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.
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.
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