China's Growth Rate is Slowing

There are stories in the newspapers today about China's growth rate is slowing down and some other concerns about their economy are discussed.  When the U.S. and most of the West had the financial crisis in 2008, China tried to set itself up as a model of how to run a successful economy.  Now some say that it may not be such a great model.  I don't know why anyone thought it was. Yes, China has been  growing at rapid rates for some time. But, it is easier to grow when you are catching up with the advanced economies. Japan did so in the 50s and 60s, South Korea more recently and now China.  Like China, Japan used more government direction than we do in the U.S., and many here thought it would be better if we had an industrial policy.  But, Japan has not been the economy we want to copy for a couple of decades now.  China will not be in the future either.

Industrial Policy

The Economist for this week has several articles related to the question of industrial policy. They observe that industrial policy is being revived in many countries, including the U.S. The also observe that industrial policy can claim as many failures as successes. Another part of the change in policy is that manufacturing is being stressed. From Obama's talk of strategic industries like autos to France's help of a toy manufacture, there is an emphasis on aiding manufacturing. While this is not exactly the same as the beggar-thy-neighbor policies of tariff increases that occurred during the Great Depression, it can generate a similar kind of conflict. Another popular area receiving government support in many countries is "green technology." We can only hope that people soon realize the waste of taxpayers dollars that these policies generate.

Happy New Year

It is now 2010. Is that "twenty-ten" or "two thousand ten"? Who decides? Unlike France, there is not an official organization to keep the purity of the language. Instead, we rely on usage, although the media has a lot to do with what ends up being used. Another way of putting it is that the development of the English language follows an evolutionary process--a process that could be called "spontaneous order." France relies on a government-endorsed process. When I was in Germany on sabbatical, VW ran ads in German magazines that used an English term. (I don't remember the term, unfortunately). When the ads were run in French magazines, the German company could not use the English term in the ads.

We seem to be becoming more like France in our approach to the economy. Johnson Controls will soon be starting a new facility to manufacture batteries for hybrid autos. They are also getting subsidies from the government because the government thinks it knows the technology is promising and should be supported. This government-supported approach sometimes works and sometimes doesn't; although usually follows paths endorsed by politically-important constituencies of the party in power.

It is the increasing reliance of government leadership in the economy that makes me most nervous about the coming year and beyond. Hopefully, I will be wrong and a sustainable recovery will occur.

[I leave tomorrow for Atlanta and the American Economic Association meetings so probably will not post anything new until I return. Again--Happy New Year!]