Ben Stein's $ by munificent Blog entry

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Ben Stein's $

A few years back Ben Stein had a TV Quiz show named "Ben Stein's Money", he's a funny guy who is in main an economist. His take on the Unocal China Threat..(??)

Date: 7/31/2005 9:45:09 AM ( 19 y ) ... viewed 1177 times

Don't Worry About China. Learn From It.

By BEN STEIN
Published: July 31, 2005
ONE disadvantage of being 60 is that you have to get up in the middle of the night, often more than once. But a big advantage of advancing age is that you get to recognize news media silliness when it happens.

Philip Anderson
This comes to mind in terms of the economic relationship between the United States and China. Partly because a company affiliated with the Chinese government has made a bid to buy Unocal, a large American oil company, there is a lot of talk in the news media about how powerful China has become and how weak and pitiful the United States has become. There is talk of Chinese dominance over the world economy, and, from what I can gather, a general fear that soon we will be in peonage to the Chinese.

It all reminds me a lot of how the news media and the Central Intelligence Agency went berserk after the launching of Sputnik in 1957, and it was forecast that the Soviet Union would soon be the world's technological and economic hegemon. That talk was based on a number of faulty assumptions and a good deal of hysteria. Obviously, it did not happen.

In the case of China, the confusion is slightly similar, but with some important differences - and one immense fact that the news media regularly overlooks about personal responsibility.

First, let's look at the data. But the problem is that the data are extremely confusing when it comes to reporting the real size of China's economy. On the one hand, if you take what is reported about the output of China, you get a range of estimates, but generally the gross domestic product of China in the year 2004 is estimated to be substantially less than $2 trillion. That would roughly make it one-sixth the size of the United States economy. Yet China has nearly five times the population of the United States. That means the per capita G.D.P. of China is about one-thirtieth the per capita G.D.P. of the United States, estimated to be about $40,000 at present, in rough terms.

Obviously, this puts Chinese per capita G.D.P. far behind that of any major industrial country. But some economists, especially at the C.I.A. (which loves to puff up estimates of the power of other countries, as we have learned at great cost), say that we should count only "purchasing power parity" G.D.P. That means we would adjust Chinese G.D.P. and per capita G.D.P. drastically higher to account for the lower prices that the Chinese pay for things like food and medical care. (It is a mystery to me how these economists account for the fact that tens of millions of Americans have a house on a quarter-acre of land with three bedrooms and air-conditioning, a type of property that is simply not available except to maybe the richest 10,000 families in China. Maybe that should ratchet up our purchasing power parity G.D.P., but I don't think it does.)

Consider the most optimistic C.I.A. data about China in 2004. It says China has a purchasing power parity G.D.P. of (very) approximately $8 trillion, compared with roughly $12 trillion for the United States. Again, this is for a nation with nearly five times our population. Even when using this most astoundingly optimistic estimate - I would almost say a preposterous estimate - China has a per capita G.D.P. of about $6,000, or about 15 percent of America's and well below that of any nation in Western Europe, or of Japan, Israel, Taiwan and many other countries.

In other words, the United States is vastly richer than China by any measure. This is not to boast, but it's also not to be afraid of imminent world-pauper status.

It is true that China is industrializing at a fantastic pace. It is estimated that China has been growing at roughly 9 to 10 percent annually for several years, while the United States has been growing about 3 percent annually. Torrid growth, however, never goes on forever, in companies or in nations. (At least it never has so far.)

But suppose that these trends continued for 25 more years. Chinese per capita G.D.P. would be about $65,000 in 2040, and American per capita G.D.P. would be about $84,000. Again, this assumes that we use the most optimistic possible estimates of current Chinese G.D.P.

If we used the more conservative, non-C.I.A. estimates of where Chinese per capita G.D.P. is now, in 25 years it would be about $17,500- and this assumes the continuation of China's recent sizzling growth rates. That would put China's per capita income in 2030 at roughly one-sixth of our level.

In other words, it will be a long time before Chinese per capita G.D.P. matches ours. And for that to happen, it will take a previously unheard-of growth rate for an unheard-of length of time. This is a big series of ifs, especially for a country with a rapidly aging labor force and an inherent contradiction between dictatorship and free markets.

But suppose that it does happen. Suppose that China becomes a larger economic power than the United States. Suppose, in our great-great-grandchildren's day, that the average Chinese citizen is about as rich as the average American. How would it hurt us? Why would we be worse off? If the Chinese were richer, they could buy more from us and employ more of our workers. They could buy more of our stocks. They could tour our beautiful nation more.

The fact that our neighbors are worse off does not make us richer, and the fact that they are better off does not make us poorer.

But another factor is even more important: personal responsibility. Americans who want to make sure they stay well off accomplish nothing by worrying about China. But we can certainly learn something from China. Individuals and nations become rich by investing in human capital - getting a good education, learning good work habits, saving and investing prudently and living healthy lives. Any young Americans who want to keep up with the Chinese can get a good education, work hard, save as much as possible, invest prudently - and they will be just fine now, in 25 years and in 50 years.

The moral here is simple: learning from our friends, the Chinese, means something. Fearing and envying them means nothing.

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.