Mainstream media goes to repudiated conservative expert for analysis of China’s problems

By Marc Jampole

“Of all the gin joints in all the towns in all the world, she walks into mine,” is what Humphrey Bogart’s character says when his long-lost love, played by Ingrid Bergman, walks into a bar in “Casablanca.”

I have a variation for Andrew Ross Sorkin, who writes the “Dealbook” column for the New York Times. “Of all the economists in all the universities in the world with all the theories predicting China’s decline, Sorkin writes a full-length feature article on one whose theory has been discounted because he and his associates couldn’t count.”

I’m referring to Sorkin giving Professor Kenneth Rogoff of Harvard a platform for applying his repudiated theory of debt to China’s current problems in a Times article titled “A Warning on China Seems Prescient.”

It turns out that Rogoff has predicted that China’s economic difficulties would affect the world economy for a number of years now. His reason—too much debt.

Sorkin spends a lot of time building up Rogoff’s credentials, mentioning that he is a chess grandmaster and calling This Time It’s Different, the 2008 tome of economic history he wrote with Carmen Reinhart, a “seminal book.” A few years back, when government debt trumped all other macroeconomic concerns in the news media, This Time Is Different caught the attention of the news media because it concluded that countries with public debt greater than 90 percent of gross domestic product suffered measurably slower economic growth. Politicians and journalists throughout the world used this “new discovery” to bolster assertions that governments everywhere had to reduce debt instead of pumping money into the economy to create jobs. The problem was that Reinhart and Rogoff miscalculated in a number of places and even made counting errors. With their bad math corrected, no real correlation was found between levels of debt and economic growth.

In other words, within a few years of publishing their study, Rogoff and Reinhart’s theory was disproven.

Sorkin, who is supposed to be a specialist in these matters and therefore familiar with the literature, explicates Rogoff and Reinhart’s theory but makes no mention of its repudiation. I can’t imagine the learned and honored Sorkin not having read that their bad math led to a false conclusion.

We can only assume that Sorkin wanted to use Rogoff as his expert because he wanted to float the theory that too much debt is causing China’s economic problem.

Apart from the fact that use of a bad expert calls into questions Sorkin’s credibility, the idea that debt is to blame for the Chinese stock market crash and economic slowdown is absolutely ridiculous, for reasons of fact and common sense.

First the fact: because of the lack of transparency in the Chinese economy, no one really knows how much debt the Chinese government and its citizens really hold as a percentage of gross domestic product (GDP). You can’t say “too much” if you don’t know “how much.”

Now the common sense: For years, China’s economy has grown at an enormous rate that was bound to eventually falter. Its lowest annual growth rate since 1989 has been 3.4%, its highest 14.2%, with most years more than 7%. That’s a phenomenal growth rate. For example, since 1800, the growth rate in Great Britain has averaged less than two percent. As measured by GDP, the U.S. averaged growth of 3.24% between 1947 and 2015. Before about 1800, the average economic growth rate throughout the world was less than 1%. For a country to essentially sustain a 7% growth rate for more than 25 years is exceedingly rare.

China may or may not have too much debt. The Chinese leaders may or may not be mismanaging the short-term crisis, as some have said. There may or may not be a real estate bubble in China. Maybe all or some of these factors exacerbate what’s happening in China now. But one thing is certain: China could not sustain its rapid growth forever and whenever that growth slowed down, it was going to be a bumpy ride for China and any country that does business with it (meaning every country!).

With Rogoff’s help, Sorkin looks past the obvious and blames too much debt—the excuse that conservatives always like to give for economic problems. For those new to the “three-card monte” that the ruling elite and mainstream media constantly pull on the public, let me explain that “too much debt” always begins a conversation or thought process that ends with decisions not to pump government money into the economy, but instead to pay off debt without raising taxes; in other words, to starve the government.  If Sammy Kahn were an economist, instead of “Love and marriage go together like a horse and carriage,” he would have written, “Too much debt and austerity go together like a golf ball and a tee.” Politicians tee up “too much debt” theories and hit the austerity ball hundreds of feet.

Unfortunately, the austerity ball always ends up in the sand trap. As we have seen everywhere in the world since the 2008 economic crisis, countries that follow austerity programs run into greater problems, and countries whose governments spread money around recover quickly with less permanent damage to their economies.