of growth. He's looking at current
patterns of production and consumption, wealth generated over a
contemporaneous span of time, exports and imports, and so on.

To use your country, the US, and China as examples, China absorbs roughly
1.1% of your exports, while the US absorbs 7.7% (2001 figures, which are the
latest I have). So every 1% rate of growth in the US economy has seven times
the effect on YOUR economy as a 1% growth in China's economy. That 3.1% we
grew last year represents roughly three times as much effect on YOUR economy
as China's 8.2% (a more likely figure than China's claimed 9.1%). This is a
simplification, of course, but any measure you apply to it produces the same
pattern, whether you base it on the total size of our economies, the
per-capita figures, our total volume of exports and imports, or whatever.
You always get roughly the same result.

This is why I scoff at Tom's silly "can't keep up" remark. To the world
economy as a whole, the important issue about one country's economy is how m
uch actual growth or shrinkage occurs in the factors that have an *external*
effect. What it may represent internally, as a *rate* of growth in
percentage terms, is all but irrelevant. Its relevance is in long-term
trends but not in current accounts. And, of course, it matters domestically,
to China itself.

Rates of growth are what matter
in the long run -- a rich country in stagnation is in a much worse
situation than a poor country experiencing rapid growth. The USA is
certainly the largest, single economy in the world, and it experiences
healthy growth these days (although there are worrying aspects too,
such as the lag in the job market, the budget deficit, and the ugly
average savings/earnings ratio).

Well, your last comment suggests that you're looking at the US economy
through a European filter. In fact, what you identify as "ugly" may be an
important factor in why Japan's economy has been stalled for so long, and
why Germany keeps slipping back a half-step for every step they take
forward. Large economies may need very high rates of consumption, and heavy
reliance upon international capital flows as opposed to domestic savings, in
order to produce the kind of leading growth that the US economy usually
provides to the world as a whole, when it's been in a slump. From one fairly
angular perspective, domestic saving is a market distortion to international
flows of capital -- recent months of foreign investment figures in the US
providing evidence of the possibility. And it's questionable what harm low
savings rates actually do to a dominant economy.

Many world economists are worried about the US's current accounts, including
some prominent ones of our own (I'm currently reading _In An Uncertain
World_ by Robert Rubin, one of our most respected economists, and *he's*
certainly worried about it). My own background in economics is fairly
traditional and conservative and I'm worried about it, too.

But many prominent economists disagree. There is the cautionary tale of the
US in the early '80s and again in the mid-to-late '90s. Actual growth
completely swamped negative positions in our current accounts on both
occassions, in flat contradiction to what traditional economics said was
possible. When anyone tells me they have the answer to this, my response is
skeptical. I don't think that anyone knows.

However, China's economy is growing
at an incredible rate, and looks poised to take over, within a few
decades, America's role as primary engine of the world economy.

Very possibly. However, looked at from a current perspective, China's growth
is the growth of a plant just beginning to bear noticeable amounts of fruit,
compared to the production of a mature plant. A 10% rise in their tomato
production isn't going to give you enough tomato juice to make a difference.
g

There
are downsides in China too, of course, and a lot rides on the ability
of the administration to complete the controlled transition of the
country into a capitalist democracy. So far, they're at least doing a
heck of a lot better than the poor Russians did...

I've developed a great interest in what is going to happen to China's
economy over the next five years. We've seen all the trendlines and
projections, and the enormous size of China's population, to a marketing
person, is enough to make his lips smack with delight. The growth rates of
China's economy over the past decade, if they actually do project for two
decades more, indicate that it will be the dominant economy.

The reason I'm interested in the next five years is that China is about to
run into a brick wall with its exports. Europe and Japan will never stand
for the kind of wrenching, dislocating effect of $100+ billion trade
deficits the US is experiencing now. The question is what China will do when
its mercantilist economy has to make the transition to one that depends on
domestic consumption to sustain growth. Projecting the growth in China's
current domestic consumption is not valid; much of that growth is based on
deficit spending of their import profits, as Hamei points out in another
message in this thread. When that can no longer be counted on to supply
sufficient growth, China's economy will experience its moment of truth.


OBmetal: my new 7x12 is on a slow boat from China right now! :-)

Watch out for sand pockets in the castings. g And good luck with it.

--
Ed Huntress
(remove "3" from email address for email reply)